RBI changes risk weight limit for housing loans

June 17th, 2008 - 8:26 am ICT by IANS  

Mumbai, June 16 (IANS) The Reserve Bank of India (RBI) Monday announced changes in its risk weight limits for housing loans doled out by urban cooperative banks (UCB). The risk weight system is a standardised approach to measure the risk of the banks’ loan portfolios.

The apex bank stated in a notification that it has decided to link the risk weights of individual housing loans, fully secured by mortgages on the residential property, to the “loan to value (LTV) ratio”.

The LTV ratio is calculated by totalling the principal amount with allied charges like accrued interests and dividing it by the “realisable value of the residential property mortgaged to bank”.

Last year, the RBI had decided to reduce the risk weights on residential housing loans to individuals from 75 percent to 50 percent as a temporary measure with a ceiling for loans up to Rs.2 million.

In the Annual Policy Statement for 2008-09, the RBI decided to enhance the limit from “Rs.2 million to Rs.3 million in respect of bank loans for housing”, adding that such loans will carry a risk weight of 50 percent.

As per the modified risk weights, the central bank has informed the UCBs that for loans up to Rs.3 million, the risk weight would be 50 percent and for loans above Rs.3 million, it would be 75 percent.

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