The Hindu Business Line : HDFC favours `loan-to-value' risk weights

The Reserve Bank of India has raised the risk weight on home loans from 50 per cent to 75 per cent, which essentially means that home loan financiers would have to bring in more of their own capital into their business than earlier.

This was done over concerns about the quality of loans, raising fears of a bubble-burst, especially after the entire banking system plunged into the home loan business in the recent years. However, many dedicated home loan (non-banking finance) companies have consistently shown good recoveries, reflecting good quality of their loans.

HDFC's non-performing loans amount to just 0.84 per cent of its loan assets.

Asked if it was fair to penalise companies that had performed well with a pan-industry risk weight norm, Ms Karnad said it would be difficult for the regulator to discriminate between companies.

She said that the RBI should instead link risk-weight to `loan-to-value' ratio, adding that the National Housing Bank had formally given such a suggestion to the RBI.

In other words, in cases where loans given are more than a certain percentage (say 80 per cent) of the value of the property, the risk weight could be 50 per cent.

For loans that form more than the prescribed percentage - for example, if it is 90 per cent of the value of the property - the risk-weight could be 75 per cent.

Many industry experts, such as Mr Nitin Palany, Managing Director, Sundaram Home Finance, have pointed out that such LTV-based risk-weight is common in many countries.

However, Ms Karnad said that the change in the risk-weight norm would not affect HDFC, which, after the $500 million FCCB issue, is sitting pretty with a capital adequacy ratio of over 17 per cent.

Answering another question, Ms Karnad said she expected HDFC would be able to launch its international real estate fund (where money would be collected abroad for investments in real estate in India) before the end of the financial year.

Ms Karnad was here in connection with a home loan exhibition of HDFC in Chennai.

The exhibition, titled Budget Homes, is to be held at the Chennai Trade Centre.

Around 40 real estate developers are expected to participate in the fair where around 175 projects in the city would be showcased.

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