What changed
RBI reduced the risk weight on residential housing loans to individuals from 75% to 50% for primary urban co-operative banks. This temporary measure applies only to loans up to Rs 20 lakh and will be reviewed after one year based on default experience.
What it means for you
UCBs can now hold less capital against qualifying housing loans, freeing up capital for more lending. This is a temporary relief aimed at boosting housing credit, but banks must monitor defaults closely as the dispensation may be reversed.
What you must do
- Update capital adequacy calculations to apply 50% risk weight for housing loans up to Rs 20 lakh.
- Ensure loans are fully secured by mortgage of residential property to qualify for the reduced risk weight.
- Track default experience on these loans for the one-year review period.
- Acknowledge receipt of this circular to your regional RBI office.
Who it affects
Primary (Urban) Co-operative Banks, Borrowers seeking residential housing loans up to Rs 20 lakh
What is the new risk weight for housing loans under this circular?
The risk weight is reduced from 75% to 50% for residential housing loans to individuals, but only for loans up to Rs 20 lakh and as a temporary measure.
How long will this reduced risk weight be applicable?
It is a temporary dispensation that will be reviewed after one year, based on default experience and other factors.
Does this apply to all housing loans or only specific ones?
It applies only to loans up to Rs 20 lakh that are fully secured by mortgage of residential housing properties.