The mortgage arm of IDBI Bank, IDBI Home Finance (IHFL) asks the National Housing Bank (NHB) to extend the time limit to comply with the new risk weight norms until March 31st, 2009.

As per the revised norms announced by the NHB, loan-to-value (LTV) ratio-based risk weight calculation was introduced. Accordingly the capital set aside by the housing finance firm was therefore linked to the LTV ratio. The risk weight assigned to any home loan extended with an LTV ratio of more than 75% was doubled to 100%.

Home loans up to Rs 30 lakh and an LTV ratio of less than 75%, carry a risk weight of 50% while housing loans above Rs 30 lakh and LTV ratio of less than 75%, has the risk weight at 75%.

Under the new risk weight norms, IHFL required an additional amount of Rs 60.26 crore from December 2008 in order to maintain a capital adequacy ratio (CAR) of 12%. Before the revised norms were declared, CAR of the housing firm stood at 14.7% at the end of November 2008. However this percentage declined to 9.78% since December when NHB revised the guidelines.

An NHB official said that they will access the measures that IHFL was taking to comply with the norms until now. He also added that, "We have received a letter from IHFL in this regard. We are reviewing the reasons behind non-compliance."

An executive with IDBI Bank said, "Since the regulations came up all of a sudden, it is natural that we will require some time to comply with the changed norms."

The new norms were helpful for most housing finance companies as their average LTV ratio that was considered the basis of the revised guidelines was between 60% and 70%. But in IHFL case this ratio was recorded at more than higher than 75% and therefore it needed an additional capital.

An industry source said, "Most of IHFL's loan disbursed during the last three-four years had an LTV ratio of around 90 percent. So, suddenly with the change in regulations, their CAR dropped below required level."

IDBI Bank is planning to sell this housing finance arm but the proposal has been deferred at the last board meeting as the government sought more time to analyze the move. Dewan Housing Finance is seen to be the highest bidder fro the firm until now.