We are also constantly reviewing existing policy framework including those governing the priority sector lending to ensure that the bank credit to these sectors remain growing, smooth and uninterrupted. Reserve Bank has been using pre-emptive countercyclical provisioning and differential risk weights – supplemented by varying loan to value (LTV) ratios – to contain excessive credit growth to sectors which show signs of risk build-up.
In order to prevent excessive leveraging, the Reserve Bank had advised banks in December 2010 that the LTV ratio should not exceed 80 per cent in respect of housing loans. However, for small value housing loans, i.e., housing loans up to `2 million LTV ratio was prescribed at a higher maximum level of 90 per cent.