RBI Increases the Range of Priority Sector Lending
Jun 26, 2018 Home Loan
The Reserve bank of India’s (RBI) decision to increase the range of priority sector lending (PSL) after its move to hike the interest rate by 25 basis points has an add on factor to boost the affordable housing sector. As the loans that are given under priority sector lending are much cheaper than the loan given by the banks in the ordinary course.
The RBI stated in a notification that, "In order to bring greater convergence of the priority sector lending guidelines for housing loans with the affordable housing scheme, and to give a fillip to the low-cost housing for the economically weaker sections and lower-income groups, it has been decided to revise the housing loan limits for PSL eligibility." In the same regard, RBI would issue a circular on June 30.
For instance, if someone is planning to buy a property in a metropolitan city and applying for a loan of about Rs 35 lakh, then this loan would fall under priority sector lending. But the cost of the property should not exceed Rs 45 lakh. Previously, loans up to Rs 28 lakh was considered under priority sector lending. While in other cities, a loan up to Rs 25 lakh would be considered under PSL. However, in this case, the entire cost of the property should not be more than Rs 30 lakh whereas earlier the limit was Rs 20 lakh.
In addition, the RBI has also raised concerns about the increasing number of defaults related to the small ticket housing loans. It indicated that it might tighten the norms to handle the loopholes in this segment. RBI said in a note that, “The Reserve Bank is closely monitoring this sector, and will consider appropriate policy response such as a tightening of the LTV (loan to value) ratios and/or an increase in the risk weights, should the need arise.”
The apex body further added, “After a careful analysis of the housing loans data, it has been observed that the level of NPAs (non-performing assets) for the ticket size of up to Rs 2 lakh has been high and is rising briskly. Banks need to strengthen their screening and follow up in respect of lending to this segment in particular.”
On June 19, RBI has further revised the existing limits for the economically weaker section (EWS) families and low income group category families who have an income of Rs 2 lakh per annum. The EWS and LIG category families can now take up home Rs 3 lakh and Rs 6 lakh per annum respectively.
The RBI stated in a notification that, "In order to bring greater convergence of the priority sector lending guidelines for housing loans with the affordable housing scheme, and to give a fillip to the low-cost housing for the economically weaker sections and lower-income groups, it has been decided to revise the housing loan limits for PSL eligibility." In the same regard, RBI would issue a circular on June 30.
For instance, if someone is planning to buy a property in a metropolitan city and applying for a loan of about Rs 35 lakh, then this loan would fall under priority sector lending. But the cost of the property should not exceed Rs 45 lakh. Previously, loans up to Rs 28 lakh was considered under priority sector lending. While in other cities, a loan up to Rs 25 lakh would be considered under PSL. However, in this case, the entire cost of the property should not be more than Rs 30 lakh whereas earlier the limit was Rs 20 lakh.
In addition, the RBI has also raised concerns about the increasing number of defaults related to the small ticket housing loans. It indicated that it might tighten the norms to handle the loopholes in this segment. RBI said in a note that, “The Reserve Bank is closely monitoring this sector, and will consider appropriate policy response such as a tightening of the LTV (loan to value) ratios and/or an increase in the risk weights, should the need arise.”
The apex body further added, “After a careful analysis of the housing loans data, it has been observed that the level of NPAs (non-performing assets) for the ticket size of up to Rs 2 lakh has been high and is rising briskly. Banks need to strengthen their screening and follow up in respect of lending to this segment in particular.”
On June 19, RBI has further revised the existing limits for the economically weaker section (EWS) families and low income group category families who have an income of Rs 2 lakh per annum. The EWS and LIG category families can now take up home Rs 3 lakh and Rs 6 lakh per annum respectively.
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