What changed
Previously, housing loans up to ₹20 lakh had a temporary 50% risk weight. Now, the threshold is raised to ₹30 lakh, and risk weights are linked to the loan-to-value (LTV) ratio. Loans with LTV ≤75% and amount ≤₹30 lakh get 50% risk weight; those with LTV ≤75% and amount >₹30 lakh get 75%; and loans with LTV >75% get 100% risk weight irrespective of amount.
What it means for you
UCBs must now compute LTV ratios precisely (including principal, accrued interest, and charges) to assign correct risk weights for capital adequacy. This change incentivizes lower LTV lending and higher capital charges for riskier high-LTV loans, potentially affecting loan pricing and underwriting standards.
What you must do
- Update internal risk-weighting systems to reflect the new LTV-based slabs for housing loans.
- Ensure LTV computation includes total outstanding (principal + accrued interest + other charges) without netting.
- Review existing housing loan portfolios to reclassify risk weights and assess capital adequacy impact.
- Train credit and risk teams on the revised thresholds and LTV calculation methodology.
Who it affects
Primary (Urban) Co-operative Banks (UCBs), Credit and risk management departments of UCBs, Borrowers seeking residential housing loans from UCBs
What is the new risk weight for housing loans up to ₹30 lakh with LTV ≤75%?
Such loans carry a risk weight of 50% for capital adequacy purposes.
How is the LTV ratio calculated under this circular?
LTV ratio = (principal + accrued interest + other charges pertaining to the loan) / realizable value of the mortgaged residential property, without any netting.
Does this circular apply to all housing loans or only new ones?
The circular applies to all residential housing loans to individuals that are fully secured by mortgages on the property occupied or rented by the borrower. Existing loans should be reviewed for reclassification.