The Reserve Bank of India (RBI) has carved out a sub-section for residential housing projects from the commercial real estate (CRE) category. The new section — CRE-RH — will attract lower risk weight and provisioning as compared with CRE loans, ensuring more credit flow to the housing construction sector. CRE-RH segment will attract a lower risk weight of 75 per cent and lower standard asset provisioning of 0.75 per cent as against 100 per cent and 1.00 per cent, respectively, for the CRE segment, said the central bank.    

The reason being loans to residential housing projects exhibited lesser risk and volatility than the broader commercial realty sector. Since the risk weight is lower, the interest rate would be lower too.    

This would enable builders to borrow at lower rates and bigger amounts for such projects. The move should help ensure more credit flow to the housing construction sector. The banking regulator specified that CRE-RH segment would consist of loans to builders or developers for residential housing projects (except for captive consumption). Such projects should ordinarily not include non-residential commercial real estate.    

However, the RBI has allowed integrated projects with some commercial space. The commercial space should not exceed 10 per cent of the total floor space index.