RBI announces steps to boost credit flow to real estate sector

This measure, according to the RBI, is expected to give a fillip to bank lending to the real estate sector which is critical for economic recovery, given its role in employment generation and the inter linkages with other industries

In a bid to increase flow of credit to the real estate sector, the Reserve Bank on Friday rationalised the risk weightage to LTV (loan to value) ratio for all new housing loans sanctioned up to March 31, 2022. As per a notification issued by the RBI, new housing loans will attract a risk weight of 35 per cent where LTV is less than 80 per cent and a risk weight of 50 per cent where LTV is more than 80 per cent but less than 90 per cent.

Reserve Bank of India (RBI) rationalises risk weightage to LTV ratio for increased credit flow to real estate (Reuters file photo)

This measure, according to the RBI, is expected to give a fillip to bank lending to the real estate sector which is critical for economic recovery, given its role in employment generation and the inter linkages with other industries. “As a countercyclical measure, it has been decided to rationalise the risk weights, irrespective of the amount. The risk weights for all new housing loans to be sanctioned on or after the date of this circular and upto March 31, 2022,” the notification said. The requirement of standard asset provision of 0.25 per cent will continue to apply on all such loans, the notification added. Commenting on the RBI’s move, Square Yards CEO Tanuj Shori said, “The linking of risk weightage only to LTV ratio vis-a-vis the earlier practice of risk weightage with both pricing and LTV augurs well for the sector particularly for high end properties which have been facing severe downward demand pressures.”