Affordable housing to become cheaper





Home loan seekers will soon find themselves being increasingly wooed by banks, and affordable housing projects could get cheaper with the RBI announcing a raft of measures that encourage bank lending to this segment.

The RBI has said that in addition to small-value loans, home loans to individuals up to Rs 50 lakh (for houses of value up to Rs 65 lakh) in metros and loans up to Rs 40 lakh (home value Rs 50 lakh) in other centres will be considered as affordable housing.
Extending these loans will entitle banks to float infrastructure bonds up to seven years. Money raised under these bonds will not be subject to RBI's mandatory reserve requirements. Bankers said that they were preparing for a pick-up in home loans in light of the increase in tax breaks from Rs 1.5 lakh to Rs 2 lakh. "The infrastructure status to affordable housing projects would make it easier for developers to get finance. Banks in any case were going after home loans given the absence of pick-up in corporate credit," said K R Kamath, chairman, Punjab National Bank.

He added that banks also prefer home loans because these are less risky as the lending is diversified and also provides them an opportunity to cross-sell other services to borrowers.

"The measures make home loans more attractive but I do not know to what extent it will impact rates as most banks are already extending home loans close to their base rate," said Kamath. Base rate is the benchmark rate below which banks are not allowed to price their loans.

The finance minister in the Budget had said that banks would be allowed to float long-term bonds for lending to infrastructure.
Explaining the rationale to extend this facility for hous ing, the RBI said "Apart from what is technically defined as infrastructure, affordable housing is another segment of the economy which both requires long-term funding and is of critical importance. Accordingly , the Reserve Bank intends to ease the way for banks to raise long-term resources to finance their long-term loans to infrastructure as well as affordable housing. This will help promote both growth and stability , as well as improve the supply side."

The RBI said that granting the exemptions will mitigate the asset-liability management (ALM) problems faced by banks in extending project loans to infrastructure and core industries sectors. "A collateral benefit if bank bond issuances prove successful is the development of the domestic corporate bond market," the RBI said.