New Delhi:
PSBS THINKING Move may lower interest rates & boost demand in struggling construction sector that has big job potential
Banks have asked for lower provisioning requirement on housing loans, saying that it will help bring down interest rates and boost demand in the struggling construction sector that has big job creation potential.
The issue was discussed with the Reserve Bank of India and the government at a performance review meeting held earlier this month.
The suggestion was made amid concerns over banks not passing on the benefit of rate cuts announced by the central bank, a senior government official told ET.“There was a suggestion. It may be discussed further,“ the official said. The RBI has cut its policy rate by three quarters of a percentage points over the past six months, but banks have passed on less than half that reduction. They have reasoned that their balance sheets and higher rates on the government's own small savings schemes were impediments towards bringing down interest rates.
Some private banks argued that reduced risk weights on housing loans will incentivise lenders to quickly bring down their interest rates in this segment, the official said. Risk weight is the proportion of loans which is counted towards total assets against which banks have to maintain statutory reserves. A high risk weight discourages lending by increasing the capital requirement for lenders.
According to existing guidelines, the risk weight allocation for individual housing loan up to ` . 75 lakh is 50%. Above that, the weight in creases to 75%. “Reducing risk weights is a regulatory decision.The government, however, will take steps to support PSBs (public sector banks),“ the official said.
“These loans are a secured exposure. The RBI should look to bring it (risk weight) down to 20-25% for . 75 lakh, which will all loans below ` help banks to bring down their interest rates by 25-50 basis points,“ said one of the bankers who attended the meeting.
As per finance ministry data, nonperforming housing sector loans are very low.
The nonperforming assets ratio of PSBs in housing loans fell to 1.25% as on March 31, 2015 from 1.39% a year earlier. Overall, the gross NPAs for state-run banks stands at more than 5%.
Interest rates on home loans have come down into single digits after the latest round of cuts, but are still seen expensive by the borrowers at around 9.75%.
“The bucket on risk weights by the RBI for loans up to ` . 75 lakh is the same and there is a need for innovation. Besides, today, in any metro or Tier I city, most properties range between `. 45 lakh and `. 75 lakh. They can look at various combinations,“ said another banker. The government has directed PSBs to achieve 30% growth in their portfolio towards priority sector housing loans, where it has halved to 5.12% at the end of March 2015 from 11.47% in the previous fiscal year.
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