PMAY: How does the credit-linked subsidy scheme for EWS and LIG work?

[ecis2016.org] We examine the eligibility criteria and the process of disbursal of home loans under the government’s Pradhan Mantri Awas Yojana scheme that provides interest rate subsidies to EWS and LIG individuals

A total of eight million new dwelling units in rural and urban areas will be completed under the PMAY (Pradhan Mantri Awas Yojana), finance minister Nirmala Sitharaman said during her Budget Speech for 2022, on February 1, 2022.

You are reading: PMAY: How does the credit-linked subsidy scheme for EWS and LIG work?

PMAY: What is it?

Under its Housing for All by 2022 mission, the government in India, under its Pradhan Mantri Awas Yojana (PMAY), partly funds home purchases through two separate components. While the first scheme is applicable to the Economically Weaker Sections (EWS) and those under the Low-Income Group (LIG), the second scheme covers the Middle-Income Group (MIG).

Let us discuss the first scheme in detail.

Eligibility criteria for PMAY

The eligible category is divided into two parts – the first category is EWS and the other category is LIG. This scheme is available for acquiring or constructing residential units in the 4,041 statutory towns as per the 2011 census and 274 additional towns, which have separately been notified by the state government. The details of such towns can be downloaded from http://nhb.org.in/government-scheme/pradhan-mantri-awas-yojana-credit-linked-subsidy-scheme/statutory-towns/

In order to qualify for the subsidy, the individual or spouse should not own an all-weather pucca house, either in his/her name or in the name of any unmarried child of the couple, in any part of India. In addition to acquisition or construction of a new house, a borrower can also avail of this facility for extension of his existing house, whether self-acquired or inherited. If the borrower wants to avail of the benefits, for extension or enhancement of his existing house for addition of rooms, kitchen, toilet, etc., then, the condition of pre-existence of a pucca house, shall not apply.

Moreover, the income for the purpose of qualifying under the scheme, is the income of the whole family as a unit and not of the head of the family only. For availing of the subsidy, the borrower has to submit a self-declaration, about the income and title of the property to be acquired, to the lender. As the government does not underwrite any part of the loan given under this scheme, lenders will have to follow their own due diligence process, for income and title of the property. The lender has to monitor the construction of the dwelling units financed under the scheme, like approvals for the building design, infrastructure facilities, the quality of construction, etc. The lender also has to verify the expenditure incurred up to different stages of construction, through site visits, etc.

So, the government will only provide the subsidy for such loans but the lender has to take all the other precautions, which it takes for any other regular home loan, as any non-payment or the loan becoming a non-performing asset, will be on the bank’s books.

The house which qualifies for the interest subsidy, can either be a single unit or a unit under any multistoreyed building. The eligible unit needs to have basic facilities and infrastructure like toilet, water, sewerage, road, electricity, etc. The area of the house, will only include the area on which a carpet can be laid, meaning that it will not include the walls in the house or the outer wall of the house.

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The house to be constructed or acquired under this scheme, should be in the name of the female head of the household or alternatively, in the joint name of the male head of the household and his wife. However, if there is no adult female member in the family, the house can be acquired in the name of the male member of the family.

The income eligibility and rate of interest subsidy available and the exact quantum of benefits under PM Awas Yojana is tabulated as under:

The maximum subsidy under this scheme can be Rs 2,67,280. The amount of subsidy will be reduced proportionately, if the loan amount is lower than Rs 6 lakhs. The subsidy benefit is only available for loans that are disbursed on or after June 17, 2015.

What constitutes as affordable housing under the PMAY?

The government provides subsidy benefits up to a certain price bracket, to promote the sale and purchase of affordable units. Under this, the Rs 45 lakh price bracket is considered the government-defined limit that constitutes affordable housing under the PMAY.

How is the subsidy under PMAY given

The subsidy under this scheme is given as upfront relief, in the form of a reduction in the overall loan liability.

The present value of the interest subsidy is calculated at 6.50%, for a maximum tenure period of 20 years, on the maximum loan amount of Rs 6 lakhs. The future outflow of interest at 6.50% is discounted at 9% and the present value so arrived, is reduced from the actual loan amount taken by the borrower.

The amount of original loan reduced by the net present value of the subsidy benefit, is the liability of the borrower and the EMI is computed accordingly, based on the agreed rate of interest.

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In case the borrower borrows more than Rs 6 lakhs, the amount of subsidy shall be restricted to an amount of Rs 6 lakhs and the additional loan shall be charged regular interest rates of the bank. Although the lender has to give the credit for the subsidy to the borrower immediately, the lender gets the amount of interest subsidy, only after the claim made by it is processed by the nodal agency with which it is registered. This is the main reason why lenders are not keen to promote this beneficial scheme of the government.

Under the scheme, the lenders have to register themselves with one of the nodal agencies – NHB or HUDCO. The lender institutions include various entities engaged in the business of providing home finance, such as scheduled banks, housing finance companies, regional rural banks (RRBs), state cooperative banks and urban cooperative banks. It will also include small finance banks and NBFC- micro finance institutions. Additionally, the government can notify other institutions, to be eligible to provide finance under this scheme.

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Steps in Credit Linked Subsidy Scheme for EWS/LIG

Source: MoHUA

Processing fee for loan applications under PMAY

Under the scheme, the lender is not allowed to recover any processing fee from the borrower. So, in addition to reimbursement of the subsidy amount, the lender will also be given a lump sum of Rs 3,000, to cover their cost of processing the loan application for an amount upto Rs 6 lakhs. For additional loan beyond Rs 6 lakhs, the lenders are allowed to recover normal processing fees.

Balance transfer under PMAY

Although the borrower is allowed to shift his existing home loan, under which the subsidy benefit has already been availed, the borrower shall not be entitled to claim the subsidy again on such balance transfer. Moreover, you cannot avail the benefit under this scheme, by transferring your existing home loan after the notified date, as the subsidy is only available to the borrower when he first acquires or constructs the house. The house to be purchased, need not be new. It can also be a resale house from another owner or a builder.

How To Track PMAY-Subsidy Status 

Step 1: Log on to CLSS Awas Portal

Step 2: Mention the ‘Application ID’ that your lender has provided. This ID is sent within 24 hours of your lender submitting your application.

Step 3: Verify your mobile number through an OTP.

Step 4: The system will display stages of the beneficiary’s application.

Also note: If the borrower/co-borrower are existing CLSS beneficiaries who have received subsidy amount in multiple disbursements, then CLSS tracker will display details of all past disbursements i.e. dates of disbursement and subsidy amounts.

[ecis2016.org] Our in-depth guide on how to use the PMAY CLSS tracker portal

Can you prepay the home loan if you received a subsidy?

The PMAY subsidy that you have availed of, is applicable only if the loan is active for the entire period and hence, if you prepay some amount, the subsidy amount will be reversed and you will miss out on some part of the benefit.

Should you take a loan to prepay your home loan for the PMAY unit?

Now, suppose you are planning to take a home loan of Rs 10 lakhs and apply for the PMAY CLSS, hoping to prepay Rs 4 lakhs in the first year. Is that possible and should you do it? Once your PMAY subsidy is approved, your loan amount and therefore, the EMI burden, will also reduce. However, note that if your PMAY subsidy is on the entire loan amount, then, you will need to refund the present value of the subsidy that is availed of on the refunded amount for the remainder of the tenure.

However, if your loan (additional) is on the non-subsidised part of the same property, your repayment will be reduced from the non-subsidised part.

Features of Credit Linked Subsidy Scheme for EWS/LIG

Source: MoHUA

Other conditions for EWS/LIG under PMAY

CLSS toll-free helpline numbers

NHB: 1800-11-3377,  1800-11-3388

HUDCO: 1800-11-6163

Quick facts about PMAY home loan subsidy

• The National Housing Bank (NHB) and Housing and Urban Development Corporation Limited (HUDCO), are the main agencies that operate the disbursal of subsidies.
• An advance subsidy is disbursed at the beginning of the scheme by the centre. After 70% of this subsidy is utilised, the remainder of the amount will be released.
• Primary lending institutions (PLIs) will need to enter into a MoU with HUDCO and NHB, in order to claim CLSS benefits.
• Repair of existing houses and resale of new construction properties are also included in the fold of CLSS beneficiaries.

Challenges to PMAY

Atul Monga, CEO of BASIC Home Loan, believes that the beneficiaries eligible for the PMAY, should get the benefits by default, instead of going through the process of filling another application with the lender.

Even though the government extended the tax benefits for the affordable housing segment in the recent Budget, over 46% of the existing home buyers in this category were found ignorant of the Pradhan Mantri Awas Yojana (PMAY) scheme, revealed the findings of BASIC Home Loan’s survey to gauge the home buyers’ understanding of the PMAY. The awareness survey included over 1,000 affordable housing loan customers who availed of finance in the last nine months.

Under 17% of respondents were found to be aware of Rs 2.67 lakhs being the maximum subsidy amount available under PMAY. Even the issue of mandatory women’s ownership to avail of the PMAY benefits lacked clarity. Only 48% of the respondents knew that EWS and LIG home buyers are priority consumers covered under this.

The maximum loan tenure of 20 years under the PMAY was misunderstood, with almost half the respondents of the survey believing that it stood at 30 years. Only 37% of the participants answered this question accurately.

PMAY latest updates

December 27, 2021:

Union Housing Ministry approves construction of 1.07 lakh houses in 5 states under PMAY Urban

The union Housing and Urban Affairs Ministry has approved construction of 1.07 lakh houses in Andhra Pradesh, Madhya Pradesh, Maharashtra, Puducherry and Uttarakhand under the Pradhan Mantri Awas Yojana (Urban). 1.14 crore houses have been sanctioned under Pradhan Mantri Awas Yojana Urban. Of this, around 91 lakh have been grounded for construction and more than 53 lakh have been completed and delivered to the beneficiaries.

The union Housing Ministry, in a statement, directed states and union territories (UTs) to expedite the construction of houses. It also mentioned that grounding should be the first responsibility of states and UTs and they also have to declare the saturation of demand, city by city.

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