Now, home loans up to R15 lakh to get 1% subsidy

Written by fe Bureau | New Delhi | Updated: Oct 26 2011, 07:46am hrs
The government on Tuesday extended the 1% interest subvention scheme for small home loans of up to R15 lakh for houses costing not more than R25 lakh. This could soften the likely hit on home buyers from the Reserve Bank of India's (RBI's) latest interest rate hike. Earlier, the scheme was covering loans up to R10 lakh for homes costing up to R20 lakh.

The revised scheme will be implemented by the National Housing Bank as the nodal agency, with commercial banks and housing finance companies as participants. For the current financial year, the government has kept a budgetary provision of R500 crore for the scheme.

With Tuesday's decision, the limit of subsidy for an individual borrower will increase to R14,865 for a loan of R15 lakh on reducing balance, from the present limit of R9,910 for a loan of R10 lakh.

Banks are likely to increase both lending and deposit rates following the RBI action. There could be a minimum 25 basis points rise in the lending rate, said Oriental Bank of Commerce Executive Director S C Sinha. Echoing Sinha's views, IDBI Bank Executive Director R K Bansal said, The lending rate would certainly go up on two counts - one, RBI has raised policy rate and second, deregulation of the deposit rate on savings bank accounts."

However, the government's decision to expand the coverage of interest subvention scheme would reduce the impact of interest rate hike as home buyers could get loans at 1% lower interest rate if they borrow up to R15 lakh for house costing up to R25 lakh.

The government also approved an increase in India's quota in the International Monetary Fund (IMF) as a result of the Fourteenth General Review of Quotas that would pull all BRIC countries (Brazil, Russia, India and China) among the 10 largest quota shareholders at the multilateral lending agency.

Indias quota share at the IMF will increase from 2.44% to 2.75%, making it the eighth largest quota holding country at the body.

Indias gain in quota share is the seventh largest in this round of quota review.

In absolute terms, Indias quota will increase from SDR 5,821.5 million to SDR 13,114.4 million. SDR is an international reserve asset created by IMF and can be exchanged for freely usable currencies.