RBI creates sub-sector for housing, paves credit flow
The RBI on Friday curved out a seperate sub-sector christened as Commercial Real Estate - Residential Housing (CRE-RH), which will attract a lower risk weight of 75 percent and lower standard asset provisioning of 0.75 percent as against 100 percent and 1 percent respectively for the CRE segment only.
In a bid to facilitate housing sector growth, the Reserve Bank of India (RBI) on Friday curved out a seperate sub-sector christened as Commercial Real Estate - Residential Housing (CRE-RH), which will attract a lower risk weight of 75 percent and lower standard asset provisioning of 0.75 percent as against 100 percent and 1 percent respectively for the CRE segment only.
This means, builders can avail cheaper and bigger quantum of loans from banks. The central bank has mandated specific risk weight for each and every sector. Banks approach to sanction loans varies based on risk weight. Higher the risk weight tougher are the lending conditions.
"CRE-RH would consist of loans to builders/developers for residential housing projects (except for captive consumption) under CRE segment," RBI said in a notification.
"Such projects should ordinarily not include non-residential commercial real estate. However, integrated housing projects comprising of some commercial space (e.g. shopping complex, school, etc.) can also be classified under CRE-RH, provided that the commercial area in the residential housing project does not exceed 10% of the total Floor Space Index (FSI) of the project."
In the annual monetary policy statement 2013-14, RBI mentioned that commercial real estate exposures are sensitive in view of their inherent price volatilitie. Therefore, these exposures generally attract higher risk weights and higher provisioning requirements.
"It has been generally observed that the residential housing complex sector under the CRE poses lower risk than the other components of CRE sector. Accordingly, it is proposed to carve out a sub-sector of CRE-Residential Housing within the CRE sector with appropriate prudential regulatory norms on risk weights and provisioning," RBI had said.
Accordingly, the central bank charted out a new table to rationalise the prudential norms based on risk-weight, provisioning and loan-to-value (LTV) ratio for individual housing loans, CRE and CRE-RH exposure.
Below is the table:
Category of Loan
LTV Ratio (%)
Risk Weight (%)
Standard Asset Provisioning (%)
(a) Individual Housing Loans
(i) Up to Rs. 20 lakh
(ii) Above Rs. 20 lakh and up to Rs. 75 lakh
(iii) Above Rs.75 lakh