The Telegraph
Monday , June 23 , 2014
CIMA Gallary

Parekh recipe for housing

Parekh: Size matters

Mumbai, June 22: Deepak Parekh, the chairman of Housing Development Finance Corporation Ltd (HDFC), has asked the RBI to increase the ticket size of housing loans in the priority category to Rs 40 lakh from Rs 25 lakh.

Parekh, well respected in financial and industry circles, urged the central bank to increase the limit in his customary communication with the shareholders of HDFC.

“The RBI would do well to recognise that priority sector housing loans up to Rs 25 lakh in metropolitan cities and Rs 15 lakh in other centres is unrealistic when inflationary and other cost escalation factors are considered. Priority sector housing loans should be increased at least to Rs 40 lakh per unit,” he told in HDFC’s annual report for 2013-14.

The RBI mandates that banks should compulsorily deploy a part of their credit to some sectors. This includes loans of small amounts to farmers for agriculture and allied activities; to micro and small enterprises; housing and education loans and those meant for low-income groups and weaker sections.

According to the RBI norms, loans up to Rs 25 lakh to individuals in metropolitan centres with a population of over 10 lakh and Rs 15 lakh in other centres for purchasing or constructing a housing unit are priority sector advances. Similarly, loans of up to Rs 2 lakh for repairing damaged dwelling units of families in rural and semi-urban areas and up to Rs 5 lakh in urban and metropolitan areas are also treated as priority loans.

Besides, loans to any government agency for the construction of dwelling units or for slum clearance and rehabilitation subject to a ceiling of Rs 10 lakh per unit fall under this section.

According to RBI data, housing loans worth Rs 5,45,100 crore were outstanding as of April 18, 2014 against Rs 4,56,700 crore a year ago.

Parekh’s views have been endorsed by bankers as well. A senior banker told The Telegraph that the RBI should look at hiking the loan limit from Rs 25 lakh.

“They were last revised from Rs 20 lakh to Rs 25 lakh in 2011. However, the cost of owning a house has gone up after that, particularly in metros. This certainly calls for an upward revision in this limit,” he added.