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Rediff.com  » Business » Housing Finance: Interest subvention extended

Housing Finance: Interest subvention extended

March 02, 2011 12:54 IST

Budget Provisions

Housing loanThe following changes in the duties have been proposed in the Union Budget 2011-12:

Existing scheme of interest subvention of 1 per cent on housing loans extended to housing loan upto Rs 15 lakhs (Rs 1.5 million) where the cost of the house does not exceed Rs 25 lakhs (Rs 2.5 million) from the present limit of Rs 10 lakhs (Rs 1 million) and Rs 20 lakhs (Rs 2 million) respectively.

Enhance the provision under Rural Housing Fund to Rs 3,000 crore (Rs 30 billion) from the existing Rs 2,000 crore (Rs 20 billion).

Proposal to create Mortgage Risk Guarantee Fund under the Rajiv Awas Yojana.

This would guarantee housing loans taken by economically weaker section and lower income group households and enhance their credit worthiness.

The government has facilitated setting up of Central Electronic Registry under the SARFAESI Act, 2002 to prevent frauds in loan cases involving multiple lending from different banks on the same immovable property. This Registry will become operational by March 31, 2011.

Ticket size for housing loans for priority sector raised to Rs 25 lakhs (Rs 2.5 million) from 20 lakhs (Rs 2 million). This should benefit banks providing housing finance.

Budget Impact

Initiatives 1-4 will benefit both banks and Housing finance companies.

In addition, banks will also benefit from Ticket size for housing loans for priority sector raised to Rs 25 lakhs from 20 lakhs.
Within retail loans, banks have generally been aggressive in housing loans, and the above increase in limits make more home loans qualify for priority sector lending of the banks.

Generally priority sector lending are given lower weights, and therefore capital adequacy requirements are lesser.

Thus, the Budget has also made compliance with priority lending norms a bit more easier.

Stocks to watch

HDFC, LIC Housing Finance, GIC Housing Finance, Dewan Housing Finance

Outlook

Union Budget 2011-12 is positive for the housing finance sector.

The setting up of Electronic registry will bring transparency and reduce frauds in the mortgage finance segment.

Overall Union Budget 2011-12 is positive for Housing finance sector.

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