With an aim to boost demand for residential housing projects in the country the Reserve Bank of India (RBI) has decided to relax norms by lowering the standard asset provisioning requirement and risk weight for loans given to those projects. With risk weight and provisioning requirement coming down, banks will now charge lower interest rates for such loans. Earlier, residential housing projects were under the commercial real estate (CRE) category, which attracted higher risk weight and standard asset provisioning because the regulator considered it a sensitive sector.    

Now, RBI has decided to carve out a sub-sector within CRE as Residential Housing (CRE-RH). CRE-RH would consist of loans to builders and developers for residential housing projects (except for captive consumption). As loans to residential housing projects under the commercial real estate sector exhibit lesser risk and volatility than the CRE sector taken as a whole, it has been decided to carve out a separate sub-sector called Commercial Real Estate-Residential Housing, said RBI.    

Compared to 100 per cent for CRE, loans to the new sub-sector will attract a risk weight of 75 per cent. Standard asset provisioning requirement will be 0.75 per cent, compared to 1 per cent in CRE. For individual housing loans, standard asset provisioning is 0.4 per cent, while risk weight is 50 per cent for loans up to Rs 75 lakh and 75 per cent above Rs 75 lakh.    

The apex bank also said integrated housing projects comprising some commercial space (shopping complex, school, for example) can also be classified as CRE-RH, provided that the commercial area in the residential housing project does not exceed 10 per cent of the total floor space index (FSI) of the project.