New Delhi, Oct. 21: Your watchman or office peon may be honest, yet banks will not give him a home loan because with his low salary, he falls in the high-risk category. That could change soon, though.
To ensure banks do not pull back their hands, the Centre will now act as a guarantor.
The ministry of housing and poverty alleviation is working on a “credit guarantee fund” aimed at helping provide housing to the economically weaker sections by nudging banks to lend up Rs 5 lakh to such people.
Under the scheme, aimed at those who earn Rs 10,000 a month or less, the government will pay off the loan if the borrower defaults.
The aim of the fund, which will have a corpus of Rs 1,200 crore, is to make the poor more “acceptable” as potential borrowers. “The question is not how many people we will be able to help. It will make the idea of giving loans to the poor acceptable to banks,” said Arun Kumar Mishra, secretary in the ministry.
Banks have long been wary of giving loans to financially weaker sections. Usually, such people have no guarantors. In other cases, the borrowers do not have property that can be mortgaged as security.
“Till now, banks have been more than happy to offer housing loans for the Rs 20-25 lakh category. But at least a third of the aspirants are people who can afford to spend only up to Rs 5 lakh on a house. This is the section we are aiming at,” said another official.
For several decades, governments had almost put a stop to construction of houses for economically weaker sections or low-income groups (LIG). The reason was that there were no buyers. “The people for whom these houses were constructed could not afford them as there was no support system. The others (those with higher incomes) did not want them,” added the senior official.
Of late, however, there has been shift in the pattern. Real estate consultant Cushman & Wakefield has predicted a huge demand for such homes. “There is going to be a very large latent demand for housing from lower income groups and economically weaker sections,” Akshay Kulkarni, Cushman’s India executive director, said.
The housing ministry has sent a draft of the scheme to the finance ministry. Once the clearance comes, the proposal will put up before the cabinet.
According to the scheme, banks will not send a notice to the borrower if he or she defaults on the first instalment of the repayment. If the person defaults on the second consecutive instalment, the government will pay the bank both instalments. “The government will act as a father figure and hand-hold till the person is not in a state to pay.”
So, what happens if the person defaults completely? The ministry is confident the number will be far lower than feared. “It is a myth that poor necessarily default on payments. We do not expect many defaulters,” Mishra said.
