Risk Weight on Residential Housing Loans reduced

Under the standardised approach for credit risk under Basel II which is being implemented as per the schedule already indicated, the risk weight on residential property fully secured by mortgages is prescribed at 35 per cent, subject to fulfillment of strict prudential criteria.

Keeping this in view and the fact that banks have been advised to tighten their credit administration in this area in particular, from time to time, Reserve Bank of India has decided to reduce the risk weight on the residential housing loans to individuals from the existing 75 per cent to 50 per cent as a temporary measure. This dispensation will be applicable for loans up to Rs.20 lakh and will be reviewed after one year, keeping in view the default experience and other relevant factors.

Now the risk weight in respect of housing loans up to Rs. 20 lakh to individuals against the mortgage of residential housing properties from 75% to 50%.

Similarly, the risk weight for banks’ investment in mortgage backed securities, which are backed by housing loans which would now qualify for 50% risk weight, and are issued by the housing finance companies regulated by the National Housing Bank is also reduced from 75% to 50%.

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