Importance Of Housing Sector Has Led The RBI TO Reduce Risk Weightage on Housing Loans Above INR 75 Lacs

RBI has said in its monetary policy that is reducing the risk weightage on certain categories after analysing the importance of the housing sector and the sector’s forward and backward linkages with the economy. This is a countercyclical measure that also includes reducing the standard asset provisioning on such loans. This will encourage a number of banks to lend more for housing in large cities. And also make high value home loans cheaper. The risk weightage on home loans above INR 75 lacs have been reduced from 75 percent to 50 percent.

The RBI has retained the repo rate at 6.25 percent and the reverse repo rate at six percent. The emergency funding facility, known as the marginal standing facility (MSF), remains at 6.5 percent. The cash reserve ratio also remains at four percent. The statutory liquidity ratio has also been reduced by the RBI, which is expected to ease liquidity in the banking system by close to INR 50,000 crores. From June 24, banks will have to invest only 20 percent in gilts, as against previous 20.5 percent of the deposits, reports ET Realty.

This has been done to allow banks to comply with international norms on liquidity coverage, which is set to become effective from January 2019. In order to send a message that easy money conditions will prevail, experts thought that RBI would ease its stance from “neutral” to “accommodative.” It was also expected that the central bank will keep rates on hold. The central bank has however maintained its neutral stance believing that easing of prices is only temporary. Since inflation numbers came out, fuel prices have been hiked. Prices may rise further.

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