Budget should give sops for home loan

Font Size

Print

Feedback

Email

Discuss

Related Articles

Column : Dialling into tax troubleColumn : A post-recession exit strategy -IColumn : In crisis, wear your balance sheetColumn : The problem with spending

: The recent ravages in global banking and its aftermath across the world, didn’t impact the country’s banking sector noticeably, which ended fiscal 2008-09 with very good results and impressive cost management strategies. With a recessionary overhang on the economy, Budget 2009-10 raises expectations to continue many of the policy measures to help sustain further growth in the sector.

We have a situation of ample liquidity, despite which credit growth has slowed down and banks are skeptical to lend, blaming rising NPAs and untempered cost of resources (deposits). So, lets look at the possible triggers, both from the demand and supply side to help resolve this impasse.

Mortgages and consumer loans helped drive growth in the banking sector over the last many years. The desire of owning a house at a reasonable cost, led to a surge in real estate housing projects, fed by rising capital market valuations and PE investments. Due to rising incomes, the demand for housing loans was not driven essentially by tax benefits on housing loans. All this has changed over the last 6-9 months and the Budget may do well to coax home loan seekers by increasing the eligibility under section 80C and offering lending banks some sops for disbursements under home loans. A further nudge to banks to lend at better rates over a longer tenor, could come with bank deposits receiving some “preferential” treatment over PPF/NSS and other similar “inflation insulated” schemes. In tandem, all benefits similar to pension schemes of insurance companies may gradually be extended to National Pension Scheme (NPS) products, to help banks push these schemes through their extensive branch network. Being the only available “social security” scheme of its kind, this needs to be pushed hard to help the unorganised sector manage, some of the costs of a downturn.

While the “mystery” over PLRs is deciphered and the real costs of lending identified, some preferential tax treatment for banks with better-cost management and loan quality would be worth looking into, to separate the better managed banks. This could be a step in the direction of risk-based pricing taking better shape and markets accepting the benefits of such a discipline.