Banks are optimistic about lending opportunities in affordable housing following the Reserve Bank of India’s (RBI) revision of loan limits under its Priority Sector Lending (PSL) guidelines.
PSL is an RBI-mandated policy requiring banks to allocate a fixed portion of their loans to key sectors that face credit shortages but are crucial for inclusive economic growth. For commercial banks (excluding regional rural banks and small finance banks), the PSL target is set at 40 per cent of net bank credit.
Key changes
Under the revised guidelines, effective from Tuesday, the RBI has restructured the PSL housing loan categories. Instead of two categories, there are now three, based on the population size of the city:
- Metropolitan centres (population of 50 lakh and above) — Loan limit: ₹50 lakh, with a maximum cost of ₹63 lakh.
- Centres with populations between 10 lakh and 50 lakh — Loan limit: ₹45 lakh, with a maximum property cost of ₹57 lakh.
- Centres with populations below 10 lakh — Loan limit: ₹35 lakh, with a maximum property cost of ₹44 lakh.
Implication
Senior bank officials believe these revised PSL guidelines will boost affordable housing, especially in smaller cities (Tier-IV, V, and VI), where both banks and non-bank lenders can cater to increasing demand post-pandemic.
The RBI has also increased loan limits for repairs of damaged dwelling units, which bank officials say will open up new lending opportunities.
A senior SBI official said that the revisions will help banks meet PSL targets more efficiently while supporting government initiatives like “Housing for All”. The bank expects higher loan disbursements, leading to stronger loan book growth and greater participation in the affordable housing segment.
Arjun Chowdhry, group executive and head — retail lending, cards and payments and affluent banking, Axis Bank, welcomed the move. “By incentivising access to affordable housing finance, banks can extend credit to an expanded set of deserving customers, while benefiting from regulatory incentives that help reduce the cost of lending for the segment. This will help to increase access to housing finance, promote affordable housing and growth of the segment,” he told The Telegraph.
A Motilal Oswal report described the revised guidelines as a significant step forward in helping banks manage their PSL portfolios more effectively. The expansion of PSL-eligible borrowers and greater lending flexibility in housing, education, and renewable energy sectors is expected to enhance financial inclusion.
