To boost demand for infrastructure and housing, the Reserve Bank of India (RBI) on Tuesday said banks would not have to maintain cash reserve ratio (CRR) or statutory liquidity ratio (SLR) and will not have to meet priority-sector lending targets for funds raised through bonds for extending credit to these sectors.
While the exemption from CRR and SLR requirements was announced by the Finance Minister in his Budget speech, the banking regulator further sweetened the deal by including loans for affordable housing.
Under the new definition of affordable housing, loans of up to Rs 50 lakh in metros for houses valuing up to Rs 65 lakh and those of up to Rs 40 lakh for houses valuing up to Rs 50 lakh in all other cities are now part of affordable housing.
Real estate players are happy. "Any easing will be to people's advantage. It will encourage people to go for own homes. It will increase demand for homes," said Rajeev Talwar, executive director, DLF.
The incentives will reduce the cost of funds for banks as they do not have to set aside funds for CRR or investment in low-yielding government bonds with the funds raised. If banks' cost of fund is reduced, they can pass on the benefit to customers.
Housing companies expect loan rates to come down by 25-50 basis points, but only over the medium term. Retail customers will have to wait for a while to get the benefit, as most banks offer home loans at base rate or with a marginal spread. So, unless banks decide to cut base rate - which is the function of both policy rate and cost of funds - customers will not have any benefit. Banks are not allowed to lend below the base rate, except for a few segments as specified by RBI. In addition, banks will get full benefit of the leeway only in 2020, as suggested by RBI.
In his annual report address to shareholders, HDFC Chairman Deepak Parekh had suggested the central bank should increase the limit of priority-sector housing loans from the current Rs 25 lakh in metro cities and Rs 15 lakh in other centres. Affordable loans account for around 40 per cent of HDFC's loan book.
Experts said banks would be in a more advantageous position than non-banking financial companies offering home loans, as the latter are already exempt from CRR, SLR and priority-sector lending requirements
While the exemption from CRR and SLR requirements was announced by the Finance Minister in his Budget speech, the banking regulator further sweetened the deal by including loans for affordable housing.
Under the new definition of affordable housing, loans of up to Rs 50 lakh in metros for houses valuing up to Rs 65 lakh and those of up to Rs 40 lakh for houses valuing up to Rs 50 lakh in all other cities are now part of affordable housing.
Real estate players are happy. "Any easing will be to people's advantage. It will encourage people to go for own homes. It will increase demand for homes," said Rajeev Talwar, executive director, DLF.
The incentives will reduce the cost of funds for banks as they do not have to set aside funds for CRR or investment in low-yielding government bonds with the funds raised. If banks' cost of fund is reduced, they can pass on the benefit to customers.
Housing companies expect loan rates to come down by 25-50 basis points, but only over the medium term. Retail customers will have to wait for a while to get the benefit, as most banks offer home loans at base rate or with a marginal spread. So, unless banks decide to cut base rate - which is the function of both policy rate and cost of funds - customers will not have any benefit. Banks are not allowed to lend below the base rate, except for a few segments as specified by RBI. In addition, banks will get full benefit of the leeway only in 2020, as suggested by RBI.
In his annual report address to shareholders, HDFC Chairman Deepak Parekh had suggested the central bank should increase the limit of priority-sector housing loans from the current Rs 25 lakh in metro cities and Rs 15 lakh in other centres. Affordable loans account for around 40 per cent of HDFC's loan book.
Experts said banks would be in a more advantageous position than non-banking financial companies offering home loans, as the latter are already exempt from CRR, SLR and priority-sector lending requirements
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