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Monday, December 6, 2021

Risk linked to LTV instead of money, loan will be cheaper: RBI initiative

Although the Reserve Bank of India did not cut interest rates during its monetary policy review, it has resorted to other options to reduce home loan rates. The Reserve Bank has linked the risk weightage to the LTV ratio instead of the loan amount for each new housing loan approved by March 31, 2022. This will allow banks to keep less money in reserve at the time of lending and allow them to lend more. Not only that, it will also reduce home loan rates.

According to the new central bank order, new housing loans where LTV is 80 per cent where 35 per cent risk VAT will be applicable. Even if the loan amount is not more than 75 lakhs. Thus 50 per cent LTV will be applicable on loans where LTV is between 80 to 90. According to experts, the move will boost loans provided by banks to the real estate sector, which is essential to get economic activities back on track in the Corona period. The real estate sector is making a significant contribution to providing employment in the country. In addition, the real estate sector is connected with other industries. According to the notification, the standard asset provision of 0.25 per cent on such loans will remain the same as before.

There is a need to put more money in public sector banks to increase debt, NPA also has effect on the pace of loans- RBI

Anuj Puri, chairman of property consultancy firm Anaroc, said linking risk weightage with LTV would provide additional funds to banks to provide loans. Which will also help them reduce loan rates. However, banks will have to lend more. This will make it possible to get a home loan at attractive interest rates. Adil Shetty, CEO of BankBazaar.com, said that earlier risk weightage was linked to property value and LTV but now risk weightage is linked only to LTV. This is a good move, especially for real estate. Whose demand saw a decline.

What is the loan to value (LTV) ratio?
The LTV ratio is a measure of the value of a property on a home loan. The borrower compares the value of his property with the home loan the person wants to buy. Banks or financial institutions usually use LTV to determine how risky a loan is and whether it should be approved or not. Besides, if the price of any other house is one crore, a loan of Rs 75 lakh is being taken to buy it, then LTV will be 75 per cent.

What is the risk weightage for a loan?
Banks have to reserve a certain percentage of the loan separately for each loan. This is the same risk weightage that is done to keep solvency going. The higher the risk with the loan, the higher the weightage.

Former Deputy Governor of RBI Viral Acharya said, the government should put money in banks, the NPA is increasing

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