What changed
RBI carved out a separate sub-sector called CRE-Residential Housing (CRE-RH) from the broader CRE sector, applicable to loans for residential housing projects (excluding captive consumption) with commercial area not exceeding 10% of total FSI. CRE-RH now attracts a lower risk weight of 75% and standard asset provisioning of 0.75%, versus 100% and 1% for CRE. Additionally, individual housing loan norms were rationalised: loans up to Rs 20 lakh have 90% LTV and 50% risk weight; Rs 20-75 lakh have 80% LTV and 50% risk weight; above Rs 75 lakh have 75% LTV and 75% risk weight, all with 0.40% provisioning.
What it means for you
Banks can now classify loans to residential housing projects under CRE-RH, benefiting from lower capital requirements (75% risk weight) and lower provisioning (0.75%), reducing capital charge and improving profitability. The rationalised individual housing loan norms provide clearer LTV and risk weight slabs, encouraging lending across segments while maintaining prudential standards. However, existing rules for restructured housing loans (additional 25% risk weight) and teaser rate loans (2% provisioning) remain unchanged.
What you must do
- Update internal loan classification systems to identify and tag eligible residential housing project loans as CRE-RH, ensuring commercial area ≤10% of FSI.
- Adjust risk weight and provisioning calculations for CRE-RH exposures to 75% and 0.75% respectively, and for individual housing loans per the new LTV slabs.
- Review existing CRE loan portfolios to reclassify qualifying residential housing projects into CRE-RH for capital relief.
- Ensure LTV ratios for fresh individual housing loans do not exceed prescribed ceilings; bring existing high-LTV loans within limits.
- Continue applying additional risk weight (25%) for restructured housing loans and higher provisioning (2%) for teaser rate loans.
Who it affects
All Scheduled Commercial Banks (excluding RRBs), Lending teams handling CRE and housing loan portfolios, Risk management and credit policy departments, Compliance and regulatory reporting teams
What qualifies as CRE-RH?
Loans to builders/developers for residential housing projects (not for captive consumption) where commercial area does not exceed 10% of total FSI. Integrated projects with shops or schools up to that limit qualify; otherwise, they remain CRE.
What are the new risk weight and provisioning for individual housing loans above Rs 75 lakh?
For individual housing loans above Rs 75 lakh, the LTV ratio ceiling is 75%, risk weight is 75%, and standard asset provisioning is 0.40%.
Do existing rules for restructured or teaser rate housing loans still apply?
Yes, the circular explicitly states that the additional 25% risk weight for restructured housing loans and 2% provisioning for teaser rate loans remain in force.