SBI increased loan limit by 10-fold for buying land to build a house

State Bank of India (SBI), country’s largest lender has decided to increase loan limit by ten-fold given to individuals who plan to buy land to build a house as bank moves forward into the housing segment.

As per the new proposal the bank will be lending Rs 10 crore for buying land for housing against the earlier cap of Rs 1 crore, informed a senior SBI official. The bank has also done modification in the norms pertaining to the construction period if the project is undertaken by government agencies. At present a project must be completed within two years.

A senior SBI official said, “A customer will also be eligible to avail another housing loan for other housing-related construction on that plot, enjoying the benefit of running both the loans concurrently.”

Moreover bank has set the margin money limit – the amount a customer has to pay upfront for availing a loan — at nearly 35% for loans above Rs 1 crore.

For loans up to Rs 75 lakh, bank has fixed the margin money at 20%. It is believed bank’s latest move to push ahead its housing sector shows its troubles with excess liquidity and a tepid credit offtake.

“We have a liquidity of over Rs 40,000 crore; schemes such as this will help us achieve our credit growth targets,” the official said.

The bank has set a target of increasing its credit growth by around 22%. Last year, the RBI had revised the credit growth target for commercial banks, the money they lend to customers, to 16% from 18%.

SBI has already started pushing forward its housing sector recently it extended its popular 8% home loan scheme, or teaser loans, until June 30.

It is also trying to work out other avenues to increase the credit offtake, though it will take steps to see that the due diligence process doesn’t suffer.

“To minimize fraud risk, two title search reports from different lawyers will be obtained before sanctioning the loan,” the official said.

It is believed this sharp increase in the loan amount will boost the real sector, which is at present, in spite of the return of buyers, is suffering from a big drop in the banking credit. According to RBI figures, for the 11 months to end February loans to the realty sector had decreased by 97% to Rs 842 crore as against Rs 33,617 from a year ago.

“Schemes such as this will indirectly ensure credit flow to these companies,” said a senior official of a real estate company.