What changed
RBI clarified that for housing loans guaranteed by the Credit Risk Guarantee Fund Trust for Low Income Housing (CRGFTLIH), UCBs can assign zero risk weight to the guaranteed portion. The balance beyond the guarantee attracts risk weight based on the counter-party. For NPAs, no provisioning is required on the guaranteed portion; only the excess amount needs provisioning as per existing guidelines.
What it means for you
This circular reduces capital charge and provisioning burden for UCBs on low-income housing loans backed by CRGFTLIH. It encourages banks to lend more to this segment by lowering risk-weighted assets and provisioning costs. Banks can improve capital efficiency and NPA management on such advances.
What you must do
- Update internal risk-weight models to assign zero risk weight to the CRGFTLIH-guaranteed portion of housing loans.
- Ensure that for NPA loans, provisioning is applied only on the amount exceeding the guarantee, per extant norms.
- Train credit and risk teams on the correct treatment of guaranteed vs. unguaranteed portions for reporting and provisioning.
Who it affects
All Primary (Urban) Co-operative Banks, Credit risk management teams, Loan officers handling housing finance
What is CRGFTLIH?
It is a Credit Risk Guarantee Fund Trust set up by the Ministry of Housing & Urban Poverty Alleviation in 2012 to guarantee low-income housing loans.
Does this apply to the entire loan amount?
No. Only the portion guaranteed by CRGFTLIH gets zero risk weight and no NPA provisioning. The excess amount follows standard risk weight and provisioning rules.