RBI has tightened norms for Housing Finance Companies (HFCs)

Current context: The Reserve Bank of India (RBI) recently issued a notification on August 12, 2024, regarding the review of risk weights for Housing Finance Companies (HFCs).

• Here are the key updates:
• Risk Weighted Assets for Undisbursed Loans: To address anomalies in the computation of risk-weighted assets for undisbursed housing loans and other loans, the RBI has decided to cap the risk-weighted assets for undisbursed amounts at the level of equivalent disbursed loans.
• Risk Weight for Commercial Real Estate - Residential Building: The risk weight for fund-based and non-fund-based exposures to ‘Commercial Real Estate - Residential Building’ classified as standard will be 75%. For non-standard exposures, the risk weight will be 100%.
• These changes aim to ensure a more accurate and fair assessment of risk for HFCs, promoting stability in the housing finance sector.

Question:

1 What is the new risk weight for standard commercial real estate - residential building exposures for Housing Finance Companies (HFCs)?

• A) 75%
• B) 100%
• C) 50%
• D) No change

Answer: A) The RBI set a 75% risk weight for standard commercial real estate - residential building exposures.