India Financial Services
Lower Risk Weights: Adding
to the Sweet Spot for HDFC
The RBI has lowered risk weights on certain
categories of individual housing loans: It also carved
out a new segment, ‘CRE – Residential Housing
(CRE-RH)’, within the commercial real estate sector.
Loans to this segment will carry lower risk weights and
standard asset provisioning. This will help release some
capital on existing loans for banks and lower capital
requirements on new loans. The benefit to HFCs,
especially HDFC, is likely to be much higher, if the NHB
follows up with similar regulations (we expect it to follow
the RBI).
Lenders with high exposure to medium / large ticket
home loans will benefit: The RBI has reduced risk
weights on individual housing loans > Rs2 mn and up to
Rs7.5 mn to 50% from 75%. It has also marginally
relaxed the loan to value (LTV) cap on these loans to
80% from 75% previously. Further, loans > Rs7.5 mn will
now attract a risk weight of 75% provided LTV is not
higher than 75% (the previous risk weight was 125%
irrespective of LTV).
This is a positive move given the appreciation in
property prices across the country. Private banks are
likely to benefit more than SOE banks given higher
exposure to medium / higher ticket loans. However,
HFCs, being mono-line lenders, will benefit more (once
the NHB follows up with similar norms).
Lenders to residential housing projects will also
benefit: Because loans to residential housing projects
are less risky and volatile, the RBI has carved out a
separate category, CRE-RH, within the commercial real
estate sector. Loans to this segment will attract a risk
weight of 75% and standard provisioning of 0.75% vs.
100% and 1% respectively for other CRE loans. CRE
exposure in the banking system is relatively limited
(~2.5% of system loans).
The key beneficiary will be HDFC: According to
management ~15% of loans will qualify as CRE-RH.
Lower Risk Weights: Adding
to the Sweet Spot for HDFC
The RBI has lowered risk weights on certain
categories of individual housing loans: It also carved
out a new segment, ‘CRE – Residential Housing
(CRE-RH)’, within the commercial real estate sector.
Loans to this segment will carry lower risk weights and
standard asset provisioning. This will help release some
capital on existing loans for banks and lower capital
requirements on new loans. The benefit to HFCs,
especially HDFC, is likely to be much higher, if the NHB
follows up with similar regulations (we expect it to follow
the RBI).
Lenders with high exposure to medium / large ticket
home loans will benefit: The RBI has reduced risk
weights on individual housing loans > Rs2 mn and up to
Rs7.5 mn to 50% from 75%. It has also marginally
relaxed the loan to value (LTV) cap on these loans to
80% from 75% previously. Further, loans > Rs7.5 mn will
now attract a risk weight of 75% provided LTV is not
higher than 75% (the previous risk weight was 125%
irrespective of LTV).
This is a positive move given the appreciation in
property prices across the country. Private banks are
likely to benefit more than SOE banks given higher
exposure to medium / higher ticket loans. However,
HFCs, being mono-line lenders, will benefit more (once
the NHB follows up with similar norms).
Lenders to residential housing projects will also
benefit: Because loans to residential housing projects
are less risky and volatile, the RBI has carved out a
separate category, CRE-RH, within the commercial real
estate sector. Loans to this segment will attract a risk
weight of 75% and standard provisioning of 0.75% vs.
100% and 1% respectively for other CRE loans. CRE
exposure in the banking system is relatively limited
(~2.5% of system loans).
The key beneficiary will be HDFC: According to
management ~15% of loans will qualify as CRE-RH.