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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 on outstanding
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’.
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November monetary policy, HDFC and ICICI Bank have withdrawn their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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