RBI policy review: More houses to be affordable now as loan limits hiked

RBI hikes loan limits for banks, HFCs so they can meet their priority sector lending requirements

The Reserve Bank of India (RBI) has increased the loan limits for banks and housing finance companies (HFC) so that these financial institutions can meet their priority sector lending (PSL) requirements. 

Pressure on banks to compensate and build their book at the last minute to meet PSL requirements during the end of every financial year has been eased, thanks to the RBI’s intervention, said analysts.

The RBI has increased the housing loan limits for PSL eligibility from Rs 2.8 million to Rs 3.5 million in centres with a population of one million and above, and from Rs 2 million to Rs 2.5 million in other centres, smaller towns and rural areas. 

This means that any loan below Rs 3.5 million (urban) or Rs 2.5 million (rural) that banks and HFCs disburse will automatically fall-in and meet the PCL requirements of the lender, as long as the overall costs of the dwelling unit in the metropolitan centre and at other centres do not exceed Rs 4.5 million and Rs 3 million respectively.

Banks and HFCs have so far disbursed housing loans worth over Rs 3 million in urban centres and above Rs 2.5 million in non-metro areas, which were not classified as PSL home loan.

“In order to meet their PSL targets, banks will undertake transactions like buying PSL assets or loan books from other banks or NBFCs. Now, any loan within these limits will automatically go into the lender’s PSL bucket, said Kartik Srinivasan, senior vice-president of credit rating agency, ICRA.

Around 22 per cent of the loan portfolio for HFCs and banks comprises over Rs 5 million ticket-sized loans, while 28 per cent are loans between Rs 2 million and Rs 5 million. Therefore, a greater portion of the portfolio has become eligible under the PSL requirements, said an analyst with a credit rating agency.

As the central bank, RBI hopes to “give a fillip to low-cost housing for the economically weaker sections and lower income groups,” bringing in greater convergence of the PSL guidelines for housing loans under the Pradhan Mantri Awas Yojana (PMAY) or affordable housing scheme.

Kamal Ketan, chairman and managing director at Suntec Realty, said, “Banks will lend more under the PSL category and borrowers will get loans at lower rates, which will help grow the affordable housing segment.”

With a Budget 

outlay of Rs 645 billion for 2018-19, PMAY, including both urban and rural projects, has attracted a lot of attention and interest from the public, with disbursement of affordable housing loans having grown by 12 per cent since last year Deo Shankar Tripathi, managing director and chief executive officer of Aadhar Housing Finance, told Business Standard, “Customers eligible for loans up to the revised limit will get a preferential rate of interest from a bank. This will in turn help the banks to achieve their priority sector quota.”

“From the customer’s point of view, just because there is a higher PSL eligibility limit, one can’t say if there will be material changes in terms of housing loans becoming cheaper,” said Srinivasan. 

Anuj Puri, chairman of Anarock Property Consultants, said, “This is a big boost for the first-time home buyer in Metros who are looking to buy property in the affordable housing segment. Besides getting subsidy benefits from the central government under the credit-linked interest subvention scheme for example, owning a house in the Metros will soon become a reality for many.” 

In its statement on developmental and regulatory policies, the RBI also noted that it is closely monitoring housing loan data, and may in the near future consider tightening the loan-to-value ratio, or increase the risk-weightage guidelines for HFCs and banks.

For HFCs, the LTV ratio has currently been capped at 90 per cent, which means a customer can finance a home with debt upto 90 per cent of the home value. But no customer will get the full extent of the LTV amount.

The warning has come after housing loan data revealed rising non-performing assets in Rs 200,000 loans being disbursed by banks and HFCs. On May 25, Business Standard reported that new HFCs were causing the affordable housing loan book for the entire industry to deteriorate, as gross NPAs have gone up from an aggregate 1 or 2 per cent to 4.5 per cent. 

The RBI has said that banks and HFCs need to strengthen their screening process while lending to this segment.