What changed
Previously, risk weights on individual housing loans depended on both loan amount and LTV ratio. Now, for new loans sanctioned between October 16, 2020 and March 31, 2022, risk weights are based solely on LTV: 35% for LTV up to 80%, and 50% for LTV above 80% up to 90%. The standard asset provision of 0.25% remains unchanged.
What it means for you
Banks can now hold less capital against new housing loans, freeing up capital for more lending. This countercyclical measure aims to boost the housing sector by making loans cheaper and more accessible. However, existing loans continue under the old, stricter risk-weight framework.
What you must do
- Update internal risk-weight models for new housing loans sanctioned from October 16, 2020 to March 31, 2022 to reflect the new LTV-based slabs.
- Ensure LTV ratios are accurately calculated and documented for each new loan to apply correct risk weights.
- Continue applying 0.25% standard asset provision on all such loans as before.
- Maintain separate tracking for loans sanctioned before and after the circular date to apply different risk-weight regimes.
Who it affects
All Scheduled Commercial Banks (including Small Finance Banks, excluding Local Area Banks and Regional Rural Banks)
Does this circular apply to loans sanctioned before October 16, 2020?
No. Loans sanctioned before this date continue to follow the earlier risk-weight rules based on both loan amount and LTV as per the June 7, 2017 circular.
What is the risk weight for a new housing loan with LTV above 90%?
The circular only specifies risk weights for LTV up to 90%. Loans with LTV above 90% are not covered by this circular.
Is the standard asset provision of 0.25% still applicable?
Yes, the circular explicitly states that the 0.25% standard asset provision continues to apply on all such loans.