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The Reserve Bank of India (RBI) has allowed banks to sanction up to 90% of the value of a property for loans up to Rs 20 lakh. This will enable homebuyers to get more funding to buy property.

Pritam P. Hans        Print Edition: February 2011

The Reserve Bank of India (RBI) has allowed banks to sanction up to 90% of the value of a property for loans up to Rs 20 lakh. This will enable homebuyers to get more funding to buy property.

This is a welcome revision to it's earlier decision, when it had capped the loanto-value (LTV) ratio at 80% of the value of the property in its quarterly review of the monetary policy in November 2010.

The central bank has also changed the risk weight of various housing loans. For loans exceeding Rs 75 lakh, the risk weight has been increased to 125%. For those with an LTV ratio up to 75%, the risk weight is 50% for loans up to Rs 30 lakh and 75% for loans between Rs 30 lakh and Rs 75 lakh. If the LTV ratio is over 75%, it increases to 100%. The RBI has also raised the provisioning required for teaser home loans.

The standard asset provisioning on the outstanding amount has been hiked from 0.4% to 2%. It will revert to 0.4% a year from the date on which the rates are reset if there is no default. Banks will also have to set aside capital while giving loans to provide a buffer in case of a default.

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