The Reserve Bank of India has extended the restructuring norms to cover home loans extended by banks. The move follows a fall in home loan portfolios of scheduled commercial banks (SCBs).

Presently restructuring facility is available to industrial units, small and medium enterprises (SMEs) etc and restructuring of home loans is being done to prevent the reduction of such loans. The move is likely to leave a positive impact on the banks' bottomline- net income left after subtracting costs and expenses from total revenue.

Home loans can be restructured by either extending the repayment period or freezing the interest payment for a certain period.

Over the past few years, home loan portfolio of the banks has been rising and the restructuring of this segment is likely to benefit banks, especially the private lenders that have been more prominent on the rise.

The new RBI guidelines on restructuring have been extended to the SCBs whereby they can avail special regulatory treatment relating of asset classification upon the restructuring of home loans.

According to the central bank, SCBs can now avail themselves of the special regulatory treatment relating to asset classification upon the restructuring of home loans. Until now housing loans were not taken under the restructured advances because their tenure range between 15 and 20 years and RBI had prescribed a ceiling of 10 years on the repayment period of restructured loans (other than infrastructure loans).

The new circular issued by RBI says that the ceiling of 10 years on repayment period of the restructured loans would not be applicable for restructured home loans. However the banks need to comply on all other terms and conditions prescribed by RBI for restructuring. The banks' boards of directors need to recommend the maximum tenure of restructured loan along with assuring safety of loans.

Executive Director of IDBI Bank, Mr R.K. Bansal said: "This move by the central bank will prevent banks' home loan assets from being downgraded once they are restructured. This will have a positive impact on the bottomline of banks."

However the regulator stated that the risk weight assigned to the restructured home loans should be increased by 25% over the normal risk weight assigned by the bank.

Presently banks have to assign a risk weight of 50% and 75% for loans up to Rs 30 lakh and loans of Rs 30 lakh and above respectively.