The RBI has recast the rules for new home loans to boost the real estate sector.

At present, differential risk weights are applicable to individual home loans, based on the size of the loan as well as the loan-to-value ratio (LTV). The LTV is that proportion of a loan given relative to the total value of the property.

Risk weightage determines the amount of capital that banks must maintain while providing loans. Thus, a risk weightage of 100 per cent means that banks have to set aside Rs 9 for every Rs 100 lent (the minimum capital adequacy ratio is 9 per cent) or Rs 4.5 if the risk weightage is 50 per cent.

“In recognition of the role of the real estate sector in generating employment and economic activity, it has been decided to rationalise the risk weights and link them to LTV ratios only for all new housing loans sanctioned till March 31, 2022,” RBI governor Shaktikanta Das said.

So far, the risk weight differed across the size of the loan and the LTV ratio. For instance, in the case of loans up to Rs 30 lakh and a LTV ratio of less than 80 per cent, the risk weight was 35 per cent, while for a higher LTV ratio, the risk weight stood at 50 per cent. The risk weight was 35 per cent for loans of Rs 35-75 lakh (LTV ratio of less than 80 per cent) and 50 per cent for loans above Rs 75 lakh where the LTV ratio is less than 75 per cent.

Now, all new housing loans sanctioned till March 31, 2022 will attract a risk weight of 35 per cent where LTV is less than or equal to 80 per cent, and a risk weight of 50 per cent where LTV is more than 80 per cent but less than or equal to 90 per cent.