Booster for home loan segment

Banks will be encouraged to grow their home loan portfolio following liberalisation of the interest rate subvention scheme for housing loans in Budget 2011-12. Another factor that will also give a fillip to the segment is the announcement that home loans up to Rs 25 lakh (as against Rs 20 lakh now) will get the priority sector tag.

The Finance Minister announced that the existing scheme of interest subvention of 1 per cent on housing loans would be extended to loans up to Rs 15 lakh from the existing Rs 10 lakh.

The price of the house for which the scheme applies has also been relaxed to Rs 25 lakh from Rs 20 lakh.

Housing loans up to Rs 25 lakh will be categorised as priority sector as against Rs 20 lakh now.

This change has been made on account of the increase in prices of residential property in urban areas.

According to Mr D. L. Rawal, Chairman and Managing Director, Dena Bank, the higher limit for priority sector housing loans will increase the flow of credit to the housing sector and also enable banks to meet their priority sector target more easily.

Electronic Registry

To prevent frauds in loan cases involving multiple lending from different banks on the same immovable property, the Government has facilitated the setting up of the Central Electronic Registry under the SARFAESI Act, 2002.

This Registry will become operational by March 31, 2011, the Finance Minister said, in his Speech.

Measures such as the Central Electronic Registry to prevent frauds will help the housing sector, said Mr Rawal.

With prices of houses having increased in both urban and rural areas, the relaxation in the Budget will benefit the housing sector, said Mr M. Narendra, CMD, Indian Overseas Bank.

“Given the growth in loans to sectors like infrastructure, it may be difficult for banks to maintain the share of priority sector loans in total advances. To that extent the higher limit for priority sector housing loans will help banks,” he said.

Mr K. V. S. Manian, Group head, Consumer Banking, Kotak Mahindra Bank, said that while more loans can be covered under priority sector, the impact of the Budget policies would be seen only in smaller towns or in the low-cost housing segment, which is perhaps the intention of the Government.