Making it easier for urban cooperative banks to extend housing loans, the Reserve Bank of India has relaxed the risk provisioning norm for purchase of residential properties up to Rs 30 lakh (Rs 3 million).
The central bank has issued a notification in pursuance of the annual credit policy announcement made by the Reserve Bank Governor Y V Reddy on April 29.
Earlier on May 15, the Central Bank had relaxed the risk provisioning norms for housing advances by the commercial banks.
"It has been decided to enhance the limit of Rs 20 lakh to Rs 30 lakh (Rs 2-3 million) in respect of bank loans for housing in terms of applicability of risk weights for capital adequacy purposes. Accordingly, such loans will carry a risk weight of 50 per cent," Reddy had said.
The move would provide the urban cooperative banks additional capital for lending more to housing sector.
For banks, the amount of capital they are required to set aside for each loan is decided by minimum capital adequacy ratio prescribed by the central bank. Capital adequacy ratio is the ratio of a bank's net worth to its risk-weighted credit.
According to the analysts, the RBI has modified the provisioning limit for housing loan to take care of the growing property rates mainly in the urban centers.
The risk provisioning earlier was 75 per cent of the loan value in the range of Rs 20 to 30 lakh.
For loans exceeding Rs 30 lakh for purchase of residential property, the banks would have to make a risk provision on 75 per cent of the loan amount.