RBI Reduces Asset Provisions, Lowers Risk Weights, Effectively Makes Home Loans Cheaper:Dr Niranjan Hiranandani

Business Wire IndiaThe six-member Monetary Policy Committee (MPC) headed by Reserve Bank (RBI) Governor Urjit Patel which met on June 6 and 7 for the Second Bi-monthly Monetary Policy Statement for 2017-18, reduced the standard assets provisions on individual housing loans to 0.25 percent and also lowered the risk weights on such lending. “The RBI move, which reduces provisions and risk weights will make home loans cheaper,” said Dr Niranjan Hiranandani, CMD, Hiranandani Communities.

During the previous monetary review in April, the RBI had maintained status quo as regards rates. Despite that, banks have recently reduced interest rates on home loans. “In line with these reductions, the move on part of the RBI, reducing asset provisions and lowering risk weights – as Governor Urjit Patel mentioned – is a part of the RBI and the Indian Government’s attempts of ‘targeted interventions’ which should help boost growth numbers. It is a positive move,” said Dr Niranjan Hiranandani.

The standard asset provisions, or the amount of money to be set aside for every loan made, has been lowered to 0.25 percent from the earlier 0.40 percent, which will help reduce the interest rates on home loans. “The RBI also eased the risk weights for certain categories of loans, which will help banks on the capital adequacy front, and enable them to give more home loans,” he added.

From the perspective of the real estate industry, Dr Niranjan Hiranandani said any rate cut by the RBI would obviously, have boosted sentiment and had a positive effect on sales of residential real estate. “That being said, the RBI maintained a ‘status quo’ during the monetary policy review, but it has relaxed the loan to value ratio, standard asset provisioning and risk weight for individual housing loans,” said Dr Niranjan Hiranandani.

“Those looking to buy a home for end-use should make the most of the RBI move and opt for a home loan. With banks and HFIs reducing home loan interest rates, and the RBI, in turn, reducing provisions, risk weights – effectively, making home loans even more affordable, it would be the right time,” concluded Dr Niranjan Hiranandani.

Dr Niranjan Hiranandani is Founder & CMD, Hiranandani Group. His recent initiative is Hiranandani Communities. He is also Founder and First President, National Real Estate Development Council (NAREDCO-WEST), which works under the aegis of Ministry of Housing & Urban Poverty Alleviation, Government of India.

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