RBI No. 2004/ 309
DBOD. BP.BC. 61 / 21.01.002/ 2004-05
December 23, 2004
All Commercial Banks
(excluding RRBs)
Dear Sir,
Mid -Term Review of the Annual Policy Statement
for the year 2004-05
Risk weight on housing loans and consumer credit
Please refer to our Circular No. DBOD.
BP. BC. 106/ 21.01.002/ 2001-02 dated May 24, 2002, wherein, the risk weights
on housing loans extended by banks to individuals against mortgage of housing
properties and investments in Mortgage Backed Securities (MBS) of Housing Finance
Companies (HFCs), recognised and supervised by NHB were reduced to 50 per cent
for capital adequacy purposes, with a view to improving the flow of credit to
the housing sector.
2. In this connection, please refer to paragraph 123 of the
Mid-Term review of the Annual Policy Statement for the year 2004-05 enclosed
with the Governor’s letter No. MPD. BC. 256/ 07.01.279/ 2004-05 dated October
26, 2004 (copy of the paragraph enclosed). As mentioned therein, it has been
decided to :
(i) increase the risk weight for capital
adequacy purposes, on housing loans extended by banks to individuals,
which are fully secured by mortgage of residential properties and investments
in Mortgage Backed Securities (MBS) of Housing Finance Companies (HFCs),
recognised and supervised by NHB to 75 per cent. In the case of MBS
of Housing Finance Companies to be eligible for 75 per cent risk weight,
securities issued by the SPV should be backed only by assets qualifying
for 75 per cent risk weight. In all other cases, it will be 100 per
cent.
(ii) increase the risk weight on consumer credit,
including personal loans and credit cards receivables from 100 per cent to 125
per cent.
3. As the Capital to Risk-weighted Assets Ratio
(CRAR) is to be maintained on an on-going basis, risk weights as indicated in
paragraph 2 above will be applicable on all outstanding exposures.
Yours faithfully,
( C. R. Muralidharan)
Chief General Manager-in-Charge
Extract of the Mid-Term Review of the Annual
Policy Statement for the year 2004 - 2005
" Housing Loans and Consumer Credit: Temporary Risk Containment
123. It is observed in the recent past that
the growth of housing and consumer credit has been very strong. As a temporary
counter cyclical measure, it is proposed:
- To put in place, risk containment measures and increase the
risk weight from 50 per cent to 75 per cent in the case of housing loans and
from 100 per cent to 125 per cent in the case of consumer credit including
personal loans and credit cards. "
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