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Home Loans Above 75 lakhs Made Cheaper By RBI

RBI, in its monetary policy, kept the repo rate unchanged at 6.25% and the reverse repo rate at 6%. The marginal standing facility (MSF) will be remained at 6.5% as also the cash reserve ratio of 4%.


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Home loans will get cheaper soon as Reserve Bank of India (RBI) reduced the money that banks have to set aside as a buffer (risk weights) against the home loans sanctioned. It also lowered the down payments in home loans (loan to value) to encourage more borrowers to apply for home loans.

Arundhati Bhattacharya, chairman, SBI, said in a release, “The decision to reduce the risk weights for home loans over Rs 30 lakh category will release capital for the banking industry and is a positive move.”

The loan-to-value (LTV) ratio for loans between Rs 30 lakh and Rs 75 lakh is increased to 80% from the existing 75% and the risk weights in this category have been reduced to 35% from the existing 50%. For loans above Rs 75 lakh, the risk weights have been reduced to 50% from the existing 75%. Standard asset provision for all individual home loans is kept at 0.25%.

A reduction in the risk weights means there will be more money with the banks and this in turn will allow banks to lend more loans. Subsequently, it will also reduce the home loan rates.

Major Banks are right now offering home loans ranging between 8.35% and 9%, these rates are expected to lower further with banks trying to gain market share.