Home loans above Rs 75 lakh become cheaper

In a move that will encourage banks to lend more for housing in large cities and make high value home loans cheaper, the Reserve Bank of India reduced the risk weightage on home loans above Rs 75 lakh to 50% from 75% earlier.

“Considering the importance of the housing sector and given its forward and backward linkages to the economy, it has been decided as a countercyclical measure, to reduce the risk weight on certain categories. It has also been decided to reduce the standard asset provisioning on such loans,” RBI said in its monetary policy.

In its monetary policy review the RBI retained the repo rate at 6.25% and the reverse repo rate at 6%. The marginal standing facility (MSF) – an emergency funding facility continue to remain at 6.5% as also the cash reserve ratio of 4%.

In another move that will ease liquidity in the banking system by close to Rs 50,000 crore, Reserve Bank of India has reduced the statutory liquidity ratio (SLR) – the prescription for minimum holding of government securities. As against investing 20.5% of their deposits in gilts, banks will now have to invest only 20% with effect from June 24, 2017. RBI said that the reduction was aimed at allowing banks to comply with the international norms on liquidity coverage that come into effect from January 2019.

It was widely expected that the central bank would keep rates on hold. However, economists believed that RBI would ease its stance from `neutral’ to `accommodative’ to send a message that easy money conditions would prevail. The central bank however continued to maintain a neutral stance on the ground that easing of prices might be temporary. It also pointed out that fuel prices have been hiked since the inflation numbers were published and prices might rise further.