RBI’s Tweaking Of Lending Norms Makes Affordable Housing Loans Cheaper
In key decisions that would help the Centre meet its housing for all by 2022 target, the Reserve Bank of India (RBI) has extended the scope of priority sector lending while the Union Cabinet has approved a proposal under which land owned by ailing public sector enterprises would primarily be used to build affordable houses.
The RBI has increased the housing loan limit for priority sector lending from existing Rs 28 lakh to Rs 35 lakh in metropolitan centres and from existing Rs 20 lakh to Rs 25 lakh in other centres. However, the cost of the unit in the metropolitan centre should not exceed Rs 45 lakh. Similarly, the cost of the unit in other cities should not exceed Rs 30 lakh.
Loans given under priority sector lending are cheaper than those provide by the banks in their ordinary course. While the RBI move to extend the scope of priority sector lending would mean cheaper home loans for borrowers, the Cabinet move to allow the use of prime land for affordable housing projects would unlock large tract of land parcels for such developments.
Interestingly, both the decisions were taken on June 6, a day when the RBI also hiked repo rate, the rate at which the central bank lends money to scheduled banks, by 25 basis points. A hike in rates means banks would follow suit and raise interest rates, making the cost of availing of home and automobile loans more expensive.
Experts are, however, of the opinion that this hike might not have any major impact on the real estate sector. Developers’ body Naredco has conceded that the hike was justified amid inflationary concerns and hardening oil prices. "It will not make a major difference to real estate,” Naredco National President Niranjan Hiranandani said.
The Reserve Bank has also expressed concerns on rising number of defaults on small-ticket home loans and has indicated it might tighten norms to stop that from happening.
“After a careful analysis of the housing loans data, it has been observed that the level of NPAs (non-performing assets) for the ticket size of up to Rs 2 lakh has been high and is rising briskly. Banks need to strengthen their screening and follow up in respect of lending to this segment in particular,” the RBI said in a note.
"The Reserve Bank is closely monitoring this sector, and will consider appropriate policy response such as a tightening of the LTV (loan to value) ratios and/or an increase in the risk weights, should the need arise," it added.
A further relief
Now, on June 19, in a meeting the RBI has further revising the existing limits for families falling in the economically weaker section (EWS) and low-income group (LIG) category with a family income of Rs 2 lakh per annum. The EWS and LIG, could now take up home Rs 3 lakh and Rs 6 lakh per annum, respectively.