Banks seek priority sector tag for loans to affordable home builders
RBI examining proposal; seen as win-win for lenders, borrowers
Jul 22, 2013
Source : The Hindu Business Line

Strong demand for housing will have a beneficial impact, creating demand for steel, cement and credit, at a time when the economy is in the midst of a slowdown.

The RBI requires banks to lend 40 per cent of their loans to priority sectors: agriculture, micro and small enterprises, education, housing, export credit and weaker sections.

Currently, bank loans up to Rs 25 lakh to individuals in metropolitan centres and Rs 15 lakh in other centres for purchase/construction of a family dwelling unit are classified as priority sector loans.

Affordable housing projects are those where individual units have a maximum carpet area of 60 sq. m. Further, the cost of the unit should not exceed Rs 30 lakh while the loan amount cannot exceed Rs 25 lakh.

Impetus For Home Loans

“If bank loans to builders constructing affordable homes get the priority sector lending tag, it will be a win-win for lenders as well as borrowers,” said a senior official at IDBI Bank.

“On the one hand, banks will be able to meet their priority sector lending target and, on the other, builders will be encouraged to build affordable homes due to availability of funding from banks.” In view of the tepid demand for loans from manufacturing and infrastructure companies, the Finance Ministry wants public sector banks (PSBs) to give housing loans an impetus, said a senior Central Bank of India official. Moreover, housing loans seem to be a safe bet for PSBs as bad loans in this segment are less than two per cent of outstanding loans.

Currently, most banks offer home loans at or slightly above their minimum lending rates.

For instance, State Bank of India, India’s largest bank, is offering home loans up to Rs 30 lakh at 9.95 per cent (against its minimum lending rate of 9.70 per cent). It offers loans above Rs 30 lakh at 10.10 per cent. Bank of Baroda is offering home loans at its minimum lending rate of 10.25 per cent.

To popularise housing loans, the official said, the ministry wants banks to advertise the fact that the Government is giving tax concessions up to March 31, 2014 to individuals taking home loans up to Rs 25 lakh for the first time. This concession is by way of an additional deduction of interest of up to Rs 1 lakh from gross income.

According to RBI data, housing (including priority sector housing) loans grew a robust 17.1 per cent year-on-year to Rs 4,79,900 crore as of May 31, 2013. As on May 18, 2012, loans to this segment stood at Rs 4,09,900 crore.

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