What changed
The RBI has extended the validity of the rationalised risk weight framework for new individual housing loans, originally set to expire on March 31, 2022, to now cover loans sanctioned up to March 31, 2023. All other conditions from the October 16, 2020 circular remain unchanged.
What it means for you
Banks can continue to apply lower risk weights on new housing loans, reducing capital charge and freeing up capital for more lending. This supports the government's push for affordable housing and helps banks manage capital efficiency. Lenders should factor this extension into their credit and capital planning for the next fiscal year.
What you must do
- Update internal risk-weight policies to reflect the extended timeline for new housing loans up to March 31, 2023.
- Ensure loan origination systems apply the rationalised risk weights correctly for all eligible new sanctions.
- Communicate the extension to credit and risk teams to align capital planning and reporting.
- Monitor any future RBI announcements for further extensions or changes beyond March 2023.
Who it affects
All Scheduled Commercial Banks (excluding Local Area Banks and Regional Rural Banks), Retail lending departments, Risk management teams
Does this extension apply to all housing loans or only specific amounts?
The circular continues the rationalised risk weights for all new individual housing loans, irrespective of the loan amount, as per the October 2020 circular.
Are there any changes to other conditions from the October 2020 circular?
No, all other instructions from the October 16, 2020 circular remain unchanged. Only the validity period has been extended.
Does this apply to loans sanctioned before April 8, 2022?
The extension covers new loans sanctioned from April 1, 2022 up to March 31, 2023. Loans sanctioned earlier under the previous circular continue to be governed by that circular.