Low-cost housing gets a boost with Modi's interest subvention scheme

The Prime Minister’s push towards low-cost housing is good news for the retail portfolio of banks and non-banking financial companies, which are struggling to boost their business amid economic slowdown. 

In his address to the nation, Prime Minister Narendra Modi offered 4% interest rate subvention for home loans up to Rs 9 lakh and 3% interest relief for loans up to Rs 12 lakh. This captures a large portion of ‘affordable housing’ segment, defined as housing under Rs 25 lakh. This also falls under priority-sector lending for banks. 

This segment of the market, which is generally robust, has shown an uptick in the past two years, but the overall housing loan market as a segment has shown a remarkable slowdown.

The Prime Minister’s sop is expected to give a massive boost to priority-sector housing loans, thereby pulling the entire housing loan portfolio of banks. 
 

Reserve Bank of India (RBI) data show that priority-sector housing loans grew by 6.1% between November 2014 and November 2015. In the past one year, priority-sector housing loans grew at 6.6%. The outstanding loan portfolio stood at Rs 3,57,500 crore as on November 25, 2016. 

For the overall housing loan portfolio in the banking system, the overall numbers were far dismal as buyers held back their buying decisions due to economic slowdown and rising asset prices. During the same period as mentioned above, housing loans, including that for the priority sector, grew at 18.6% in November 2014 and November 2015. 

But, the growth rate dipped to 15.6% the following year period up to November. The outstanding loan portfolio as on November 25, 2016, stood at Rs 8,15,300 crore for the entire banking system. This data don’t capture loans given by housing finance companies and non-banking finance companies, which, if included, could possibly double the outstanding numbers for home loans. 

Predictably, banks and housing loan companies are excited by the Prime Minister’s largesse. 

Gagan Banga, vice-chairman and managing director of Indiabullls Housing Finance, says: “The Prime Minister has effectively made the EMI (equated monthly instalment) cheque smaller than the rent cheque for the affordable housing segment,” said Banga. 

“Our 100city smart city home loan product launched earlier in the year will receive a huge surge because of these initiatives, which will enable us to serve and provide affordable home loans and SME loans to millions in smaller cities,” Banga added. 

Arundhati Bhattacharya, chairman of State Bank of India, the largest home loan provider bank with Rs 2.05 lakh crore in outstanding, said the low-cost housing segment would witness growth in the medium to long term. 

Sixty% of SBI’s retail loans are in the form of home loans, a segment that has grown 20.38% year-on year in the second quarter.

According to Shikha Sharma, managing director and CEO of Axis Bank, the measures announced by the Prime Minister to encourage housing for lower-income groups will reinvigorate the sector.