"The reduction in risk weights and standard asset provisioning on certain categories of housing loans will lower housing loan rates and increase housing loan portfolio of banks", he said. Previously, they had to set aside 0.4% or Rs 400 per lakh.
RBI stated, surplus liquidity in banking system post-demonetisation was drained by Rs 1.5 lakh crore between April - May 2017, but massive spending by the government re-injected liquidity into the system, raising the daily average overall surplus liquidity in banking system to Rs 4.2 lakh crore in April and Rs 3.5 lakh crore in May 2017.
The total exposure of commercial banks in the form of farm loans in Uttar Pradesh stood at Rs 86,241.2 crore, at an average of about Rs 1.34 lakh per farmer, according to Soumya Kanti Ghosh, an economist at State Bank of India.
The risk weight for individual housing loans above Rs 75 lakh has been reduced to 50 per cent from the earlier 75 per cent, while for loans between Rs 30 and Rs 75 lakh, a single LTV ratio slab of up to 80 per cent has been introduced with a risk weight of 35 per cent.
"Reduction in the risk weights on certain categories of the housing loans is indeed a positive signal". Hiranandani Group founder Niranjan Hiranandani said the other positive in the policy is that the RBI has allowed loan-to-value ratios of up to 90% for affordable homes. "Since retail loans are only showing signs of growth and housing loan segment, which is the major sector of retail, reduction in LTV ratio, risk weights and standard assets provisioning would spur up growth in this segment", Central Bank of India Chairman Rajeev Rishi said.
RBI's decision was prompted by an understanding of the multiplier effect of home loans, according to N.S. Vishwanathan, deputy governor of RBI.
"Those looking to buy a home for end-use should make the most of the RBI move and opt for a home loan".
"Delinquencies (are) generally among the lowest in home loan segment.It has been made a decision to reduce risk weight on certain categories on home loans and also the standard asset provisioning", Vishwanathan added. These two factors together will bring buoyancy to the home loan segment.
The much-debated farm loan waivers could lead to fiscal slippages and result in inflation spillovers, cautioned the Reserve Bank of India Governor Urjit Patel. "The RBI move, which reduces provisions and risk weights will make home loans cheaper", said Dr Niranjan Hiranandani, CMD, Hiranandani Communities.
During January - March 2017 period, the base rate of banks came down from a range of 9.3 - 9.7% to 9.1% - 9.6% while the MCLR reduced from 8.95% to 7.75 - 8.20%.