Lower risk weights on home loans help banks lend more
Due to the slowing economy, banks want to cut the risk weights on home loans to revive the housing sector.
Indian Banks’ Association committee on housing described that if the risk weights are lowered, there will be more funds for the banks to lend.
This move enable banks to give loans up to 85 per cent (against 75 percent now) of the house value and also encourage banks to lend money for lower interest rates. As per the committee 85 per cent loan-to-value (LTV) ratio (the amount of loan given by a bank divided by the value of property) and a Rs 35-lakh home loan, the risk weight will be 50 per cent.
The IBA committee has suggested 100 per cent risk weight for home loans above Rs 1 crore.
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