Homebuyers get early Diwali gift; housing finance stocks surge

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NEW DELHI: Builders and perspective homebuyers on Friday got an early Diwali gift from RBI as the central bank announced two measures to ease lending to participants in the real estate sector.

Banks and non-banking financial institutions have been reluctant to provide loans to the real estate sector citing risks amidst the pandemic, while buyers have also remained financially stressed.

To ease the financial crunch, RBI said it has decided to rationalise the risk weights and link them to loan-to-value ratio only, for all new housing loans sanctioned up to March 31, 2022. This is against the usual practice of differential risk weights based on the size of the loan as well as the loan-to-value ratio.

“RBI’s move to rationalize risk weightage on home loans and linking housing loans risks only to loan-to-value is a welcome move. This announcement thus will definitely encourage banks to lend more to individual homebuyers without feeling the stress on their balance sheets,” said Anuj Puri, Chairman – Anarock Property Consultants:

RBI also believes the measure is expected to give a fillip to the real estate sector. The real estate sector is one of the biggest generators of employment and economic activity. However, some analysts think housing finance companies should also have been included in this.

“Rationalization of risk weights is positive for banks. But not mentioning housing finance companies may be a near-term dampener for housing finance stocks,” said Amar Ambani, Senior President & Institutional Research Head, YES Securities.

The central bank also extended the co-lending model (where NBFCs and banks collaborate to disburse loans, minimising risks for both of them) to housing finance companies as well, which was lauded by analysts.

In rural areas, banks have limited reach; so they are usually reluctant to provide loans to small businesses or builders. However, NBFCs, who have one-to-one relations with them, would come forward to provide loans. But following the IL&FS incident, even that dried up.

So, in 2018 when NBFCs were grasping for liquidity, RBI allowed some of them to collaborate with banking institutions and use the latter’s expertise and vast pool of money and their close relations to co-lend to select priority sectors. Now this scheme has been extended to all NBFCs including HFCs.

RBI believes this ‘co-lending model’ will leverage the comparative advantages of banks and NBFCs in a collaborative effort, and improve the flow of credit to the unserved and underserved sectors of the economy.

“Most of the builders and buyers in the affordable housing segment would not have a good credit profile. They would not get loans from banks and were heavily backed by the likes of DHFL and YES Bank. After they were wiped out, the affordable housing segment was getting impacted. So, this co-lending will likely tackle this problem,” said Prashant Thakur, Director & Head – Research, Anarock Property Consultants.

Following these steps, shares of housing finance companies soared in Mumbai trading. HDFC was up 2 per cent, LIC Housing Finance 7 per cent, PNB Housing 4 per cent, Indiabulls Housing Finance 3 per cent and GIC Housing surged 5 per cent on the BSE. However, realty stocks were mostly down up to 2 per cent.

“Further measures like rationalisation of risk weights to all new housing loans until March 2022 would give a fillip to housing loan growth. The RBI has also extended the scheme for co-lending to all NBFCs and HFCs which will ease credit availability for the real estate sector. Broadly these are positive and welcome steps by the RBI said Shishir Baijal, Chairman & Managing Director, Knight Frank India.





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