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.

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