This article deals with details of PMAY AND RBI Revises Home Loan Limits.
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RBI Revises Home Loan Limits
INTRODUCTION: PRADHAN MANTRI AWAS YOJANA
The Mission will be implemented during 2015-2022 and will provide central assistance to Urban Local Bodies (ULBs) and other implementing agencies through States/UTs for:
1. In-situ Rehabilitation of existing slum dwellers using land as a resource through private participation
2. Credit Linked Subsidy
3. Affordable Housing in Partnership
4. Subsidy for Beneficiary-led individual house construction/enhancement.
It has two components:
- Pradhan Mantri Awas Yojana (Urban) (PMAY-U) for the urban poor and
- Pradhan Mantri Awaas Yojana (Gramin) (PMAY-G and also PMAY-R) for the rural poor.
This scheme is converged with other schemes to ensure houses have a toilet, Saubhagya Yojana electricity connection, Ujjwala Yojana LPG gas connection, access to drinking water and Jan Dhan banking facilities, etc. Cumulative total number of funded houses approved thus far is 39,25,240 in urban area including the subsumed RAY scheme and completion of construction of 5 million rural houses by March 2018 and 10 million rural houses by March 2019 (c. Feb 2018).
Pradhan Mantri Awaas Yojana was launched in June 2015 with an aim to provide affordable housing to urban poor. Under PMAY, it is proposed to build 2 crore houses for urban poor including Economically Weaker Sections and Low Income Groups in urban areas by the year 2022 through a financial assistance of ₹2 trillion (US$30 billion) from central government.
This Mission has four components, they are:
- In-situ Slum Redevelopment with private sector participation using land as resource,
- Affordable Housing through Credit Linked Subsidy,
- Affordable Housing in Partnership with private and
- public sector and Beneficiary led house construction/enhancement. Under these components, central assistance will be in the range of ₹1 lakh (US$1,500) to ₹2.30 lakh (US$3,400).
3 Phases of PMAY envisage starting and completing the house construction work as follows:
- PMAY Phase-1 from April 2015 to March 2017 to cover 100 cities.
- PMAY Phase-2 from April 2017 to March 2019 to cover additional 200 cities.
- PMAY Phase-3 from April 2019 to March 2030 to cover the remaining cities.
PMAY or Pradhan Mantri Awas Yojana (PMAY) – Urban and Rural – aims to ensure affordable housing to rural and urban poor. Under the PRADHAN MANTRI AWAS YOJANA, the government is aiming to build 3 crore houses in rural areas and 1 crore in urban centres. More than 47 lakh houses have already been sanctioned in urban areas and more than one crore in rural areas. “This would give a boost to affordable housing real estate sector and help in economic growth. According to RBI data, deployment of gross bank credit in priority sector housing sector increased 1.2% year-on-year in April 2018 to Rs 3,66,700 crore.
Under the PMAY-Urban Credit Linked Subsidy Scheme, the National Housing Bank has disbursed Rs 3,018 crore against 140,943 units. Under the EWS/LIG scheme, it has disbursed Rs 2,436 crore against 113,081 units and under the MIG scheme, Rs 582 crore has been disbursed against 27,862 units. Some market players do not see much of an impact of the increase in housing loan limits. The increase in the PSL helps to get access to the higher ticket-sized home although we operate in a bracket of between Rs 17 lakh and Rs 30 lakh. wouldn’t say that the increase in the PSL limits makes any real impact on the true affordable segment, really.
RBI raises repo rates and Revises Home Loan Limits :
Reserve Bank of India (RBI) has raised the repo rates after more than 4 years by 25 basis points, which will result in making home loans and other loans costlier because of tightening in the interest rates, but on the other hand RBI also has revised the housing loan limits for priority sector lending (PSL) which will reduce the interest rates on home loans because of the increase in the subsidy. Loans given under PSL are less expensive than those provided by the banks in their ordinary course.
The RBI decided to revise the housing loan limits for PSL eligibility:
- from existing Rs. 28 lakh to Rs. 35 lakh in metropolitan centres (with population of ten lakh and above). This means that loan eligibility for home buyers from the economically weaker sections (EWS) and Low Income Groups(LIG) of the society will increase to Rs. 35 lakh from the existing Rs. 28 lakh in metros.
- from Rs. 20 lakh to Rs. 25 lakh in other centres. However, this eligibility is subject to the overall cost of the dwelling unit in the metropolitan centre and at other centres not exceeding Rs. 45 lakh and Rs. 30 lakh respectively, it noted.
“This (the decision) will increase the credit limit of an individual affordable home buyer by 7 lakh in metro and 5 lakh in other cities. By increasing the credit limit, there will be rise in demand for affordable housing in India. This will also open up wider options of projects to evaluate with variety of segments in terms of sizes and affordability.”
POSITIVE IMPACT OF THE decision:
- According to experts, this move is a big positive boost for low-income home buyers in the affordable housing segment.
- It might even lead to lowering of interest rates on home loans in the affordable housing segment.Banks have to push lending in the priority sector. To attract more buyers, they might reduce interest rates.
- It is a positive development for the lower income home buyers. Income level in the cities has gone up and the recent revision in the home loan limits for priority sector lending will boost lending to the middle income group. Banks will be able to meet their PSL targets and home finance companies will be able to build their PSL portfolios.
- This would give a boost to affordable housing real estate sector and help in economic growth.
- RBI’s decision would increase market share because banks will keep the rates lower on small ticket home loan segment.
NEGATIVE IMPACT OF THE DECISION:
- The decision to hike the Repo rate by 25 basis points may lead to suppressed growth in the Indian real estate sector which has shown substantial resilience over the last 18 months.
- The Reserve Bank has warned that it will make it more expensive for banks to give small-ticket loans under the affordable housing scheme and force borrowers to pony up more money if banks don’t tighten standards and address rising bad loans in the segment.
- The central bank said it is closely monitoring the segment of loans up to Rs 2 lakh and will step in to increase the loan-to-value ratio or raise the risk weight for banks should the need arise.