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Post RBI’s proposal during the November monetary policy to make norms on housing loans a bit stringent, the central bank has issued a circular stating:
· LTV on housing loans is capped at 80% to avoid excessive leveraging. However, LTV on loans up to INR 2 mn (classified as PSL) will be capped at 90%.
· Risk weights on housing loans above INR 7.5 mn (irrespective of LTV) are increased to 125%.
· Standard asset provisioning for banks on teaser loans is increased to 2% (from 0.4%). It has clarified in the circular that provisioning has to be onoutstanding loans, while banks were proposing to make it prospective on incremental loans.
RBI has maintained the definition of teaser loans as loans where a comparatively lower rate of interest is charged in the first few years, after which it is reset at a higher rate. It has also provided a relief that standard asset provisioning will be reverted to 0.4% after one year from the date on which the rates are reset at higher rates if the account continues to remain ‘standard’.
n Our view
· As far as banks are concerned, impact of the raised standard provisioning from 0.4% to 2% will be marginal on credit cost (less than 5bps).
· ICICI Bank: ~INR 40 bn of housing loans are under special schemes (8% of housing loans translating into ~2% of overall loan book).
· State Bank of India: For SBI, as well, home loans under special schemes are <2% of advances. As per media reports, SBI will have to provide INR 3.5 bn towards standard asset provisioning on teaser loans.
· After RBI having clearly signaled banks to discontinue teaser schemes in its November monetary policy, HDFC and ICICI Bank have withdrawn their special schemes. Punjab National Bank (PNB) has proposed to withdraw it from January 1, while SBI will review the same by December end.
· We believe withdrawal of special schemes will lead to some moderation in demand. Moreover, players were competing on LTV apart from rates which will also be capped now.
· RBI is also bringing back focus on affordable housing by increasing risk weight on loans above INR 7.5 mn.
· We believe competition amongst players will now be more a function of funding cost than LTV and teaser schemes.
Though the norms are not applicable to HFCs (as they are governed by NHB and not RBI), we believe NHB will follow them with a lag. In that case, impact on HFCs will be relatively higher with respect to credit cost and competitive advantage.
· HDFC - 27% of its individual loan book is under the dual rate scheme
· LIC Housing Finance - loans provided at LTV >80% will be much less than 3%; proportion of loans above INR 7.5 mn is <1%. Currently, INR 10 bn (27% of individual loan book) is under Fix-O-Floaty scheme and INR 2-3 bn (5-6% of loan book) is under Advantage 5 scheme.
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