The Reserve Bank of India (RBI)'s move to bring housing loans of up to Rs 50 lakh under priority sector lending, against loans of up to Rs 25 lakh currently, is expected to provide a boost to home loan borrowers and real estatecompanies.

So far, those availing of home loans of up to Rs 50 lakh were paying 10-11 per cent interest. Now, with the new norms in place, they might see a fall of 25-50 basis points in rates in the medium term.

This is the second bonanza for home loan borrowers in the past few days. In his Budget 2014-15 speech on Thursday, Finance Minister Arun Jaitley had increased the deduction limit on account of interest on home loans from Rs 1.5 lakh to Rs 2 lakh.


On Tuesday, RBI said priority sector lending covered loans towards affordable housing - loans of up to Rs 50 lakh for houses worth up to Rs 65 lakh in Mumbai, New Delhi, Chennai, Kolkata, Bangalore and Hyderabad, and up to Rs 40 lakh for houses worth up to Rs 50 lakh in other centres.

"This makes things a lot easier and it is an encouragement for the housing sector," Keki Mistry, vice-chairman of HDFC, told CNBC-TV18. He added about 40 per cent of the company's total individual loans would now come under priority sector lending.

Sunil Rohokale, chief executive and managing director of fund manager ASK Investment Holdings, said, "Provisioning norms under priority sector are soft and banks need to set aside less funds for that. Since their cost of capital will come down, they will lend to borrowers in that bracket at lower rates." He added home loan borrowers at the lower end of the bracket would benefit and the move would primarily help buyers in Greater Noida, Hyderabad, Bangalore and Manesar in Haryana, where home prices were Rs 4,000-6,000 per sq ft and apartment sizes were 500-1,000 sq ft.

Niranjan Hiranandani, managing director of Hiranandani Constructions, said, "I think borrowers will get loans at a lower rates and it will ultimately help developers. Banks will get into this segment in a big way, as these loans are part of priority sector loans and home loans are the most secured."

Many believe as the worth of houses has risen, RBI has aligned priority loans in housing to current market values. In 2011, the limit for housing loans under priority sector was raised from Rs 20 lakh to Rs 25 lakh. "You would not get a home for less than Rs 50 lakh in municipal limits of big cities. So, RBI has done the right thing," Rohokale said. (Business Standard)