What changed
Previously, a 10-year repayment cap applied to all restructured advances (except infrastructure) for special regulatory treatment. RBI observed this made many housing loans ineligible due to their longer tenors. The new circular exempts restructured housing loans from this 10-year ceiling, allowing banks' boards to prescribe the maximum period. However, these loans now carry an extra 25 percentage points risk weight over standard capital adequacy norms.
What it means for you
Banks can now restructure housing loans with longer repayment periods without losing special asset classification benefits, encouraging more sustainable resolutions for borrowers. The additional risk weight increases capital requirements for restructured housing loans, so lenders must factor this into pricing and provisioning. This balances relief for borrowers with prudential safeguards for the banking system.
What you must do
- Update internal restructuring policies to remove the 10-year cap for housing loans and have the board prescribe a new maximum repayment period.
- Apply an additional 25 percentage points risk weight to all restructured housing loans in capital adequacy calculations.
- Ensure compliance with all other conditions from the August 27, 2008 circular for special regulatory treatment.
- Train credit and risk teams on the revised eligibility criteria for restructured housing advances.
Who it affects
All scheduled commercial banks (excluding Local Area Banks and Regional Rural Banks), Housing loan borrowers seeking restructuring, Bank credit and risk management departments
Does this circular apply to all types of housing loans?
Yes, it applies to all housing loans restructured by banks, provided other conditions in the August 27, 2008 guidelines are met.
What is the additional risk weight for restructured housing loans?
An extra 25 percentage points on top of the risk weight prescribed in the July 1, 2008 Master Circular on Capital Adequacy.
Who decides the new repayment period for restructured housing loans?
The bank's Board of Directors must prescribe the maximum period, considering safety and soundness of advances.