State-run banks and HFCs to lend more for low-cost housing

The finance ministry will be pushing state-run banks and housing finance companies to set aside more funds for the low-cost housing projects.

The ministry of housing and urban poverty alleviation said that low subsidy demand from banks clearly indicates to the extremely bad lending to low-cost housing.


A finance ministry official told the ministry has asked the banks to submit details about their exposure towards low-cost housing and the reasons for slow progress.

However the government has set aside an interest subsidy of Rs 1,100 crore for four years up to 2012 for the low-cost housing scheme for the urban poor, but, as per government records there has been claim of only Rs 4 crore from banks.

An official working with ministry of housing said, “We’ve requested that all public sector banks should be asked to increase their lending towards the segment so that subsidy amount provided for the scheme is utilized.”

Government is also planning to ask the regional rural banks to lend to low-cost housing for this it will make these banks eligible for the interest subsidy on loans under the scheme.

National Housing Board (NHB) and HUDCO have been made the nodal agencies which will provide 5% interest subsidy on housing loan given to economically weaker sections and low income groups.

However government has instructed 17 state-run banks and six housing finance companies to provide these low-cost loans. On the other hand, bank say that the local authorities are directly responsible for low disbursals as the borrower is required to provide evidence to prove his eligibility for the subsidy.

Bank of Baroda official said, “The inordinate delays on their part is reflective in low credit off take.”

To solve the problem the government has decided to give the authority to the banks to decide on the eligibility of the borrower. NHB executive director RV Verma said, “It has been decided that banks on their own assessment can provide these certificates and disburse loans.”

Up till March 2012, government is planning to provide subsidy support to over 3 lakh low cost houses. “The scheme is a blend of achieving social needs while maintaining a profitable orientation for the banks. Banks will finally see its a win-win situation for them,” Mr Verma said and added that in states such as Andhra Pradesh, Tamil Naidu and Madhya Pradesh the scheme is successful.

Under this scheme banks can sanction a maximum of Rs 3 lakh to a borrower belonging to economically weaker category and Rs 5 lakh to a low income one. Moreover scheme provides a subsidy of 5% for a loan amount of Rs 1 lakh for the full tenure of the loan.