Assocham ask to increase cap on priority sector home loans
By Joseph Samson
Dec 11, 2008
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The Associated Chambers of Commerce and Industry of India (ASSOCHAM) ask Reserve Bank of India (RBI) to increase the cap on priority sector home loans from Rs 20 lakhs to Rs 40 lakh. The industry body asks RBI to raise the limit in at least the metro cities including Delhi, Mumbai, Chennai and Kolkata as the property prices are increasing at a faster pace in these places.

Assocham stated that, "The housing loan limit classified as priority sector advances should be increased to Rs 40 lakh in case of the metro cities, which account for 94 cent of the capital investment made in the sector."

Recently RBI has announced the priority sector status for housing loans up to Rs. 20 lakh. The apex body said: "Loans granted by banks to housing finance companies (HFCs) for on-lending to individuals for purchase/construction of dwelling units may be classified under priority sector, provided the housing loans granted by HFCs does not exceed Rs 20 lakh per dwelling unit per family."

RBI has also declared Rs. 4,000-crore refinance facility for the National Housing Bank. Bankers in the industry feel that though RBI has announced a slew of measures to increase the flow of funds to the sagging real estate sector yet there is a need for an adequate support from the government's side.

On December 7th, when government announced the fiscal stimulus package, it also said that the public sector banks will soon disclose a scheme for home loans up to Rs 20 lakh. Under the new scheme, home loans up to Rs 5 lakh are expected to be offered at around 7% while those above Rs 5 lakh and up to Rs 20 lakh may be granted at around 8%.

Bankers also feel that to facilitate credit flow into the cash-strapped real estate sector by the banks, risk weight on such loans need to be reduced. The officials from real estate, steel, cement, automobile and engineering have said that the government's fiscal stimulus package is ‘highly inadequate' for generating demand and jobs in the industry.

In order to raise banks exposure to this sector, RBI has also relaxed asset classification norms for commercial real estate advances.

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