Cautious banks may sour ‘Housing for All’ dream

S C Dhall

Housing for All by 2022 seems to be a distant dream if one goes by the progress made on ground over the past three years. Lack of incentives like availability of land on cheap rates for developers and unclarity on the very concept of ‘affordability’are the major hurdles in the path of achieving the targets of this mission. The growth in housing loans under priority sector has fallen to 2 per cent in   2018, which is a cause of concern for the government’s mission.    

Under the Housing for All-2022 scheme, the target is to build two crore homes in the urban areas by 2022. However, this is a difficult target to achieve as the cost of land in bigger cities is prohibitive and due to this  low-cost  housing projects get relegated to areas from where commutation becomes a challenge.  

Banks, too, have not been able to give a thrust to low-cost housing segment due to capital constraints.

Lending to the affordable housing sector under the credit-linked subsidy scheme (CLSS), a part of the government’s flagship Pradhan Mantri Awas Yojana – Urban (PMAY-U), seems to have failed to catch the fancy of banks so far. Under the scheme, borrowers from economically weaker sections with annual household income of Rs 3-6 lakh are entitled to get 6.5 per cent interest rate subsidy for home loans up to Rs 6 lakh. MIG I (annual household income of Rs 6-12 lakh) and MIG II (Rs 12-18 lakh) will get interest subsidy of 4 per cent and 3 per cent for loans up to Rs 9 lakh and Rs 12 lakh, respectively.

The schemes for MIG are valid up to March 31, 2019. The rest are valid up to March 31, 2022. But banks are shying away from lending under the scheme fearing defaults. In fact, as many as 11 public sector banks have been put under prompt corrective action by the RBI for breach of risk threshold, including minimum capital requirement, asset quality and profitability.

A lot more due diligence is required for this segment of customers as their income level is under stress and the possibility of default is more. 

Moreover, there is usually a certain time lag between subsidy claim and settlement, and till then the borrower will be required to service the entire EMI. This could put pressure on his repayment capacity, said an executive of a bank, who did not want to be identified.

Who’s lending

However, housing finance companies (HFCs) are leading from the front with over 70 per cent share in disbursements. While HFCs have been able to come up with tailored products and processes aimed at tapping the segment, banks continue to focus on the large-ticket salaried customers for driving their home-loan portfolio.