PSU bank request relaxation in 75% risk weight on small home loans

The public sector banks are requesting the Reserve Bank of India (RBI) to either completely waive or substantially relax the 75 per cent risk weight that banks are required to attach to such home loans. Banks are following in line with Government’s diktat to extend home loans of up to Rs 20 lakh at concessional rates of interest thus they are ‘sacrificing their interests’ by offering home loans at subsidized interest rate of up to 9.25 per cent.

Dr K. Ramakrishnan, Chief Executive, Indian Banks’ Association pointed out, “Besides paring interest rates on home loans up to Rs 20 lakh, public sector banks have also brought down the loan-to-value ratio, and are providing borrowers free life insurance. Hence, banks have sought relaxation in risk weights on home loans to free up capital.”

At present the Government is not giving any subvention (financial support to make good the gap between market rate and the rate at which they expect these banks to lend) to public sector banks (PSBs) for offering home loans at subsidized interest rates. Banks argue that if the central bank gives relaxation on risk-weights, which will ease pressure on capital.

Banks want this relaxation in risk weights in their consultation with the RBI Deputy Governor, Dr Rakesh Mohan. On January 15 a meeting was organized, it was a part of the central bank’s exercise to consult stakeholders before the third quarterly review of monetary policy on January 27.

As per the housing loan scheme launched early last month by PSBs, interest rate on home loans of up to Rs 5 lakh of 20 years’ tenure would not exceed 8.5 per cent for the first five years, while the same for loans from Rs 5 lakh to Rs 20 lakh will not exceed 9.25 per cent.

As homes are reasonably priced in Tier-II cities and Tier-III towns, therefore PSBs are receiveing a good response to the concessional scheme for loans up to Rs 20 lakh. But this is not true in the case of the larger cities.

As per PSB official, as per the current deposit rates and statutory allocation towards SLR and CRR, most PSBs have to finance the interest rates they offer on home loans up to Rs 20 lakh.

Thus Bankers are of view that the RBI is more likely to reduce the risk weight to 50 per cent rather than waive the risk weight.

HDFC, BoR, Canara Bank announced cut in lending rates

Private sector lenders HDFC and Bank of Rajasthan following the RBI lines rolled down the lending rates giving relief for both existing and new borrowers while the state-owned Canara Bank has cut the rate for SME.

HDFC country's largest housing finance company has cut the lending rate by 50 basis points for loans of more than Rs 20 lakh for both existing and new customers and has also introduced a new slab for sub-Rs 20 lakh.

After this the loans of up to Rs 20 lakh will draw an interest rate of 10.25 per cent and the rates for loans above this level has been set at 11.25 per cent, down from 11.75 per cent. The new rates will come into effect from Monday.

According to a bank statement Bank of Rajasthan has reduced the rates on its home loans under 'Apna Ghar Scheme' by 1.50 per cent on maturity tenure of up to 10 years and one per cent for maturity tenure of over 10 years.

While the Bangalore-based Canara Bank reduced lending rates as much as 100 basis points for micro enterprises while for small and medium enterprises the reduction will be 50 basis points.

HDFC Ltd has also announced cut in deposit rates by 50 basis points across all maturities.

"The advantage of a cut in retail prime lending rates (RPLR) will accrue to all the existing floating rate customers over a period of next three months based on their respective reset dates," HDFC said in a statement.

Banks announcement of reducing rates has come within 24 hours of Home Minister P Chidambaram announcing in Parliament that the government will convince banks to reduce loans for existing home loan borrowers as well.