One of the several sweeteners the finance minister announced during Budget 2011 has become reality. On 21 April, the Reserve Bank of India (RBI) notified scheduled commercial banks to implement the new guidelines pertaining to the interest subvention or subsidy on home loans with immediate effect.
Accordingly, homebuyers will now get an interest subvention of 1% on home loans up to Rs 15 lakh for buying or constructing a home within the overall cost of Rs 25 lakh. This subvention will be available to loans sanctioned between 1 April 2011 and 31 March 2012. The subsidy will be applicable on repayment of the first 12 equated monthly instalments (EMIs); thereafter, the borrower will have to bear the applicable interest.
The subvention will be granted on both fixed and floating interests rate loans. The scheme will cover all states and Union territories and will extend to both rural and urban areas.
The scheme would be implemented by scheduled commercial banks and housing finance companies registered with the National Housing Bank (NHB).
Says K. Unnikrishnan, deputy chief executive officer, Indian Banks’ Association, “RBI has just issued the circular so it will take some time for the instructions to reach branch offices.
Housing finance companies are likely to implement the subvention faster as that is their sole business.” Among the banks and housing finance companies Mint contacted, HDFC Ltd has already implemented the scheme.
According to the notification, the scheme realizes that a cut in interest rates has an important role to play in reducing the EMIs borne by the borrowers and hence will create additional demand for housing. However, the benefit it offers consumers is minimal.
Says Pankaj Kapoor, managing director, Liases Foras Real Estate Ratings and Research Pvt Ltd, a property consultant firm, “If you look at major metros, then the supply of homes available in the range specified by this scheme is very limited. An average home will cost you about Rs 35 lakh onwards, especially in Mumbai Metropolitan Region and National Capital Region.”
Under the earlier scheme, which ended in March 2011, an interest subvention of 1% was available on home loans up to Rs 10 lakh to buy a home that cost not more than Rs 20 lakh.