RBI announces hike in limits for cheaper loan for affordable housing

[] The affordable housing segment is likely to get a boost, with the RBI raising the loan limits under priority sector lending and the government deciding to use surplus land of sick PSUs, for construction of such dwelling units

In a statement on June 6, 2018, the Reserve Bank of India (RBI) said that it has decided to revise the housing loan limits for priority sector lending (PSL) eligibility from Rs 28 lakhs to Rs 35 lakhs in metropolitan centres and from Rs 20 lakhs to Rs 25 lakhs in other centres. The overall cost of the dwelling unit in metropolitan centres (with population of ten lakh and above) and at other centres, should not exceed Rs 45 lakhs and Rs 30 lakhs, respectively.

“Big boost to Housing for All. Increase in home loan limits under priority sector lending to Rs 35 lakhs in cities and Rs 25 lakhs elsewhere, to make such bank loans cheaper,” financial services secretary Rajiv Kumar said, in a tweet, after the statement of the RBI. Loans given under PSL are less expensive, than those provided by the banks in their ordinary course. The RBI further said a circular in this regard will be issued by month-end.

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In another development, president Ram Nath Kovind has given his assent to promulgate the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018, according to an official release. “The ordinance provides significant relief to home buyers, by recognising their status as financial creditors. This would give them due representation in the Committee of Creditors (CoC) and make them an integral part of the decision-making process,” the release said. Further, home buyers would be able to invoke Section 7 of the IBC against errant developers. Section 7 allows financial creditors to file applications, seeking insolvency resolution process. The move also comes at a time, when many home buyers are facing hardships, on account of delayed and incomplete real estate projects.

Earlier in the day, the union cabinet also approved revised guidelines on time-bound closure of sick and loss-making central public sector enterprises (CPSEs) and disposal of their movable and immovable assets. The guidelines accord first priority for utilisation of available land parcels of CPSEs under closure, for affordable housing as per the relevant guidelines of the Ministry of Housing and Urban Affairs.

Meanwhile, the RBI also red-flagged small ticket housing loans and hinted of policy response, to check the rising NPA in the segment. In the statement, the RBI said that after a careful analysis of the housing loans data, it has been observed that the level of NPAs for the ticket size of up to Rs two lakhs, has been high and is rising briskly. Banks need to strengthen their screening and follow up, with respect to lending to this segment in particular, it said.

“The Reserve Bank is closely monitoring this sector and will consider appropriate policy response, such as a tightening of the LTV ratios and/or an increase in the risk weights, should the need arise,” said the statement on ‘Developmental and Regulatory Policies’.

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Debora Berti

Università degli Studi di Firenze, IT

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