RBI policy review: More houses to be affordable now as loan limits hiked

RBI hikes loan limits for banks and HFCs to meet their priority sector lending requirements

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The Reserve Bank of India (RBI) has increased the loan limits for banks and housing finance companies (HFC) so that these financial institutions can meet their priority sector lending (PSL) requirements.

The RBI has increased the housing loan limits for PSL eligibility from Rs. 2.8 million to Rs. 3.5 million in centres with a population of one million and above, and from Rs. 2 million to Rs. 2.5 million in other centres and rural areas.

Why this is important

With the increase in the limit by the RBI all loans below Rs. 3.5 million (urban) and 2.5 million (rural) that the banks and HFCs disburse will automatically fall in and meet the PCL requirements of the lender.

Further, the increased in the limit by the RBI is positive a big positive for the banks and HFCs as around 22 percent of the loan portfolio for HFCs and banks comprises over Rs. 5 million while 28 percent are loans between Rs. 2 million and Rs. 5 million. Therefore a greater portion of the loan portfolio has become eligible under the PSL requirements.

Stocks to be impacted

This is positive for banks and HFCs such as Canfin Homes (CMP: Rs. 371, MCap: Rs. 4945 crs Fy2020 P/BV: 2.3x) and Repco Home Finance (CMP: Rs. 550, MCap: Rs. 3440 crs Fy2020 P/BV: 1.9x)

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