In the upcoming Budget, the Centre may have to increase its allocation to the interest subsidy scheme on housing loans substantially to address the issue of delays in the subsidy payout process.
Housing finance players active under the scheme told
The Centre’s much-hyped CLSS scheme has resulted in 8,02,732 households availing CLSS subsidy benefits, amounting to a subsidy amount of Rs 18,358 crore so far. But fromFY16 to FY20, the Centre has allocated just about Rs 5,300 crore in the Budget for the interest subsidy, implying that it has been dipping into other resources to pay the subsidy. The measly budgetary allocation is also leading to delays in the payout of subsidy under the scheme, which is a cause for concern.
PMAY – the Housing for All by 2022 scheme – was launched in 2015. It included CLSS, offering an interest subvention of 6.5 per cent (amounting to upfront subsidy of Rs 2.67 lakh) on housing loans of up to Rs 6 lakh to the Economically Weaker Section (EWS) and Low Income Group (LIG).
In 2017, the scope was widened to include the middle income category, offering an upfront interest subsidy of up to ₹2.3-2.35 lakh to borrowers, covering two income segments — ₹6,00,001 to ₹12 lakh (MIG-I) and ₹12,00,001 to ₹18 lakh (MIG-II) per annum.
Claims submission
After the loan is approved and sanctioned, the housing finance company or lender submits the claim to one of the Central Nodal Agencies with whom it has signed an MoU. Housing and Urban Development Corporation (HUDCO) and National Housing Bank (NHB) have been identified as the central nodal agencies to channelise this subsidy to the lending institutions.
Normally, the loan can be disbursed within 15 days, provided the construction of the property is complete and all income documents are available with the applicants. The subsidy is approved by the nodal agency after verification of eligibility criteria under the CLSS scheme. Once approved, it releases the subsidy amount directly to the lender, which is then credited into the borrower’s account. This is deducted from the principal loan amount of the borrower, who pays EMI on the remainder of the principal amount.
Delay in the release of subsidy from the government to the nodal agency is hurting borrowers, who may have to shell out higher EMIs than planned for initially, until the subsidy is credited in their account.
According to some key housing finance companies, claims given by them in May 2019 were settled only by September 2019; in some cases claims raised in April were paid out only by October. Subsidy payouts under MIG are relatively faster than under EWS and LIG, according to some players.
Weak allocation
The Centre’s allocation towards CLSS interest subsidy has been inadequate to meet the requirement. The number of beneficiaries under CLSS stood at around 83,000 in FY18 (EWS, LIG and MIG). The subsidy amount paid out that year was Rs 1,684 crore. In the following year, the number of beneficiaries shot up to over 4.84 lakh (between January 2018 and March 2019), amounting to subsidy of Rs 11,032 crore.
Currently (according to a Rajya Sabha response in December 2019), 8,02,732 households have availed CLSS subsidy benefits since 2016, amounting to a subsidy amount of Rs 18,358 crore.
In contrast, the Centre’s budgetary allocation towards the subsidy has been meagre. In FY18, the Centre had spent Rs 1,200 crore for EWS and LIG and Rs 600 crore for MIG under CLSS. In FY19, the revised estimates of the interest subsidy for the two categories were pegged at Rs 1,300 crore and Rs 600 crore, respectively. For the current fiscal, the Centre has allocated a lower Rs 600 crore and Rs 400 crore, respectively, for the two categories.
Overall, the total allocation till date has been just a little over Rs 5,300 crore. The weak allocation in the Budget leads to delay in subsidy payouts in certain periods, in particular towards the end of the year, according to housing finance companies. A higher allocation at the start would help in smoother release of subsidy during the year.
More transparency
Taking stock of the issue of subsidy delay, the Centre is attempting to improve transparency in the process. A new application status system has been developed to allow borrowers to track their application and status of subsidy. Borrowers will be able to see where the subsidy payout is stuck (at government, nodal agency or lender level). Housing finance companies are in the process of implementing the new system, which can offer some relief to borrowers.