New home loan borrowers to continue enjoying lower interest rates as RBI extends Risk Weight Mechanism

Recognising the importance of the housing sector and its multiplier effect on the economy, the RBI has extended the timeline of the risk weighting of new housing loans to only LTV till March 31, 2023. As a result, new home loan borrowers will keep getting loans at the current low interest rates.

The RBI in its Statement on Developmental and Regulatory Policies, released on April 8, 2022 stated:

The Reserve Bank vide circular dated October 12, 2020 had rationalised the risk weights for individual housing loans by linking them only with loan to value (LTV) ratios for all new housing loans sanctioned up to March 31, 2022. Recognising the importance of the housing sector, its multiplier effects and its role in supporting the overall credit growth, it has been decided that the risk weights as prescribed in the circular ibid shall continue for all new housing loans sanctioned up to March 31, 2023.

This facility was introduced in October 2020 had reduced the capital adequacy requirement of lenders. As a result, lenders were required to keep less capital as reserve than earlier and hence more funds were made available for lending. This also reduced the cost of funds for the lenders and hence they are able to offer loans at lower interest rates to the borrowers.

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