Mumbai  : The Reserve Bank of India’s proposal to cut the risk weight on housing loans for economically weaker and lower income groups will incentivise the banks, Arundhati Bhattacharya, Chairman, State Bank of India, said.

Lowering of minimum risk weight means that banks will have to set aside less capital for affordable housing loans leading to availability of more funds for the segment.

The central bank proposed to reduce the risk weight on “well collateralised individual housing loans” for economically weaker and lower income groups, from the current 50%. However, the RBI did not specify how much the risk weights would be cut to. The RBI also said that the Statutory Liquidity Ratio and HTM cap will be reduced by 25 basis points each every quarter from April 2016 to March 2017. The SLR post the quarterly cuts should stand at 20.50%.

While the RBI said that the ceiling on held-to-maturity gilts will be reduced by 50 basis points to align it with Statutory Liquidity Ratio, which is currently at 21.50% of net demand and time liabilities, the reduction in HTM, currently at 22.00%, will be from Jan 9. The central bank’s move on HTM and SLR will reduce banks’ requirement for reserve ratios and help them better manage their books.

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