Non-bank lenders have approached the central bank to ease, among other curbs, prescribed risk weights on products such as loans against property (LAP), arguing the risk profiles of such assets do not justify bracketing them together with unsecured exposures, or even plain-vanilla mortgages.
“In our experience, losses on LAP have been significantly lower compared to housing loans, primarily because transaction risks tend to be higher in housing finance,” one of the two officials aware of the development told ET. “Risk weights for LAP should ideally be lower or, at very least, on a par with housing loans.
In their discussions with the Reserve Bank of India (RBI), non-banking financial companies have requested LAPs be not treated on a par with unsecured loans when assigning risk weights. They have urged the RBI to reduce the current cap of 125 per cent and align more closely with home loans, which attract risk weights in the range of 35 per cent to 50 per cent.
“There is no justification for equating them with the risk weights applied to personal or unsecured business loans,” said the first official cited above. NBFCs have also urged loan-to-value (LTV) ratios on LAP be regularised with home loans. At present, LTVs on home loans can range from 80-90 per cent but for LAP the range is 50-75 per cent.
NBFCs have urged the central bank to allow refinancing of self-construction loans in cases where construction is already more than 50 per cent complete.
No Execution Risk
“Loan against property is a safer business compared to home loans because it is backed by completed properties, whereas home loans often carry completion risk when the property is still under construction,” said the second official cited above. “The title deed for LAP is available upfront. For home loans in markets like Delhi-NCR, the title deed is often executed only upon completion, which poses a risk if the project remains unfinished.”
NBFCs have also urged the RBI to ensure a level playing field in the enforcement of SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) provisions.
Currently, housing finance companies (HFCs) are permitted to invoke SARFAESI for loan exposures above ₹1 lakh, while for NBFCs, the threshold is significantly higher at ₹20 lakh. Industry players argue that this disparity puts NBFCs at a disadvantage and have requested that the ₹1 lakh threshold be uniformly applied. At the very least, they contend, loans against property disbursed by NBFCs should be brought under the ₹1 lakh eligibility to enable more effective recovery.
NBFCs have also requested to revise the computation methodology for principal business criteria (PBC), suggesting that it be based solely on loan assets, rather than the total balance sheet size.
