In a bid to provide relief to small home loan borrowers from rising interest rates, the government Tuesday said it will provide 1 percent subsidy on housing loans up to Rs.15 lakh, provided the cost of the property is not more than Rs.25 lakh.
The union cabinet headed by Prime Minister Manmohan Singh approved the proposal in view of the aggressive monetary tightening by the central bank that has made commercial borrowings costlier.
A budgetary provision of Rs.500 crore has been made for the financial year 2011-12 for implementing the scheme, according to an official statement released after the cabinet meeting here.
The new scheme is an improvement of the existing facility where the government provides interest subsidy on housing loans up to Rs.10 lakh, provided the cost of property is not more than Rs.20 lakh. The existing facility was introduced Sep 2009.
"Consequent upon raising the eligibility limit of the housing loan, limit of subsidy for an individual borrower would increase to Rs.14,865 for a loan of Rs.15 lakh," the statement said.
Housing loans have been rising sharply in the recent months due to monetary tightening by the central bank.
The Reserve Bank of India (RBI) Tuesday hiked key policy rates by 25 basis points, the 13th increase since January 2010, setting stage for further increase in housing and auto loans and other commercial borrowings.
The repurchase rate, or the interest the central bank levies on short-term borrowing by commercial banks, has been raised to 8.5 percent from 8.25 percent. Automatically, the reverse repurchase rate, or interest on short-term lending, gets hiked to 7.5 percent from 7.25 percent.
The government's move will negate the impact of rate hike on small home loan borrowers.
"The scheme provides interest subsidy on housing loans as a measure to generate additional demand for credit and to improve affordability of housing to borrowers in the lower and middle income groups," it said.
RBI and National Housing Bank are designated as the nodal agencies for implementing the scheme for scheduled commercial banks and housing finance companies respectively.
Souce: Economic Times