Nod for home loan subsidy

Nod for home loan subsidy

Interest subsidy on farm loans slashed to 2 per cent

A decision to this effect was taken by the Cabinet at its meeting chaired by Prime Minister Manmohan Singh.

An interest subvention of one per cent will be available on individual housing loans up to Rs 10 lakh for construction, purchase of a new house or extension of an existing house, provided the cost does not exceed Rs 20 lakh. The scheme would be implemented through scheduled commercial banks (SCBs) and housing finance companies (HFCs) registered with the National Housing Bank (NHB), Information and Broadcasting Minister Ambika Soni said.

The one per cent interest relief on a housing loan of Rs 10 lakh will amount to Rs 10,000. The scheme is expected to cost the national exchequer Rs 1,000 crore. The first twelve installments of all such loans sanctioned and disbursed during the period of twelve months from the date of publication of the scheme will be eligible for interest subvention. The subsidy of one per cent will be computed for 12 months on the disbursed amount and adjusted upfront in the principal outstanding irrespective of whether the loan is on fixed or floating rate basis.

The Reserve Bank of India (RBI) and NHB will be the nodal agencies for SCBs and HFCs, respectively.

There has been a notable deceleration in the sectoral flow of credit to the housing sector, which is attributed to the rise in house prices, slackening income and the increase in interest rates on housing loans.

Analysts say a cut in interest rates should reduce the equated monthly installments (EMIs) of borrowers and create additional demand for housing. This in turn should stimulate demand in the construction sector as well as steel and cement industries having employment potential and income multiplier effect.

Experts feel though the scheme will help borrowers in small cities, it will not be of much benefit to those looking for houses in metropolises where the cost of even a two-bedroom flat exceeds the threshold of Rs 20 lakh.