Taking forward the announcement made in Budget 2014-15 to encourage infrastructure investment, RBI has permitted banks to raise long-term soft funds from the market to finance such loans.
The loans will, however, not be applicable to builders. An RBI circular, issued on Tuesday, noted, housing loans to individuals up to Rs 50 lakh for houses of values up to Rs 65 lakh in the six metropolitan centres will get the concession. In other cities the upper limit will be Rs 40 lakh for houses of values up to Rs 50 lakh. It added that RBI will periodically review the definition of affordable housing on account of inflation.
Banks had been resisting giving out large and long-term loans for infrastructure sectors including housing as they do not raise long-term finance. The RBI circular has now permitted the banks to raise such funds without being hobbled by restrictive conditions like fulfillment of investing part of the money so raised in safe government securities.
The banks can lend the money to people who walk in for home loans into their banks at attractive rates from now. The BJP manifesto promised low cost housing to all by 2022.
The RBI has made it clear that its regulatory forbearance will be restricted to the bonds that are used to incrementally finance long-term projects in infrastructure and loans for affordable housing.
The shortage of houses in urban India is estimated at close to 19 million as per National Housing Bank data. Another estimate says that it takes more than five years annual income to pay for a house in the non-metro cities. Thus, the available housing stock is priced mostly out of reach for even middle income housing groups.
The RBI circular says that those in the lowest income bracket, who are entitled to priority sector lending, will continue to get the support from the government and the banking sector, unchanged. Navin Raheja, chairman of Credai, the apex association of realtors, said, Giving affordable housing infrastructure status will boast the housing sector in India. This will help developers to mobilise cheaper finance for development of affordable housing and will result into cutting in prices of housing in long term.
The RBI notification states that the seven-year bonds to be raised by banks must be issued in plain vanilla form without call or put option with a fixed or floating rate of interest. The floating rate of interest should be referenced to market determined benchmark rates. The bonds may be issued through a public issue or private placement in full compliance with Sebi guidelines/norms including mandatory rating and listing, it said.
In another notification to banks on flexible structuring of long-term project loans to infrastructure and core industries, the RBI also said its instructions do not come in the way of banks structuring long-term project financing products if the prudential and regulatory framework is meticulously observed while structuring such products. This means banks are free to project loans with long maturities of 25-30 years. In order to ensure stress free repayment of such long gestation loans, their repayment tenor should bear some correspondence to the period when cash flows are generated by the asset, it said. The RBI has not prescribed any ceiling or floor on repayment period of loans, except in the case of special regulatory treatment for asset classification on restructuring.
Banks have been representing to the RBI that they are unable to provide such long-tenor financing owing to asset-liability mismatch issues. To overcome the asset liability mismatch, they invariably restrict their finance to a maximum period of 12-15 years.
Its heartening to see the RBI encouraging financing for affordable housing, on par with infrastructure. This will generate a huge number of jobs in addition to homes for Indias aspirational citizens, said Shailesh Pathak, executive director, Bhartiya Group.