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RBI cuts repo rate, takes additional steps to make home loan cheaper

Sunil Dhawan
Home loan, RBI, MCLR, repo rate, priority sector lending, housing,

Good news for borrowers as the home loan market is all set to be active again. With the RBI cutting the repo rate by a sizeable margin of 0.35 per cent, the cost of funds for the banking sector is likely to come down soon. As the cost of funds of banks, measured in MCLR (Marginal Cost of Funds based Lending Rate) falls, the home loan interest rate rate is expected to come down as well. Further, the RBI has taken another step that may result in the lowering of the cost of funds for NBFCs, and thus boost the home loan market in the near future.

The Reserve Bank of India (RBI) in its Statement on Developmental and Regulatory Policies issued on August 7, 2019, has stated that in order to ensure that credit to the priority sector is taken care of, while permitting banks to on-lend through NBFCs, it has decided to allow, subject to certain conditions, bank lending to registered NBFCs (other than MFIs) for on-lending to housing up to Rs 20 lakh per borrower (up from Rs 10 lakh at present) to be classified as priority sector lending. The detailed guidelines on the above measures will be issued by the end of August 2019.

Deo Shankar Tripathi, MD & CEO of Aadhar Housing Finance explains the impact, For non- priority sector loan and priority sector loans, banks always have some differentiatial interest of 25 bps. Normally banks which are short of priority sector portfolio, they lend to the NBFCs and HCFs 25 bps to 30 bps lower than the loan given for the non-priority sector. If Bank/HFCs gets loan at the lower rate, they definitely pass on to the customers. It will slightly benefit the customer but may not have a big impact. It will benefit those banks which are having short-fall in their priority sector disbursals but not for the other banks."

"While the limit for priority sector lending for housing has been enhanced from Rs 10 lakh to Rs 20 lakh, the scope of this move is limited to the affordable housing segment," says Shishir Baijal, Chairman & Managing Director, Knight Frank India.

RBI is of the view that the credit flow to certain priority sectors which contribute significantly to the economic growth in terms of export and employment the role played by NBFCs in providing credit to these sectors need to be recognised.

"Bank's lending to registered NBFCs for housing up to Rs 20 lakh per borrower is a positive news for the real estate sector. Transmission of the rate cuts to borrowers is important as wielding scissors on repo rate alone won't be enough," says Rohit Poddar, Managing Director , Poddar Housing and Development.

Parth Mehta, Managing Director of Paradigm Realty says,"The RBI reckons real estate to be economic growth reviver and hence has given priority tag to banks for on- lending to NBFC to further lend to home buyers for upto Rs 2 million which is in tandem with governments vision of housing for all by 2022."

Currently, the housing under priority sector has these limits:

i) Loans up to Rs. 5 lakh in rural/ semi-urban areas and up to Rs 10 lakh in urban and metropolitan areas for construction of houses by individuals, excluding loans granted by banks to their own employees.

ii) Loans given for repairs to the damaged houses of individuals up to Rs.1 lakh in rural and semi-urban areas and to Rs 2 lakh in urban areas.

iii) Loans granted by banks up to Rs. 5 lakh to individuals desirous of acquiring or constructing new dwelling units and up to Rs. 50,000 for upgradation or major repairs to the existing units in rural areas under Special Rural Housing Scheme of NHB