Why HBA is better than House Loan granted by PSU banks?

It is a fact that after implementation of Sixth Pay Commission recommendations House Building Advance (called as HBA) granted by Central Government to its employees lost its charm as it is no longer a house loan commensurate with the present cost of construction.

Click here to Read GConnect article for details of HBA Scheme revision after 6CPC

The very term “pay in pay band” put in the place of “Basic Pay” after 6cpc implementation has made most of the damage as it has reduced the eligible amount of HBA. Alternatively, Pay in Pay band plus Grade pay should have been taken for calculation of eligible amount of HBA, as Pay in pay band + Grade pay form the Basic Pay of an employee after 6CPC for all purposes (For example DA, HRA, NPA etc are calculated only based on pay in pay band + grade pay).

So, it is a common grievance of all Central Government Employees that HBA should be based pay in band and Grade Pay.

The remaining damage for reduction of eligible amount of HBA are done by the conditions after 6CPC that Maximum ceiling of HBA is Rs.7.5 lakhs and that number of times of pay in pay band taken for calculating eligible HBA amount is 34 times only.

Why HBA is better than House Loan granted by PSU banks?

The very reason for which a Central Government Employee wanted to go for HBA rather than house loan granted by all PSU Banks and financial Institutions is the rate of interest charged for House Loan. While House Building Advance Scheme of Central Government charges interest ranging from 6.5% to 9.5% from the year 2003 depending on HBA amount sanctioned, PSU banks or financial institutions charge not less than 10.5 % presently. The other major benefit in the House Building Advance Scheme is the Quantum of monthly recovery. While PSU Banks recovers part of Principal and Interest at the same time on monthly basis which is called as EMI, HBA Scheme allows for recovery of principal amount only, for a period up to 180 months and interest thereafter for a period not exceeding 60 months. So, the quantum of monthly recovery amount for a particular loan amount under HBA scheme would be very lesser than EMI charged for same Loan amount taken from PSU banks.

We hope Government would come up with suitable amendments to rectify this common grievance of central government employees soon.

In fact, as per 6CPC recommendations the existing HBA scheme should be replaced with a New HBA Scheme as per which Government should tie up with leading PSU Banks for grant of housing loan at competitive rates to Central Government Employees and out of the interest charged by the banks for the housing loan, 2% of the interest should be subsidized by the Central Government (In the case of employees with disability the interest subsidy will be 4%).

However, this new HBA scheme is yet take off and in the mean time Ministry of Urban Development has issued Office Memorandum No: I-17011/11(4)/2008-H.III dated 27.11.2008 for revision in house building advance in which Maximum ceiling for cost of construction, HBA amount ceiling and number of times of pay in pay band to calculate eligible HBA have been revised to Rs.30 lakhs, Rs.7.5 lakhs and 34 times of pay in pay band respectively.

Click here to Read GConnect article for details of HBA Scheme revision after 6CPC

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