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Special package for home loan borrowers
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December 07, 2008 20:49 IST

In order to boost the troubled housing sector, the government on Sunday said public sector banks would soon unveil a package for those seeking home loans of up to Rs 20 lakh (Rs 2 million) and promised measures that would accelerate the "growth trajectory."

"Public sector banks will shortly announce a package for borrowers for home loans in two categories -- for loans of up to Rs 5 lakh (Rs 500,000) and Rs 5-20 lakh (Rs 500,000-2 million)," an official statement said, a move that signals cheaper credit for buyers for low and middle-class segments.

The government pointed out that there is a large unmet demand for housing in the country, especially for middle and low income groups.

Stating that housing is an important source of employment and generates demand for critical sectors, the Centre said that the housing sector would be kept under a "close watch" and promised that additional measures would be taken, as necessary, to promote an accelerated growth trajectory.

The demand in residential segment has declined in the last six months on account of high interest rates on housing loans and steep rise in property prices during last two to three years, experts said.

The government highlighted the RBI's decision to provide refinance facility of Rs 4,000 crore (Rs 40 billion) to National Housing Bank.

"In addition, one of the areas where plan expenditure can be increased relatively easily is the Indira Awas Yojna," the statement said.

Expressing disappointment on the economic package for housing sector, Parsvnath Developers [Get Quote] Chairman Pradeep Jain said: "Package for home loans borrowers is an eyewash. It is not going to spur demand."

To give a fillip to the real estate sector, particularly housing sector, the Reserve Bank of India [Get Quote] had on Saturday said that banks can classify housing loans up to Rs 20 lakh as "priority sector" advances, subject to a ceiling of 5 per cent of their total priority sector target.

Loans by banks to housing finance companies (HFCs) for on-lending to individuals for purchasing/constructing dwelling units may be classified under the priority sector, provided the housing loans granted by HFCs do not exceed Rs 20 lakh per dwelling unit per family, RBI had said in a statement.

The special dispensation for treating loans to HFCs as priority sector advances will boost lending to the housing sector, it added.

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