Home loans to be cheaper as RBI eases lending norms

New Delhi: In a big boost to real estate developers and property buyers, the Reserve Bank on Tuesday said long-term bonds raised by banks for infrastructure and affordable housing lending will be exempted from mandatory reserve requirements. The RBI’s move comes within days of Finance Minister Arun Jaitley’s Budget proposal last week.

In simple terms, the RBI has done away with some of the stringent norms to incentivize banks to lend for affordable housing and infrastructure development.

Former State Bank of India chairman Pratip Chaudhuri said interest rates on home loans might fall by 40-50 basis points (0.5 per cent).

A back-of-the-envelope calculation shows that a 50 basis point drop in interest rate on a Rs 50 lakh loan for 20 years will bring down EMIs by over Rs 1,700 per month. However, only new home loans will qualify for cheaper interest rates, Chaudhuri said.

The Reserve Bank has also changed the definition of affordable housing to factor in rising property prices and inflation. In the six metros, housing loans up to Rs 50 lakh (for property valued up to Rs 65 lakh), while in other cities, housing loans up to Rs 40 lakh for property valued at Rs 50 lakh will qualify as affordable housing, the central bank said.

The new government’s focus on housing sector has given a fresh lease of life to the real estate sector, which has been struggling under high interest rates and economic slowdown. In his first Budget presented on Thursday, the Finance Minister had announced a proposal to raise the tax-free cap on home loan interest for self-occupied property from Rs 1.50 lakh to Rs 2 lakh.

 

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