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Wednesday, October 24, 2012

Home loans up to Rs 35 lakh must get priority sector tag: IBA panel

Banks want strategic changes in regulations, including revision in the definition of home loans under priority sector and reduction in margin requirement for buying a house, to give fillip to the housing sector.

Given the increase in property prices in the last few years, an Indian Banks’ Association committee has recommended to the Finance Ministry that home loans up to Rs 35 lakh (extant limit: Rs 25 lakh) should get the priority sector tag.

The move will lead to banks providing loans to house buyers at affordable interest rates, said the committee on housing sector. This will also benefit a large group of customers in Tier- II and Tier- III towns. Further, loans to builders constructing affordable homes costing within Rs 35 lakh a unit could be classified as priority sector. Builders can then get loans at preferential interest rates, thereby accelerating housing projects in segments where the unit cost does not exceed Rs 35 lakh.

Loans (up to a certain limit) given by banks to categories such as agriculture, micro and small enterprises, micro credit, education loans, housing loans, export credit and weaker sections are classified as priority sector lending.

The committee observed that customers were finding it difficult to stump up 20 per cent margin as well as pay for stamp duty and registration, and other charges, which aggregate to as high as 25 to 30 per cent of the value of house property.

In order to mitigate this, the committee is of the view that banks should fund up to 85 per cent of the cost of house (that is reduce margin from 20 per cent to 15 per cent).

Margin requirement

Bringing down the margin would increase the ability of customers to buy homes.

Historically, housing and landed property has indicated a rising trend, which would result in better loan-to-value ratio (the amount of loan given by the bank/ value of property) in subsequent times, said the committee.


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