Commercial banks have urged the Reserve Bank of India (RBI) to raise the cap on individual home loans for the purpose of classification under priority sector lending, in the backdrop of the overall rise in property prices, reports CNBC-TV 18 quoting Business Standard.

The banks want the central bank to raise the ceiling to Rs20 lakh, from Rs 15 lakh, for classification under priority sector.

This demand comes in the light of the overall rise in property prices. The bankers have also asked the central bank to reduce the risk weight on staff housing loans to 35 per cent from the existing 75 per cent, to align it with Basel II norms.

A delegation of bankers including ICICI Bank managing director and chief executive officer, K V Kamath, IDBI chairman and managing director (CMD), V P Shetty, Bank of Baroda CMD, A K Khandelwal, UTI Bank CMD, P J Nayak and Citibank chief executive officer (CEO), Sanjay Nayar made a representation to the Reserve Bank of India governor, Y V Reddy in a meeting last week.

"In a meeting with the governor, we requested the RBI to increase the ceiling for home loan classification under priority sector to Rs 20 lakh from Rs 15 lakh. We also raised the issue that banks have to currently classify the housing loans into two different ways. For the priority sector, it is below Rs 15 lakh and above Rs 15 lakh.

For provisioning requirement, it is below Rs 20 lakh and above Rs 20 lakh. Such classifications create administrative hassles for banks. Hence, we requested the governor to consider and keep the bifurcation into two classes, upto Rs 20 lakh and above Rs 20 lakh both for priority and provisioning purposes,'''' said a banker present at the meeting.

"Property prices in select locations have increased by 50 per cent to 100 per cent. Even if there was a correction, the price rise would still be to the tune of 15 per cent to 20 per cent. Considering this, the RBI should increase the ceiling to Rs 20 lakh. This will also enable the banks to boost their priority sector portfolio,'''' said the CMD of a public sector bank.

"In respect of housing loans to their own staff members, banks have the double benefit of not only physical security, but also specific claims on non-statutory retirement benefits. Taking cognizance of the lower risk on housing loans to the staff members (vis-à-vis housing loans to the public), we requested that at least for these loans, the risk weights may be reduced suitably,'''' said a senior banker.

"Under Basel II norms, a minimum 35 per cent risk weight has been prescribed for residential mortgages including housing loans, whereas for India, the risk weight percentage is 75 per cent. Hence, there is a case for bringing down the risk weights on staff housing loans from the existing 75 per cent to 35 per cent to align them with Basel II norms,'''' said another banker.