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A high-level committee of bankers has recommended a hike in the allocation of grants for construction of rural housing units for below poverty line (BPL) households from Rs 45,000 to Rs 75,000 a dwelling unit.
The committee, headed by Mr S. Sridhar, Chairman and Managing Director, Central Bank of India, has also proposed a loan of Rs 50,000 to the BPL households at 4 per cent a year under the Government's differential rate of interest scheme.
Group based lending
Repayment period for the loan could be up to 15 years and the equated monthly instalment (EMI) limited to Rs 300-350 so that it is within the repayment capacity of the borrowers, the committee suggested.
The committee has recommended a group-based lending approach for rural housing for giving better results.
As there are problems of land ownership in rural areas, appropriate solution may be found in consultation with State Governments and Panchayati Raj institutions.
Since recovery could be a major challenge in rural lending, the bankable scheme for BPL/APL households could be implemented through Self-Help Group and Joint Liability Group modes.
The committee pushed for policy changes with regard to linking of repayment of rural housing loans to crop cycle and permitting defaults of two crop season instalments in respect of housing loans of up to Rs.2 lakh.
Flexible repayment schedule should be prescribed depending upon the periodicity of the cash flow of the borrower having regard to his/her source of income.
Since the cost of servicing of the PLIs (primary lending institutions) in lending towards the rural housing is high, the committee suggested the cluster approach for housing as an alternative.
In the case of ‘bankable scheme for above poverty line (APL) households', the loan amount (without any subsidy) should not exceed Rs 4 lakh with the interest range of 7-10 per cent.
The committee recommended that for this the PLIs, especially banks, need to devise a suitable scheme.
The maximum amount of loans (with 5 per cent subsidy option) in the case of bankable scheme for APL households should not exceed Rs 2 lakh for construction of new house and Rs 1 lakh for addition/upgradation/repair of old houses.
The maximum amount of loans (with 4 per cent subsidy option) for APL households should not exceed Rs 3 lakh for construction of new house and Rs 1.5 lakh for addition/upgradation/repair of old houses.
The Committee has proposed setting up a dedicated “Rural Habitat Development Fund” to support interest subvention schemes, awareness building programmes, training and capacity building, technology and building material, research and development, and so on.
The contribution to such a Fund maybe derived from the profits of various Development Financial Institutions, RBI, banks, and so on, besides budgetary support.
The expert group has recommended setting up of a “Rural Risk Fund” with contributions from all stakeholders, including beneficiaries, and to encourage insurance-linked products with housing so as to reduce the cost of housing finance to the various stakeholders.
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