In a move to support lending to housing sector, Reserve Bank of India (RBI) has announced a relaxation on the lending norms of tier-II urban co-operative banks (UCBs).

The standard asset provisioning requirements has been declined by the RBI to 0.40% from earlier 1% to 2% of the loan amount.

Also the risk weights on lending to various sectors have been reduced by the central bank. This step is likely to free capital to the extent of reduction in provisioning requirement that in turn, would be used to increase lending to some specific sectors, "except in the case of direct advances to agricultural and SME sectors, which shall continue to attract a provisioning of 0.25 percent", said RBI in a circular to UCBs.

The risk weight in case of loans and advances to commercial real estate has come down from 150% to 100%. At the same time RBI has directed UCBs to only extend finance to asset-financing NBFCs and the risk weight connected to such companies remains untouched at 100%.

However RBI has not changed the general provisioning norms for tier-I UCBs. All norms on their standard assets stand unchanged at 0.25%.

RBI had reduced the standard asset provisioning requirements of banks lending to NBFCs from 2% to 0.40% on November 15th. The provisioning requirement for direct advances to agriculture and SME sectors has remained unchanged at 0.25% by the regulator.

In February 2007, the provisioning requirement was increased to maintain the asset quality in the light of high credit growth in the real estate sector.