Home loans up to Rs35 lakh to be cheaper in metros despite RBI rate hike

A revision of housing loan limits for priority sector lending (PSL) from existing Rs28 lakh to Rs35 lakh in metros could make home loans up to Rs35 lakhs cheaper despite RBI’s decision to raise repo rate by 25 basis points, thereby tightening the rate structure.

While announcing its monetary policy decision on Wednesday, RBI also revised upward the loan limit for low-cost housing for the economically weaker sections and low income groups from existing Rs28 lakh to Rs35 lakh in metropolitan centres, and from Rs20 lakh to Rs25 lakh in other centres while keeping the overall cost of the dwelling unit at Rs45 lakh and Rs30 lakh, respectively.
The upward revision of home loan limits under the priority sector loans has come as a boost to lenders as banks have to lend around 40 per cent of total loans to priority sectors like micro enterprises, borrowers from weaker sections, and agriculture sectors among others.
The default rates in housing loans in the range of Rs10 lakh to Rs35 lakh is comparatively low whereas in other sectors the default rates are high and banks tend to lend aggressively to those priority sectors where default rates are low.
Such priority sector home loans are eligible for subsidy benefits of Rs2.68 lakh from the central government under schemes like Pradhan Mantri Awas Yojna.
While banks welcomed the hike in priority sector home loan rate, saying that it would prompt banks to lower rates on small ticket home loan segment to increase market share, they are, however, critical on the issue of rate hike.
"The decision to hike the Repo rate by 25 basis points may lead to suppressed growth in the Indian real estate sector which has shown substantial resilience over the last 18 months," reports quoting Jaxay Shah, president, of real estate developer's apex body CREDAI National, as saying.
However, according to Niranjan Hiranandani, president NAREDCO, the hike of 0.25 basis points in the repo rate would not make a major difference to real estate. But, he said, in the long run, "we would prefer rates coming down".