RBI sets 80 per cent cap on all housing loans above Rs20 lakh

23 Dec 2010

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The Reserve Bank of India (RBI) has prescribed a ceiling of 80 per cent of the purchase value in respect of all housing loans above Rs20 lakh. However, for housing loans where the amount is Rs20 lakh or less, banks may lend up to 90 per cent of the value of the house, the Reserve Bank of India (RBI) said in a notification.

At present, there is no regulatory ceiling on the loan-to-value (LTV) ratio in respect of banks' housing loan exposures.

RBI said the new norms aim at preventing banks from excessive leveraging. However, for small value housing loans, ie, housing loans up to Rs20 lakh (which get categorised as priority sector advances), RBI has decided that the LTV ratio should not exceed 90 per cent.

The risk weights on residential housing loans with LTV ratio up to 75 per cent are 50 per cent for loans up to Rs30 lakh and 75 per cent for loans above that amount. In case the LTV ratio is more than 75 per cent, the risk weight of all housing loans, irrespective of the amount of loan, is 100 per cent.

Henceforth, the risk weight for residential housing loans of Rs75 lakh and above, irrespective of the LTV ratio, will be 125 per cent to prevent excessive speculation in the high-value housing segment, RBI said.

RBI has also pulled up banks for sanctioning housing loans at teaser rates, ie, at comparatively lower rates of interest in the first few years, after which rates are reset at higher rates.

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