Indian Realty Hails RBI Move on Risk Weightage

Real estate stocks of major players Ansals, Mahindra Gesco, Parsvnath, Sobha and DS Kulkarni moved up by 4 to 9% in response to the RBI’s decision to ease the risk weightage on loans below Rs. 20 lakh from 75% to 50%.

The cheer was shared by construction companies such as Hindustan
Construction, IVRCL and Nagarjuna Constructions, whose stocks
appreciated by 7 to 7.5%
Real estate developers in India stand to gain as the reduced
risk weightage will give banks a wider reach within the real
estate sector.

Real estate projects in Tier II cities will benefit
greatly with the new norm, as their properties fall comfortably
within the Rs. 20 lakh to Rs. 30 lakh range.

Consumers, however
would barely be affected by this move.
As per RBI directives, Indian banks are required to maintain
a capital adequacy ratio of 9%, and home
loans were given a risk
weightage of 75%.

The arithmetic interpretation would mean that
banks need to retain at least Rs. 6.75 for every Rs. 100 they
lend to the real estate sector.
The RBI’s latest announcement has given banks a respite by allowing a capital requirement of Rs. 4.5 only for all loans below Rs. 20 lakh.

This will not majorly impact the borrowing cost to the purchaser
of the property, but it would allow banks to extend more loans
and maintain lower capital.

The reduction in the risk weightage is being viewed as a reassurance
to Indian real estate that the government would not be taking
any further steps that could make conditions more complicated
for the sector.

With a host of IPOs lined up this season by Indian
property developers, this announcement has reinforced the positive
sentiment in the Indian property market.