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Going may get tough for home finance firms

Mumbai, Dec. 27: The Kelkar panel on tax reforms has watered down its proposal to abolish sops on housing loans, but its latest proposals might catch the aggressive housing finance companies on the wrong foot.

While sticking to his earlier position that tax deduction allowed on mortgage paybacks of up to Rs 1.5 lakh annually will have to come down to Rs 50,000, Kelkar, however, suggested an interest subsidy of 2 per cent for housing loans up to Rs 5 lakh at a later date.

The latest series of recommendations brought forth charges that the government was likely to indulge in “cross subsidies”. The housing finance industry—on an upswing of late—has seen the entry of many banks, as it was among the few sectors that were growing and also because of the safety factor in housing mortgages.

Analysts tracking the industry said HDFC and SBI could be among the few agencies that may emerge unscathed from the recommendations. This is because the average size of HDFC loans is Rs 3.7 lakh, well below the Rs 5-lakh bracket set by the Kelkar panel.

HDFC and SBI will not be affected much as they have a huge presence in the smaller metros due to their reach, while the new banks are focussing on the metros to increase market share. Banks like ICICI have an average loan size of Rs 8-9 lakh, they said.

Kelkar appeared unfazed by criticism of his draft proposals, adding the new proposals will help prospective house-builders whose income is less than Rs 1 lakh. The tax rebate of up to Rs 50,000 on housing loans interest payments would continue until the 2 per cent interest subsidy was implemented, as 85 per cent of the borrowers fall in this bracket.

Industry analysts say most borrowers based in the metros may lose some rebates.

Kelkar, advisor to finance minister, had, in his consultation paper, sought scrapping of the Rs 1.5-lakh income deduction allowed on interest payment for housing loans, which came under severe attack from various sections including the BJP itself.

Relief to banks

The Kelkar task force today proposed amendments in income tax legislations to provide relief to banks and financial institutions for shoring up their profits even after providing for non-performing assets, now at over Rs 1,10,000 crore, says PTI.

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