Affordable Housing Gets Boost As RBI Expands Ambit Of Priority Sector Lending

If the Reserve Bank of India (RBI) move on June 6 to hike key interest rate by 25 basis points ruffled some feathers in the real estate sector, its decision to expand the scope of priority sector lending (PSL) that came as a major boost for affordable housing did the smoothening.

Loans given under priority sector lending are cheaper than those provided by the banks in their ordinary course.

"In order to bring greater convergence of the priority sector lending guidelines for housing loans with the affordable housing scheme, and to give a fillip to the low-cost housing for the economically weaker sections and lower-income groups, it has been decided to revise the housing loan limits for PSL eligibility," the RBI said in a notification.

The Central bank would issue a circular in this regard on June 30.

If you are planning to buy a property in a metropolitan city and applying for a loan of up to Rs 35 lakh, this loan would fall under priority sector lending. However, the cost of the unit should not exceed Rs 45 lakh. Earlier, loans of up to Rs 28 lakh were treated as priority sector lending. In other cities, loans of up to Rs 25 lakh would be granted as priority sector lending. In this case, the entire cost of the property should not exceed Rs 30 lakh. The earlier limit was Rs 20 lakh.  

At the same time, the RBI has raised concerns on an increase in the number of defaults pertaining to small-ticket housing loans. It has also indicated that it might go for tightening of norms to plug the loopholes in this segment.

“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.

In another move that would help the government meet its housing for all target, the Union Cabinet on June 6 approved revised guidelines on the closure of sick Central Public Sector Enterprises and disposal of their movable and immovable assets. The land parcels owned by sick units would be used to build affordable housing on a priority basis.

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.