Banks have indicated to the Finance Ministry their willingness to give a push to the slowing economy by funding builders developing housing projects, especially for the aam aadmi (common man).

They will consider giving a portion (20 per cent) of the project-specific term loan as cash credit (CC) to bring down the interest cost. CC is a short-term loan limit whereby the borrower can draw funds as and when required and pay interest only on the amount utilised.

Banks will support residential projects where the unit size and pricing are such that the affordability is within four to five times the annual income of the customers

Revival via housing

To kick-start unfinished residential projects which are stuck due to cash crunch, bank loans could replace builders’ high cost borrowings from the informal sector, provided the benefit of reduced cost is passed on to the buyers.

The aforementioned suggestions, made by an Indian Banks’ Association committee headed by Corporation Bank chief Ajai Kumar, are, however, subject to the central bank backing their initiatives. They are aimed at encouraging builders to construct affordable homes and bring down the high property prices.

If the suggestions are accepted, then they will have a salubrious impact on not just the real-estate sector but also on a host of allied sectors including steel, cement, and construction equipment.

This will create employment and notch up the GDP growth, said a senior public sector bank official.

Affordable housing projects, with sound escrow account mechanism, coming up in Tier-2 and Tier-3 cities will be given more priority by banks.

Loans to house allottees go into the escrow account, which are shared in an agreed proportion between the builders and the lenders. This leads to the gradual closure of the project loan through funds released against individual loans.

Banks may enter into a tripartite agreement for housing loans with the individual borrower and builder/owner of the land to safeguard the interests of the borrower/bank in the event of non-delivery of completed flat.

As required by State/local authorities for issue of no-objection certificates/approvals, banks may consider issuing bank guarantee for the performance of housing projects by builders.

Banks and builders want the central bank to revisit the loan restructuring policy so that term/construction loans get the benefit of recast in case of delay in projects.

Delays happen as operations at the ground level depend on a multiplicity of factors, including obtaining statutory approvals.

Lower rates of interest may be considered by banks for projects above a threshold level of external credit rating.

Buyers becoming weary

The bank official said that investors as well as end-users are showing weariness in buying homes.

The housing market is in a state of flux. While builders have purposely withheld disposing of flats at rates lower than their pre-fixed rates on expectation that the market will strengthen in due course, buyers are hoping that the real estate market will weaken.

In the financial year so far, home loans in the banking system edged up by 3.84 per cent to Rs 4,18,200 crore as on August 24, 2012.

Home loan growth in the corresponding period last year was a tad higher at 5.22 per cent to Rs 3,64,200 crore as on August 26, 2011.

> ramkumar.k@thehindu.co.in

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