By Accommodation Times News Services
MUMBAI, 29 SEPTEMBER 2015: In the monetary policy review, the Reserve Bank of India Governor Mr. Raghuram Rajan has reduced the Repo rate by 50 basis points to 6.75 per cent, from 7.25 per cent earlier. The reduction was accompanied with a suggestion of relaxed norms for risk weight age for home loans.
The combination of reduced repo rates as also relaxed norms for home loan seekers is a welcome move, and I view it as bei
ng ‘in sync’ with the Prime Minister’s objective of creating affordable housing.
The initiative which aims to give a boost for the housing sector has the RBI Governor proposing a reduction in the risk weightage on affordable housing applicable to ‘lower value but well collateralised’ individual housing loans.
At present, the minimum risk weight applicable on individual housing loans is 50 percent; the RBI Governor has proposed bringing it down to 25 per cent. individual housing loans of lower value, effectively implies EWC and LIG segments of home buyers.
In my opinion, given that NPAs in this segment – home loans – is just 1 per cent, there is a case for bringing the minimum risk weight applicable on individual housing loans across financial segments – and not just lower value, which effectively implies EWC and LIG segments, but also MIG and HIG segments. With NPAs of just 1 per cent, which is arguably the lowest in the Indian banking system, it should make out a case for reduction for all segments and not just EWC and LIG, given that it is an almost ‘zero risk’ option.
RBI Governor Raghuram Rajan seems to have surprised market analysts with the 50 basis points rate cut, given that most had predicted a 25 basis points rate cut in this, the fourth bi-monthly monetary policy review. This follows inflation being in control, as also the status quo by the US Fed, both of which have provided the option for the RBI Governor to cut short-term lending (repo) rate in its fourth bi-monthly monetary policy review. It is a good move, and I am sure banks and home finance institutions will pass on the benefit to home buyers.
It has been a scenario where home buyers have been in a ‘wait and watch’ mode; effectively many have deferred their home buying. The RBIGovernor’s twin moves are timed perfectly, since the move comes just prior to the festive season and I am sure these will have a positive impact on the market sentiment, especially when it comes to home buyers.