The ceiling for annual income in Kerala under the Pradhan Mantri Yojana Housing For All-2022 scheme has been raised. According to the new rates, city residents with annual incomes of up to Rs.18 lakh a year can receive an interest subsidy of 3% for home loans up to Rs.12 lakh.
Those with an annual income up to Rs.12 lakh a year are eligible for a 4% interest subsidy on housing loans up to Rs.9 lakh. This scheme is in addition to the existing scheme which provides housing loans of up to Rs.6 lakh to city residents with an annual income lower than Rs.6 lakh at 6.5% interest per annum.
The loans will be available for the construction, purchase or renovation of homes and a separate subsidy will be payable to government officials who pay income tax if they choose a loan under the scheme.
SBI has been very busy in the past two weeks, first with the reduction in MCLR and now have come out with a special financing scheme called Hope Loans that offer low interest rates. For example, if one were to take an Rs 50 Lakh loan for a tenure of 30 years, they would save close to Rs 3.5 Lakh at the end of the tenure as compared to taking the loan the same period last year.
Under the Credit Linked Subsidy Scheme for MIG (Middle Income Group) implementation, a borrower can avail a interest subsidy of 3-4% on home loans. To enable this initiative of 'Housing for All', the government has brought together some of the major banks and realty firms to facilitate home loans at subsidized interest rates. One of the outcomes of the initiative has been the India Home Loan Limited entering into MOU with National Housing Bank. Under the MOU, India Home Loan Limited will be provided with interest subsidy for loans that sanctioned to various borrowers under this scheme.
The Indian health insurance segment seems to have had the best ever year with the ending of the fiscal year 2017, recording its highest ever revenue. This boost is being attributed to the ever increasing incidences of lifestyle-related health complications and rising medical costs. IRDAI data indicates that the health insurance segment witnessed a significant 24% year-on-year growth, with revenues standing at Rs.30,765 crore for 2016-17, as compared to 22.4% growth in 2015-16 and 15.6% growth in 2014-15.
The health insurance segment, which makes up for nearly 24% of the general insurance sector as a whole, has displayed a high growth curve for the last 3 years. The rising rate of inflation in the world of medical care is the primary reason why more and more people are now opting for health insurance. In India, costs of medical treatments are going up by almost 10 to 15% every year. Another reason why more and more people are gravitating towards health insurance is because their employer provided/corporate health insurance plan does not cover all medical conditions. More and more salaried people are now opting for individual health covers or top-ups on their existing employer provided health insurance plans in order to combat the steep rise in healthcare costs.
Standalone health insurance companies have recorded rapid growth of more than 40% and are far ahead than their fellow private general insurers and public sector players who have recorded a growth of 15% and 23% respectively. Star Health Insurance, the largest stand alone health insurance provider recorded a 47% year on year growth. Other standalone health insurance providers like Max Bupa, Apollo Munich, Religare and Cigna TTK recorded growth between 20-40%.
Star Health and Allied Insurance Company launched a revised version of Star Comprehensive Insurance Policy on April 20th 2015. The revised is an upgraded variant of the existing health insurance policy which has a few added inclusions with no extra premium.
The inclusions include, air ambulance cover up to 10% of sum assured subject to the sum assured being of Rs. 7.50 Lakhs and beyond. The addition also comprises of coverage for bariatric surgical procedure and the expenses of hospitalisation, etc. that the insured incurs thereof. The policy offers covers hospital expenses up to a limit of Rs. 2,50,000 during the policy period.
Not just that, the updated version of the policy also offers the insured with the facility of soliciting a different opinion from any specialist of the company’s network. The policy also covers outpatient medical consultation expenses except ophthalmic and dental.
Rs.2 lakh interest deduction per person can be availed in case of a joint loan. This suggests that you and your spouse can individual; avail deduction of Rs.2 lakh. In case the deduction was given under Section 80CCC after surrendering the pension plan, the tax will be applicable on the fund credit along with the bonus or interest.
Certain provisions under the IT Act need a person to deduct tax only if the gross receipts, turnover or sales exceed an amount of Rs.1 crore. So, even if the accounts have been audited, since the turnover is not more than Rs.1 crore, you will not have to go under TDS deduction.
State Bank of India, one of the largest banks in India, cut down its base rate by 15 bps (basis points). This brought the rate down to 9.1%. The rates have come into effect on and from April 1, 2017.
As per the estimates, around 40% of the floating rate loans have been linked to MCLR. The rest, however, are still associated with base rate. No changes were made in the marginal lending costs.
Under the Credit Linked Subsidy Scheme for Middle Income Groups (CLSS-MIG), when an individual in the group of Rs.6 lakh to Rs.18 lakh applies for their first home loan, he/she is eligible to take advantage of the interest subsidy offered by the government as part of the 'Housing for All' scheme. This scheme enables an individual to save as much as Rs.2000 on EMIs every month towards the payment of the home loan. There are many banks and reality firms who have come together to offer affordable housing for all. This scheme has been a part of the initiative since it was announced at the end of the last year.
The government has taken an initiative to provide a subsidy on home loan interest under the Pradhan Mantri Awas Yojana (PMAY). Last week, the government has announced the procedure to apply for the subsidy. The subsidy scheme is a part of the government’s ‘Housing for All’ initiative that was announced by PM Narendra Modi. Under this scheme, a home loan borrower can get a subsidy of 4% for loans up to Rs.9 lakh. The scheme is also known as Credit Linked Subsidy Scheme for Middle-Income Groups - CLSS (MIG) and applicable for middle income groups (MIG) with an annual income of Rs.6 lakh and above up to Rs.18 lakh per year. Also, the subsidy is allowed where an individual is buying his/her own house for the first time.
Home Loan Balance Transfer: Is it a Good Idea?
Home loan balance transfer is being considered by an increasing number of individuals across the country, and here’s why: Firstly, the rates made available by lenders, which are based on market conditions as well as other lending institutions, are quite attractive. Secondly, the fact that interest rates are lower, the EMI’s you will pay towards the end of each month will also come down to a considerable extent, thereby enabling greater savings. Then, the fact that EMIs can be paid off on time considering they are relatively low means that there will be an improvement in your credit score.
Considering the benefits you can avail through it, a home loan balance transfer is a good idea.
The Retirement Fund body, Employee Provident Fund Organisation (EPFO) is all set to launch a housing scheme that will allow its 40 million subscribers to make down payments for loans and pay their EMIs through their EPF Accounts. To avail this facility, subscribers as well as employers will need to form a group housing society to tie up with banks, builders or home sellers. Each housing society formed for this purpose will require a minimum of 20 members. The various benefits available to the subscribers can be clubbed under various central and state schemes, such as, the Pradhan Mantri Awas Yojana (PMAY). The EPFO will provide a certificate indicating the member’s repayment capacity, thereby, improving the individual’s creditworthiness. The EPFO will not be party to any agreement between the home buyer and seller and will not involve itself in any dispute or legal battle. In case of a dispute, the EPFO can exercise its right to stop the down payment or monthly instalment of the loan on request of the promoter or the executive head of the housing society.
Borrowers who previously enjoyed tax benefits on the properties they had made available on rent are in for bad news as the government has reduced such benefits. During the Budget 2017-18 speech, the Finance Minister of India, Mr Arun Jaitley, said “"In order to address the existing anomaly of interest deduction in respect of let out property vis-a-vis self-occupied property, it is proposed to restrict set off of loss from house property against income under any other head during the current year up to Rs. 2 lakh. The loss not so set off would be allowed to be carried forward for set off against house property income for eight assessment years.
As per the prevailing tax laws, borrowers can subtract the whole interest paid on home loan provided the rental income has been adjusted, for properties that have been rented out. However, individuals who have taken a home loan for self-occupied properties can avail a deduction of Rs.2 lakhs per annum provided the rental income has been adjusted, and the amount in excess of Rs.2 lakhs could be carried forward for eight assessment years.
Male or female, the purchase of a home is considered one of the greatest moments in an Indian’s life, and the fact that interest rates have been falling thanks to huge deposits received by banks owing to demonetisation has made banks receive a higher number of queries for home loans. What’s more? Banks and financial institutions have also started offering special features and attractive interest rates for women who wish to avail home loans. Since home loans are usually granted in relatively large amounts for a considerable duration, the expenses incurred by a borrower are higher if the interest rate is high. This is where female borrowers benefit as most banks offer a concession on the interest rate by around 0.05% so that it is easier for women to borrow and repay a home loan.
The Ministry of Housing and Urban Poverty Alleviation has approved construction of 90,095 houses to assist India’s urban poor under the Pradhan Mantri Awas Yojana (PMAY) scheme. The investment for these houses has been Rs.5,590 crore with a central assistance of Rs.1,188 crore. Under the Pradhan Mantri Awas Yojana scheme 16,51,687 houses have been approved for construction with a total investment of Rs.25,819 crore. The PMAY has seen large success throughout the country and has helped many of the poorer sections of society in India by pro[viding them with pucca houses, thereby, improving their living conditions.
The budget is expected to aid banks in cutting rates by 50 to 75 BPS by September so that the impact of demonetisation are offset in the second half of the present year, according to a research note released by BofA-ML (Bank of America Merrill Lynch). Arun Jaitley, the Finance Minister of India, has reduced the fiscal deficit target to 3.2% of GDP for 2017-18, lower than the 3.5% target for 2016-17.
In an effort to increase the number of homes built in rural areas under the Pradhan Mantri Awas Yojana (PMAY) scheme to 33%, the government has decided to provide an interest subvention 3% and 4% for loans of Rs.12 lakh and Rs.9 lakh respectively. The subvention of interest rates by the government is expected to boost the number of homes being built in semi-urban and rural areas by lower income groups. The aim of this move is to make funds more accessible to lower income groups to build homes and is part of the Prime Minister’s vision of Housing for All by 2022.
Piramal Finance Pvt. Ltd. plans to start lending to smaller corporate groups, lend to newer sectors, form a joint venture platform for investments that are related to slum redevelopment and also begin housing finance operations within a period of four months. Piramal Finance Pvt. Ltd. comprises the complete financial services business of the Piramal group. This firm that is based out of Mumbai is setting up a new line of business wherein the focus is on emerging corporate lending, for all transactions that are between Rs.30 crore to Rs.90 crore, similar to lending to SME which is a segment that has not been tapped as of yet.
At the beginning of 2017, Piramal Finance announced its new housing finance business wherein 70% to 75% of its lending book will provide housing finance to individuals and the rest will consist of construction loans of a maximum of Rs.50 crore to small developers. Under the real estate investment business, this company is at an advanced stage of forming a joint venture with other investors to do structured lending deals and equity in slum redevelopment projects in Mumbai.
Despite the fiscal front having challenges, Budget 2016 is foreseen to give tax payers some relief. Finance Minister Arun Jaitley had proclaimed more tax benefits for taxpayers in the last 2 budgets, making people expect more tax sops. Income tax exemption limit may be increased, according to analysts. This step will be taken to increase consumption. Also, more tax deductions are expected to be announced in order to encourage savings.
One of the income tax chances that are expected by experts is the basic income tax exemption limit being increased from Rs. 2.5 lakh. It is believed that this number should be concurrent to inflation and subsequently increased automatically each year.
If the builder of your apartment has been delaying giving its possession to you, and you are worrying about experiencing a loss in the tax benefits, then the new norms as per the Union Budget 2016 puts an end to all your fears.
Currently, the government permits a deduction, only from income of a maximum of Rs 2 lakh. This is for interest paid on a home loan availed for buying his/her own house only if he/she gets its possession within a maximum three years. This period starts as soon as the financial year in which the loan was taken ends. As per the present Union Budget 2016 this tenure has been stretched up to a period of 5 years.
As this change has been proposed, it is expected to come into effect from April 1, 2017.
Rajasthan’s Apex bank, Rajasthan State Co-operative Bank Ltd. has reduced its interest rates in several sectors to contend with some of the fierce competition it is facing from several private sector and nationalized banks. The new interest rates will be effective March 20th, 2017 onwards. The bank has said that it will reduce its interest rates on home loans from 9.30% to 8.75%, putting it on par with most public sector banks, it will also reduce the interest charged for vehicle loans, commercial vehicle loans will have a 13% p.a. interest rate instead of the earlier 14%, and non-commercial vehicles will 9.70% p.a. interest rate instead of the earlier 9.85% p.a. A loan of Rs.1 lakh for 20 years under the new interest scheme will have an EMI of Rs.884. A car loan of Rs.1 lakh for 7 years under the new interest rates will have an EMI of Rs.1645. Customers will also have the option of fixed rate of interest on their housing loans, which will be fixed at 9.75% p.a., this will make the customer immune to increase in interest rates.
Current economic uncertainties have contributed to a growing number of aspiring home owners becoming sceptical about availing home loans and buying a home. One of the most important questions to which these aspiring home owners can find no answer is whether or not it would benefit them by renting out a property and patiently wait for price correction.
Individuals who are considering the idea of renting a property have many different aspects to think about. Firstly, the location and the project will determine how affordable a purchased or rental property is. Any individual who has the resources to buy a property in a particular location probably won’t have adequate finances to also pay rent for an apartment in another posh location in the same town or city. Secondly, the future plans of the individual also come into the fray. He/she will have to figure out whether or not they want to just purchase a property for the sake of drawing rental income, or whether they would use the property for themselves. Renting an apartment would make more sense as there may be an opportunity to save more money, after which they can perhaps purchase a home in a better locality.
Individuals who are sure of purchasing a property for their own use are urged to make the most of present market conditions as real estate is currently on the rise and a number of on-going projects have made quality properties available in relatively posh residential localities. Thanks to demonetisation, interest rates related to home loans have also declined to a significant extent. For instance, Kotak has lowered its home loan interest rate to 8.6%. Prior to demonetisation, the bank’s home loan interest rate stood at 9.25%. If you wish to purchase a home, there may not be a better time to avail a home loan than the current period.
Personal finance experts consider taking out a home loan to purchase a house to be a smart move, unlike getting other long term liabilities.
Cars and other such personal goods cannot be really considered as an asset, but a house can be seen as one. One of the biggest highlights is that you will be getting a tax benefit with a home loan. An exemption of up to Rs. 1.50 lakh on principal payment and Rs. 2 lakh deduction towards interest component can be availed under Section 80C of the Income Tax Act.
The government is reworking on Pradhan Mantri Awas Yojana (PMAY). Through PMAY, the government aims to provide housing to all by 2022 and solve the housing problem of India’s urban poor. Two changes are currently made to the scheme. First one is related to the people included in the scheme. Initially only the people belonging to LIG (low income group) and EWS (economically weaker section) categories who earn Rs.6 lakhs and Rs.3 lakhs respectively. The government is planning to add two new subsidy slabs, which will include people who earn up to Rs.18 lakhs and Rs.12 lakhs p.a. in the scheme. The second important change is that 30 sq.m limit will be applicable only in 4 metropolitan cities, in the other cities, 60 sq.m limit will be applicable.
The union cabinet recently approved the extension of the duration of loans under the CLSS (Credit Linked Subsidy Scheme) vertical of Pradhan Mantri Awas Yojana Mission from 15 years to 20 years. The cabinet also introduced the scheme for the middle income group category. The amount of money allocated for 2017-18 is Rs.1,000 crore. The lower income group and the economically weaker sections of society are the main targets of the scheme.
Potential home buyers have a reason to rejoice as interest rates are reducing for home loans. As of now, the rate of interest that is prevalent in the market is 8.6% which is the lowest in the last 8 years. The last time rate of interest was lower was between the years 2006 and 2008 when the rate of interest fell to 7.75%. Starting with the State Bank of India, other banks such as Punjab National Bank, IDBI Bank and Union Bank of India have reduced rates.
Experts also believe that the recent demonetization drive would help increase demand as banks have a lot of funds currently.
The government has recently approved 3% interest subsidy on home loans for up to a maximum of Rs.2 lakh in the rural areas. The National Housing Bank (NHB) will implement this scheme and the government would provide the interest subsidy of 3%. This will ease the EMI burden for the lenders and help the government in achieving the mission of housing for all. This scheme won't be applicable for housing covered under Pradhan Mantri Aawas Yojana (Grameen). The upcoming Union Budget 2017 might bring various positive news that will ease the home loan procedures.
Ever since the day demonetisation was introduced, which was on November 8th, the real estate industry took a massive hit. However, to salvage that the union government is likely to offer a few tax incentive on home loans for new borrowers in 2017.
According to reports, the tax benefit on interest repayment will be increased provided the loan repayment is more than Rs.2 lakh per year.
This move was initially hinted by Prime Minister Narendra Modi during his New Year’s speech and is believed to calm the nerves of taxpayers and home loan borrowers alike.
The NDA leader had said that 4% rebate would be given for loan payments of Rs.9 lakh, 3 percent for loans up to Rs.12 lakh, and 2% for a loan of Rs.20 lakh.
All these developments are expected to be introduced on February 1st during the 2017 edition of the budget. Also, the government is advancing the budget so as to allow the allocation of funds to various news schemes from April 1st of this year.
This budget is also going to be a historic one as the government has merged both the union and rail budget for the first time in 92 years.
According to the ICRA, a credit rating company, the ongoing cuts in interest rates on home loans will increase competition in the home loan market. The competition will be especially high in the prime salaried segment of the 13-lakh crore market. Though the interest rate cuts are applicable only to new loans, the banks have offered their customers the option to switch their loans from the base rate system to the new MCLR for a minimum fee. State Bank of India was the first lender to cut its lending rate by 50 bps to 8.60%. Following SBI, various other lenders are now offering interest rates ranging from 8.5% to 8.7% compared to their earlier rates of 9.1% to 9.3%.
The upcoming budget of 2017 is probably going to be the most important budget for the Narendra Modi government since its ascent to power. The government will have to resort to some damage control post demonetization and also offer some SOPs to the general populace to soothe the burns of the current cash crisis, with assembly elections also round the corner.
Some major tax relief might be on the way for the middle class and salaried individuals. The Minister of Finance, Arun Jaitley hinted at a possible tax relief in the fiscal year 2017-2018.
Home loan interest rate is also showing signs of going down due to the effect of demonetization, with sources saying that a reduction of 5% to 6% is in the offing.
Automobiles sales have gone down by 10% since the demonetization drive began. So, to counter the effects, the government might cut costs of small cars, commercial vehicles and two-wheelers.
The MNERGA scheme might see a significant influx of money to offset the effect demonetization had on the livelihoods of the daily wage earners.
The Modi government has already indicated that their next target in the war against black money hoarders is going to be benami properties. Chances are that agricultural land and other immovable property could get linked with Aadhar and PAN cards to counter cash laundering through property buying and selling.
Although bond yields rose sharply following RBI’s decision to hold rates, bankers expect interest rates to lower because of excess liquidity in the banks. The withdrawal of the 100% incremental CRR requirement has lowered banking costs. HDFC Bank, Bank of Baroda, Bank of India, Dena Bank, and several others reduced their benchmark lending rates. Interest rates are expected to remain soft as loan demand has decreased due to demonetisation. Post the outcome of the US Fed meeting, and stabilization of the demonetization initiative, there is expected to be a 50 to 75 bps cut in the repo rate in the next budget meeting (Feb 2017). Credit growth remains muted, short-to-medium term rates to remain contained, and yields on short-to-medium term bonds are likely to fall.
In an effort to fulfil the vision of Housing For All by 2022, the government has taken steps to boost the housing market in the country. The various tax benefits being provided on home loans and the subvention of interest rates by the government will help first time homebuyers access the funds they require more easily. The government has provided an interest rate subvention under the Pradhan Mantri Awas Yojana (PMAY) in an effort to boost the housing market in Tier-3 and Tier-4 cities and allow lower income groups to access housing finance more easily. All these steps aim to boost the overall real estate sector in the country and boost the housing loan to GDP ratio in the country.
‘Oriental Batuaa’ – a new mobile wallet launched by Oriental Bank of Commerce (OBC) on the occasion of its 75th Foundation Day. OBC has come up with a number of digital offerings along with this mobile wallet service. According to Animesh Chauhan, the Managing Director and CEO of OBC, the bank has also launched a new version of mobile banking and two new RuPay cards namely - Oriental Premium Card and Oriental Prepaid Card. The Oriental Premium card is a platinum international debit with airport lounge access. The Oriental Prepaid Card is meant for corporates and individuals. Commenting on the launch of mobile wallet, Animesh Chauhan said, “Wallet launch cannot happen without building necessary security features. Wallet launch is also linked to customer awareness with it”. Recently, the bank also launched two new MSME schemes called ‘Oriental Budget Hotels and Restaurants’ and ‘Oriental Sanjeevani’.
Due to the demonetization of the Rs.500 and Rs.1,000 currency notes, the bank credit sector in India has seen a decline. To spur growth in this sector ICICI Bank and SBI cut their interest rates on home loans. SBI now offers home loans of up to Rs.30 lakh at a fixed interest rate of 8.5% p.a. for the first two years, after which the interest rate will be switched to the Marginal Cost-Based Lending Rate (MCLR). ICICI Bank is offering home loans of up to Rs.75 lakh at an interest rate of 8.65% p.a. to women and 8.70% to men. For loans above Rs.5 crore the present interest rate stands at 8.85% p.a. Other banks taking cue from SBI and ICICI have also made sharp cuts to their MCLR, with Dena Bank reducing its rates by 0.75%, Kotak Mahindra reduced its rates by 0.45% and Bandhan Bank cuts its rates by 1.48%.
After the announcement by the State Bank of India (SBI) to cut its interest rates for home loans to 8.9% p.a. the CREDAI (Confederation of Real Estate Developers' Association of India) is hopeful that this will boost the primary real estate market and will cause further cuts in interest rates, bringing them down to around 7% p.a. in times to come. The present interest rate cut by the SBI has not had a direct impact from buyers, but developers are hopeful that a further cut in interest rates by both public sector banks and private banks will have a more obvious impact on the primary market.
Nagaland is set to get 2,422 houses under the central government’s ‘housing for all’ scheme, also known as the Pradhan Mantri Awas Yojana. The construction of the houses was recently approved by the Housing and Urban Poverty Alleviation Ministry.
The construction would necessitate an investment of Rs.2,946 crore along with central government aid of Rs.778 crore.
So far the HUPA Ministry has sanctioned construction of 13,43,805 housing units for the urban poor under this scheme, requiring investment worth Rs.72,781 crore and central government aid of Rs.19,633 crore.
A resident of Parsoda village in Yavatmal district became the first recipient of a house under the Pradhan Mantri Awas Yojana.
Sunita Shelke, a widow from Arni tehsil, was struggling to take care of her little kids since her husband died 2 years back. She got herself registered online for a house under the scheme on December 1, 2016.
The news of Sunita receiving the house under PMAY spread through the village of 1,450 people with people like the Zilla Parishad CEO Deepak Singla, Arni Panchayat Samiti BDO C.G. Chavan, Vinod Thamke (project director) and Mahesh Kanchalwar (sectional engineer) dropping in to congratulate her. They also promised to get Sunita’s house built on time.
Singla informed the media that in the 77 gram panchayats within Arni tehsil, 465 applicants are going to receive the benefits of the government’s housing scheme in imminently.
The recent demonetization drive has hit the real estate business hard in the premium property sector. But the same move can prove to be a boon in the affordable housing market as the prices of real estate climb down.
The Country Head and Chairman of JLL India, Anuj Puri says that with land prices coming down especially in fringe areas of the cities, the development cost of projects on these lands will also come down making the housing units cheaper and more affordable. Also, interest rate on home loans are likely to decrease by almost 2% in the current demonetized market.
The RBI has declared that deposits worth Rs.45 lakh crore has flowed into the banking system, with only Rs.1 lakh crore of disbursal till date. Experts predict that the huge surplus of liquidity will bring down the lending rate by 50-75 basis points in the coming 4 to 5 months.
The affordable housing sector has already attracted big firms like Tata housing, Mahindra Lifespaces, Shapoorji Pallonji Group, Puravankara Projects, Assetz property Group and Emgee Group among other players, due to the government emphasis on providing housing for all by 2022.
The government has loosened a number of green norms to accommodate extensive construction projects under the ‘housing for all’ scheme.
In a notice issued by the Ministry of Environment, Forests and Climate Change, it says that projects covering more than 1,50,000 sqm have been exempted from seeking clearance under the prevention of water and air pollution acts. The reason behind this was cited as providing greater ease for doing business with responsibility. Another reason given is aligning permissions for the construction sector.
However, according to Environmental Lawyer Ritwick Dutta, the projects under Indira Awas Yojana, renamed Pradhan Mantri Gramin Awaas Yojana, providing housing for the economically backward, did not require an Environmental Impact Assessment. EIA was required only for construction over 20,000 sq mt.
As per the new notice, builders would need to follow only the environmental stipulations under bye-laws —9 environmental stipulations for construction projects between 5,000 and 20,000 sq mt; 17 stipulations in 20,000 and 50,000 sq mt range; 20 stipulations for those between 50,000 and 1,50,000 sq mt.
Projects falling within these proportions would only need permission from municipal authorities without needing an EIA or any clearances coming under existing environmental protection laws.
Dutta lamented that in the current times when environmental restrictions on the building sector should be strengthened due to increasing pollution rates, the government decided to completely disregard the protection laws.
The affordable housing sector which already has 14 players in the field is attracting 17 new entrants into the market.
There’s also a shortage of around 19 million housing units in urban pockets and 40 million units in rural areas. With the government pushing for housing for all by 2022, the Indian home loan sector is bound to grow exponentially in the coming years.
The current market of home loan consisting of 76 housing finance firms, and government and private banks is focussing on the middle and the lower middle class population with an income of around Rs.1.5 lakh to Rs.10 lakh p.a. Finance institutions are using new technology to reach those at the very end of the consumer pool, and have started a rate competition to entice them.
Axis Bank Ltd, with over Rs.60,000 crore mortgage portfolio, gives out close to Rs.2,000 crore in home loans per month. Rs.150 crore of that goes into the affordable housing sector. The case is similar for Dewan Housing Finance Corp Ltd, PNB Housing Finance Ltd, Yes Bank, DCB Bank Ltd, and others in the home loan business.
The mortgage market of Rs.10 trillion has been increasing at 18-19% per year, but it’s still only 8% of India’s GDP. But the mortgage to GDP ratio is anticipated to rise up to 20% by the year 2020.
After demonetization, RBI had raised the CRR for banks to 100% of their deposits to absorb excess liquidity, and bring down the cost of funds. HDFC Bank had cut its 1-year MCLR to 8.9%, to bring it on par with SBI and ICICI Bank. Melwyn Rego, CEO of Bank of India, said that bond yields rose sharply following RBI’s decision to hold rates. Despite excess liquidity, interest rates are expected to remain low as loan demand has decreased due to demonetisation, and the fall in capacity utilisation.
According to ICICI Bank CEO, Chanda Kochhar, deposit, and lending rates are expected to continue their downward trend due to excess liquidity. Yes Bank MD, Rana Kapoor said that post the US Fed meeting, and stabilization of the demonetisation initiative, there will be room to deliver a 50 to 75 bps cut in the repo rate at the next RBI meeting in February 2017. R Sivakumar, Head of Fixed Income at Axis Mutual Fund, said that short-to-medium term rates may remain contained, while yields on short-to-medium term bonds will likely fall.
In an innovative move to educate and inform the public on home loans, the State Bank of India in Bhopal launched ‘Rath’, a mobile information centre.
KT Ajit, the chief general manager of the bank inaugurated ‘Rath’. Also present at the event were general managers SP Singh, Deepak Chopra and PH Pammi, and deputy general manager KS Thakur among others.
The mobile information centre aims at publicizing SBI’s home loan products and the procedure to get a home loan. The Rath would be stationed at various areas, housing societies, and would move door to door providing information regarding home loans.
In latest news updates coming from Lucknow, it is being said that the Uttar Pradesh cabinet has cleared the Affordable Housing scheme.
Through this project, the state body is looking to house all the poor people within the state. Akhilesh Yadav, UP CM, who presided over this meeting also took plenty of other progressive steps.
In the meeting Chief Minister Yadav increased salaries for Madrassa Board teachers to Rs. 15,000 from a meager Rs. 8,000.
Besides this, a decision to increase projects of e-governance in the state-run schemes was also given the green light by the state head.
With these projects, UP is expected to make living a lot more easier for the lower class and the lower middle class families across the state.
Applications for affordable homes under the Pradhan Mantri Awas Yojana scheme can be submitted online beginning this Thursday. The objective of this is to bring more people under the government's flagship scheme. The online submission of applications will make it easier for people to receive this service from the government without any dilution or deviation. Beginning Thursday the service will be available in approximately 60,000 Common Services Centres (CSC) located in urban areas, at a rate of Rs.25 per application. 11 lakh houses have been allotted to the urban poor under this scheme over the past one year and this is expected to pick up through online submission of applications.
In Agra, the Prime Minister of India will address BJP supporters on Sunday. During this rally, he plans to launch a new housing scheme that aims on providing affordable houses to everyone below the poverty line by 2022. Under this Pradhan Mantri Grameen Awaas Yojana, the government will give around 3 crore housing units to the poor people in the country. The cost of one unit is Rs.1.5 lakhs now.
State Bank of India will be raising its growth estimate for credit for the financial year 2017. SBI Chairperson Arundhati Bhattacharya mentioned that the bank is growing at a rate of 12 per cent. Since this is a slow quarter, the bank may revise their credit growth projections mid year, she clarified.
Bhattacharya also said that the review will be based on the demand for high-value project loans. She elaborated that SBI would be more guarded in financial affairs this year, as opposed to the last, when they had substantially piled up non-performing assets.
The State Bank of India (SBI) has begun a campaign to tap into the income of government employees after the recent salary hikes effected by the Seventh Pay Commission, which is estimated to be to the tune of Rs.85,000 crore. Demand for retail loans is expected to go up once the hikes are instituted.
The key segments targeted in this campaign – which is also mirrored by other lenders – is home loans and automobile loans. SBI is working on a new home loan plan that allows borrowers to pay a higher EMI at the beginning of the loan period and a lower EMI after retirement. The age of retirement would be raised to 75 years from the current 70 years, giving customers a chance to borrow money up to the age of 45 years.
Another loan product being planned is for defence personnel – SBI Shaurya.
HDFC is expected to record a 33.8 percent rise in its profits to Rs. 1,820.8 crore at the end of the fiscal’s first quarter, as per analysts’ estimates.
The estimates suggest that the housing finance company would register a higher difference between interest earned and interest expended at Rs. 2,253.6 crore, up 10.6 percent compared with the same period last year.
Analysts said that if the company’s loan growth is more than 15 percent, gross non-performing assets are less than 0.8 percent and the net interest margin is more than 3.8 percent, then the company could be said to be moving in a positive direction.
The new interest rate formula have made loans cheaper.
The Reserve Bank of India’s new rules announced in December 2015 which took away banks’ freedom to revise rates at their will, mean that home loans have started to become cheaper. Banks throughout India has begun to calculate lending rates according to this new rule. Home buyers can rejoice. This means that Home Loan EMIs will decrease by more than Rs 300 for borrowers who avail a loan of Rs 50 lakh over 15 years. State Bank of India, India’s largest lender has reduced their home loan rate to 9.4% from 9.5%. This came into effect on April 1st 2016.
One of the largest private sector banks in the country, HDFC has cut its MCLR based lending rate by 0.05%. The move is set to decrease the monthly installments of existing as well as new loan borrowers. The lending rate for two-year loan tenure has been reduced from 9.25% to 9.00%. Also, HDFC has reduced from 9.95% to 9.00% the Marginal Cost of Funds based lending rate or the MCLR.
MCLR is the new benchmark that needs to be sued by banks in determining lending rate for borrowers. The earlier system of base rate has been replaced by the MCLR to lend more spontaneity to interest rates on loans.
The Bank of Baroda is looking to buy majority stake in Central Bank of India’s subsidiary of housing finance. The Bank is in conversation with Cent Bank Home Finance, the subsidiary in which Central Bank owns 64% shares, with Hudco, National Housing Bank and UTI being the other stakeholders.
The move comes amid Bank of Baroda’s effort to strengthen its place in the market of home loans. According to some sources, the Bank of Baroda is about to purchase the entire share of Central Bank in CBHFL. The terms have already been agreed upon by Central Bank.
SBI Capital Markets and IDBI Capitals have signed on as advisors to Bank of Baroda and Central Bank, respectively. Experts believe that Bank of Baroda can pay Rs.250 crore to Central Bank for its stake. The deal will help Central Bank to stabilize its account books which has bled substantially because of accumulating bad loans over the last few years.
The housing loan sector, including banks and finance firms, is growing at a rate of estimated 25% to 30%. Home loans constitute almost 10% of all loans advanced by Bank of Baroda, registering a growth of almost 12% annually.
In an apparent attempt to bring down home loan rates further, the Reserve Bank of India reduced the repo rate to 6.50%, bringing it down by 25bps. This in turn has brought about a drop in the minimum daily cash reserve ratio (CRR) of the banks.
RBI has not made any change to the CRR at 4% of NDTL (Net Demand and Time Liabilities), however the policy rate corridor has been narrowed from +/-100 bps to +/-50 bps. In order to achieve this, the MSF rate was decreased by 75 bps and reverse repo rate was increased by 25 bps. According to experts, the most positive aspect of the financial year’s policy is the boost in liquidity, owing to the central bank.
With the RBI’s decision to not cut the repo rate (6.25%), interest rates on home loans and EMI’s will also stay the same. Builders and realty experts expected a reduction in interest rates (25-50 bps) of home loans in order to ease the stress caused by demonetisation. Experts in Mumbai said that RBI’s decision was a disappointment for the realty sector, with the units staying unsold for months. The realty sector has been on a slowdown as builders have hiked prices because of multiple taxes, and premiums. Stringent home loan conditions and high interest rates have put off potential buyers.
Shishir Baijal, Chairman of Knight Frank, and Anshuman Magazine, Chairman of CBRE, said that a rate cut of 25 bps would have given the realty sector a boost. Dharmesh Jain, President of MCHI, said that the real estate industry needs revitalisation, and a low interest regime will greatly help boost the economy. They are hoping for a major interest rate reduction of 50 bps at the next credit policy review.
The speculation on the diminishing real estate value has led mortgage companies to seek margin money on loans against property. According to analysts, the LAP portfolio has become riskier due to higher loan-to-value ratio, high ticket size, high balance transfer and loans granted based on cash flows to small businessmen. There is said to be a 5 to 10% fall in LTV ratio of new loans, while existing borrowers will be asked to make part payments. R Vardarajan, MD of Repco Home Finance, said that since they offer LTV at 50% they will not be affected by the fall in realty prices. Realty prices may fall 15 to 20% due to a decrease in cash transactions. SMEs are now leaning towards cashless transactions as business has dropped by 30 to 50% in November.
At the Economist India Summit 2016, Arun Jaitley said that the government is keen on adopting a low interest rate policy to revive the housing market. He mentioned that lower interest rates had boosted the housing market during the regime of ex-PM Atal Bihari Vajpayee’s government.
He stated that bank rates had once reduced to a level that it seemed profitable to buy a house than rent it out. Also, when inflation is kept under control, interest rates will be streamlined. Jaitley said that he envisions a scenario in which EMI is reasonable and the economy is suitable for the housing market. He also mentioned that the current NDA government has been instrumental in providing affordable housing to the public, under schemes like the Pradhan Mantri Awas Yojana.
During 1999-2004, the home loan floating rate had reduced to 8%, in line with the sharp cut in the repo rate to 6% in March 2004. However, even after RBI cut the repo rates to 6.5% recently, home loan rates have only come down to 9.4%.
Demonetization has effectively halted the sale of pre-owned houses and developer-built small properties. However, the real estate industry remains hopeful that following this, the home loan sector may finally pick up and come to their rescue once the situation begins to stabilize.
Industry experts are of the opinion that demonetization will provide a boost to home loans by allowing banks to lend more at lucrative rates, especially to individuals who are looking to purchase a property or flat. Also, with the increase in deposits, demonetization is more than likely to provide banks the is leeway for giving out loans.
Due to the increase in non-performing assets (NPAs) and stressed assets, banks have now shifted their focus to home loans and other retail loans. Housing loans have seen an 88% increase from the financial year 2012. Home loans have shown an incremental rise of Rs.1,18,300. This is the first time in the history of banking that home loans for a financial year have crossed the 1 lakh crore mark. Lately lenders have decided to shift their focus to the retail market due to the sharp increase in stressed assets of big corporates. Bad debts in the home loan market are marginal, less than 1% in most cases. According to Standard & Poor, a rating firm, India’s home loan sector is expected to grow between 11%-13% in the financial year 2017.
The PMAY or Pradhan Mantri Awas Yojana scheme, launched to ensure nationwide housing for the lower earning stratas of the Indian cities and towns has been launched in municipalities across Kerala. Minister for Local Government K T Jaleel at Thiruvananthapuram inaugurated the third phase of PMAY on Wednesday. PMAY's main target is to provide housing for everyone by 2022.
HDFC Bank released their reports with 20.4 percent net profit gain for Q2 that ended in September, at Rs.3455.3 crore. HDFC Bank’s net income at the time was Rs.7,793.6 crore when compared to the last year’s report on the same quarter being Rs.6,680.9 crore.
In this period, the company saw a rise of 18 percent net revenue, at Rs.10,894.5 crore. HDFC mentioned that the deposit portfolio also rose by 16.7 percent, at Rs 5,91,731 crore. However, when it comes to home loans saw a decline in the Q2 with Rs.33,559 crore as against Rs 33,590 in the previous quarter. The decline is expected to continue by experts in the field.
While the rate cuts of up to 25 basis points implemented by the RBI may be cause for applause, it still isn’t enough for borrowers to begin celebrations. The MCLR states that rates offered by the bank remain fixed for a specific period of time that is mutually agreed between banks and the borrower. Which means that any rate cuts that may have happened already won’t reflect for new borrowers till the next reset period which is a few months away. Since the RBI rate cut, a few banks such as SBI and ICICI have already announced rate cuts which always came with a delay or lag when base rate regimes were being used.
Brick Eagle Capital Advisory LLP, one of the leading financial services platform in the country, which advises on affordable housing projects is all set to raise as much as Rs. 700 crore for easily accessible housing.
To do the same, the company had registered a category II Alternate Investment Fund (AIF) with the Securities and Exchange Board of India (SEBI).
The AIF which has Rs. 500 crore will come with a green-shoe option to raise Rs. 200 crore worth of funds if the need arises. This fund is primarily created to fund any and all affordable housing projects carried out by local builders across the country.
Currently, a pipeline of over Rs. 200 crore has already been identified in states like Gujarat, Maharashtra, Rajasthan, and Tamil Nadu.
Speaking on the occasion, Kirti Timmanagoudar, a partner with Brick Eagle, said that affordable housing is basically a $2 trillion industry and that the company has seen a massive shortage in affordable housing options. He also said that to offset the shortage the company is targeting investments in all the Top 20 cities and their sub urban areas.
GST is a factor that will boost transparency and ease of business in the country as it is a single tax umbrella for around 17 indirect taxes. This will convert India into a single market, as opposed to 29 different markets that it is now.
Buyers and builders in the real estate realm will benefit immensely due to the increased clarity on taxes, against the current setup, where taxes vary between states. GST will also eliminate double taxation, as a single tax subsumes others. However, stamp duty will be required when a property is registered.
The benefits of GST will depend on the standard rate that is likely to be around 18%. Higher rates will have an inflationary and destabilising impact on the realty sector. A lower rate like the one that is proposed, will ensure higher tax compliance, as well. The clear audit trail that GST leaves encourages the organised and unorganised sector to comply equally.
In summary, improvement in credit and liquidity through GST ensures higher margins for builders and the higher transparency benefits customers.
The National Housing Bank has claimed that the Credit Linked Subsidy Scheme that was introduced under the Pradhan Mantri Awas Yojana has not been picking up pace in West Bengal. The scheme was introduced to provide credit linked subsidy on home loans for the eligible poor, for acquiring or constructing houses.
The scheme has been performing better in other Indian states such as Gujarat, Maharashtra and Tamil Nadu, but has had only 137 beneficiaries in West Bengal till June 2016. However, a state government survey had revealed that the number of households that could benefit from the scheme is above 72,000.
Between 2015 and 2022, 4 crore beneficiaries have been identified in the rural regions and 2 crore in the urban areas who could benefit from the scheme. NHB is also intending to incentivize entities that implement the scheme well.
The interest rates for home loans have been at its lowest in the recent 3 to 4 years which gives ample opportunities to make the most out of the situation at this time. Although diwali is almost here and there will more promotional offers from builders, it is also advantageous to note that the slowdown of the real estate market as well as unsold inventory and the lack of housing demand are also reasons for the prices falling.
Buyers can use a home loan and have the interest rate calculated with the fixed or floating rates the bank is offering. However, interest rates are to dip further according to financial experts since people prefer fixed rate over floating rate at this time of lowering rates. This is mainly due to the fact that a small change in decimal for the interest in a floating rate will have a huge impact on the loan repayment amounts in the future for the home buyer.
The initial flagship scheme called Indira Awaas Yojana (IAY) which provides housing for people in rural India has been restructured and renamed as Pradhan Mantri Awaas Yojana (PMAY) which will be launched launched in October.
The IAY would be carried on as PMAY from April 1, 2017. This new scheme comes with the aim of constructing 1 crore houses by 2019, based on source information.
No reason for the name change has been given, although the scheme was initiated by the earlier Government. Already 10 lakh houses have been constructed within 2015 to 2016 while the target was set at 38 lakhs.This scheme was initially launched by Prime Minister Rajiv Gandhi in 1985.
If the latest reports coming out of Cuttack are to be believed, Cuttack is all set to get about 2044 houses under the Pradhan Mantri Awas Yojana.
This project, also known as the ‘Housing for All’ initiative has been started by the central government who are collaborating with state governments to provide housing for the economically weaker classes.
The move was decided upon when Mayor of Cuttack Municipal Commission, Minakshi Behera, chaired a meeting last week to discuss the problems faced by homeless people in the city.
According to latest reports, it is being said that over 1604 people have already registered for the scheme, which is all set to come up in Silver City.
Apparently, each registered family will get a house of about 300 square feet which costs Rs. 2 lakh. To fund the project, the government will provide Rs. 1,50,000 while the state government is expected to pitch in with the other 50,000 Rs.
Out of the 2 lakh, Rs. 75,000 will go for the foundation, Rs. 35,000 for construction of the super structure, Rs. 35,000 for roof and toilet respectively and the remaining Rs. 20,000 will be used up for other expenses.
With Dussehra around the corner, many realty houses have been quick to up the price of their existing or highly anticipated projects. While Dussehra and Diwali is considered as a time that is very auspicious and major property buys are made during this season, many realty houses have hiked up prices and other have begun offering discounts to lure customers. Going by the prices of properties listed on sites like propertykhazana.com there has been a steady increase in realty prices since June. This could also be due to the fact that the realty market was down for a while and is only now slowly recovering.
With RBI slashing repo rates by 25 basis points under the policy review undertaken by the new RBI governor, Urjit Patel, India Inc. is hoping that this cut in rates would boost sentiment and reinvigorate sectors such as real estate and are also positive that the banks would transfer this benefit to their customers. Experts believe that the rate cut is justified by the disinflation currently taking place in the economy and that it will reinvigorate growth impulses in real estate, construction, infrastructure and manufacturing sectors. With the onset of credit season, banks can utilize these rate cuts and transfer the benefits to its borrowers and support the growth cycle.
With the RBI slashing repo rates by 50 basis points and SBI following suit with a cut in their lending rates by almost 40 basis points, the bank has seen a spur of sales. With interest on home loans down to 9.30 to 9.35% from its earlier 9.70%, many customers are rethinking their decision to acquire a home loan through other financing companies. With other banks now coming under the crosshairs, many will be looking to follow suit and cut their lending rates. While they may not match up to what SBI could offer, they still will reduce lending rates for fear of losing out on customers.
This is welcome news for buyers and will also lead t an increase in the demand for residential housing.
The State Bank of India confirmed that it will be raising Rs. 11,100 crore debt to overseas and Indian investors through private placement. The bank stated that the perpetual debt instruments could be denominated to US dollars or Indian Rupee. There were no confirmed timelines for the move. The debt is likely to rank as Tier 1 capital for SBI.
The bank had declared that it would be merged with the State Bank of Patiala, State Bank of Hyderabad, State Bank of Mysore, State Bank of Travancore and State Bank of Bikaner & Jaipur recently.
Employees Provident Fund Organisation (EPFO) announced that its members will soon have the facility to mortgage their Provident Fund accounts for home loans. EPFO anticipates more returns through increased investment in home loans.
The board of trustees are yet to decide on the terms and conditions associated with the loan. They expect the inclusion of clauses that assist EPFO members in availing 1-1.25% cheaper loans. Members can buy affordable housing options, and EPFO will identify their home loan eligibility.
Customers will, however, be required to pay EMI against home loans. The committee has devised a scheme through which subscribers can purchase houses using an advance from their PF, and pledge their future PF deposits as EMI.
The funding for this proposal is expected to come from EPFO’s inoperative account, from where the funds were previously invested in debt instruments with lesser returns.
With the rate cuts incorporated corporates are enjoying a reduction in cost of funds through the issuing of commercial papers and bonds that are being used as instruments for short term borrowing. The rate cuts however have not yet been passed on to bank customers as banks are reluctant to pass on the rate cuts after a spate of diminished earnings caused by bad loans. Home loan rates are pegged to the benchmark lending rate of banks which has seen a drop of 60 basis points but the corporates are enjoying borrowings at 150 basis points lower than before. To translate this, SBI’s cheapest home loans have seen reduction from 9.95% to 9.3% whereas corporates have reduced borrowing costs from 7.8% to 6.4% through the issuance of commercial papers.
Prospective customers of home and car loans need to be aware that interest rates are not going to fall anytime soon.
Deputy RBI Governor Urjit Patel is expected to continue scrutinising inflation like his predecessor, Raghuram Rajan. He had recommended a 2-6% inflation target range and also proposed that interest rate decisions be made by a group of members, as opposed to the current practise. Considering Patel’s hawkish stance, there will not be any significant policy easing.
The RBI policy rate was reduced by 150 bps since the start of 2015, and it currently stands at 5%. The lending rate of SBI had dropped only 90 bps, and they have recently reduced their one year MCLR to 9.1%.
Weeks after HDFC successfully sold out its first series of rupee-denominated bonds to overseas buyers, it is planning to raise Rs. 2000 crore again for a second issuance. Last month’s masala bond sale was the first of its kind by an Indian company.
The bank is in discussion with investment bankers for bids. The second sale of bonds is likely to occur after Urjit Patel takes over from Raghuram Rajan as the governor of RBI. All policy uncertainties are expected to be cleared post the appointment. This is useful for boosting the confidence of overseas investors.
HDFC had raised Rs. 3000 crore from the first sale of the masala bonds. These rupee-denominated bonds were three-year, 8.33% bonds managed by Axis Bank, Credit Suisse and Nomura. The next set of bonds will be 40-50 bps tighter, due to demand.
The government is being persuaded to remove the 5% withholding tax on rupee-denominated bonds in an attempt to encourage more investors.
State Bank of India (SBI) has identified around 7 lakh people who opened bank accounts under the Pradhan Mantri Jan Dhan Yojana (PMJDY) as potential loan customers. These individuals were found to be credit-worthy despite belonging to the financially weaker section of society.
These accountholders have been informed of their eligibility for small loans by sending them SMSes in their native language. Financial inclusion comprises loans and deposit products as much as a savings account, said SBI chairperson Arundhati Bhattacharya.
The loans being offered are personal and consumer loans, based on each person’s requirements and eligibility. Though loans for small enterprise businesses are not being offered currently, it is very much under consideration, said Bhattacharya.
In order to ensure that meritorious students do not lose out on higher education due to lack of funds, the Odisha Chief Minister, Naveen Patnaik has launched a new education loan scheme called Kalinga Siksha Sathi Yojana. Under this scheme, the state government of Odisha will offer education loans to students at a meagre rate of 1% p.a. This is expected to give a major push to the number of students who enroll for higher education courses like engineering, medicine, law and management.
The Odisha state government will need to shell out an amount of over Rs.400 Crore out of its own pocket for this scheme to come into effect. The honorable CM said that he fully understood the financial pain that parents faced in getting their children enrolled in higher education courses. Odisha has allocated a total of 12% of its budget towards education and this scheme is in line with the CM’s vision of better education for the people of Odisha.
State Bank of India has unveiled a new home loan scheme aimed at offering finance at attractive rates and terms to government employees including defence sector. Under this scheme, eligible borrowers working with various government agencies will get a concession of 0.05% on existing rate.
Borrowers can also look forward to relaxation on repayment age cap which has been upped to 75 years. It must be noted that the general cap in this regard is 70 years. The two schemes christened SBI Privilege Home Loan for employees of the government and SBI Shaurya Home Loan for the defence sector will not come with any processing fee. These benefits are also available to aspirants willing to transfer their existing home loan held with other banks.
The State Bank of India and IDBI Bank have cut down their marginal cost of lending rate (MCLR). The fall in interest rate is not noticeable owing to the new benchmark in MCLR, with revisions as low as 5 basis points.
MCLR of SBI has been reduced by 5 bps and is offering home loans at 20 bps above MCLR to its female customers and at 25 bps above MCLR to other customers. SBI's one-year MCLR has been cut down to 9.1%. Meanwhile, IDBI Bank has decreased its base rate to 9.65% from 9.75%. The bank has also cut its MCLR, recently. Borrowers who have taken loans after the new MCLR came into effect will be able to avail these low rates, while the rest will have to wait for revision of the base rate.
Reserve Bank of India Governor Raghuram Rajan reduced repo rate by 25 basis on Tuesday in its monetary policy review. The percentage has been cut to 6.50%, the lowest it has been in over five years.
The central bank gave a hint that there may be more rate cuts in future. The bank wants to stay accommodative in its policy stance. This will be a deciding factor of interest rate reduction.
Raghuram Rajan said that ever since banks have been reducing their interest rate by 25-50 bps, borrowing had already become more affordable. This is even before the monetary policy review.
The Central Government is working in tandem with plenty of state government to bring into fruition the 'Pradhan Mantri Jan Awas Yojana'.
However, the initiative has run into trouble in Agra as the District Urban Development Authority (DUDA) haven't been able to find any land to house the project.
Apparently, over 10,000 people have already applied for the affordable housing, but the problem is that the authority hasn't been able to zero in on the land to start with the development.
A number of officials linked to this projects have said that no work has begun on the project and that the application process was only started to comply with the higher authority's orders.
Several sources are also suggesting that con men have started circling around the DUDA premises to mislead applicants and mint some money.
The Pradhan Mantri Jan Awas Yojana is the government's attempt to provide housing for the Economically Weaker Sections (EWS) of the society. Under this scheme, the government is planning to house over 2 crore families in urban areas by the year 2022.
The Chairman of HDFC Limited addressed the shareholders and the board of directors at the 39th Annual General Meeting. Talking about the financials of the year ending 31st March, 2016, the chairman said the demand for home loans has been growing steadily, with growth majorly routing from Tier 2 and Tier 3 cities. The improvement is seem to be based on increased incomes and other benefits offered on home loans.
HDFC Limited recorded Rs.2,59,224 crores in the loan book as of 31st March, 2016. The increase in the individual loan book after adding sold loans was 24%. The average amount of an individual loan is a maximum of Rs.25 lakhs.
It seems like ICICI Bank has been strategically biding its time to announce its rate cut in home loans and has done so after banks like SBI, Axis Bank, Bank of Baroda etc. Its rate currently stands at 9.35 percent. As the biggest private bank in India, ICICI Bank’s policy changes came as a huge relief to all home loan buyers on floating interest as the EMIs have come down considerably. It was RBI Governor, Mr. Raghuram Rajan’s announcement of .50 percent deduction in repo rates that set these actions in motion. ICICI Bank is known for its customized loan schemes and other products designed to suit people from all backgrounds.
Indira Awaas Yojana (IAY), the rural housing programme launched by former PM Rajiv Gandhi has been restructured and will be introduced next month as Pradhan Mantri Awaas Yojana (PMAY).
PMAY will subsume IAY from the beginning of the next financial year. As per sources, the new scheme targets the construction of 1 crore housing projects by 2019.
The IAY had targeted the construction of 38 lakh houses by the end of FY 2015-16, and they have successfully completed 10 lakh till date. The IAY is funded on the basis of cost-sharing between the Central government and the State governments in the ratio of 60:40. The only exceptions to this are the north-eastern states that will be funded in the ratio of 90:10, and the Union Territories that will be completely funded by the Centre.
The PMAY scheme retains the existing funding ratios between the Centre and States, but differs in the way funds are transferred to the applicants. As per the scheme, people living in the plains receive funds worth Rs. 1.2 lakh, while those in the hilly regions receive Rs. 1.3 lakh.
When looking at the overall growth in the credit aspect of the banking sector, a dull and muted single digit rise can be seen. However when one looks a little deeper, they can see that the housing sector is leading the charge with a sound 19% rise in the number of new accounts in housing finance companies and banks. The main reason for this increase is due to an increased demand in the Rs 10 Lakh loan category. National Housing bank believes that the growth can be further bolstered if there is a slight reduction in stamp duty. Certain states collect a stamp duty of 6 to 12% which can be quite high. A reduction in this duty can bring about an increase in transactions thus nullifying any loss of revenue to the state.
The country’s second largest bank in the private sector on Monday announced a cut of 0.05 percentage points in its MCLR (Marginal Cost Based Lending Rate). Under the new rate structure effective from August 2nd, the overnight MCLR is 8.90%. One year MCLR is down to 9.1%, bringing much needed cheers to home loan borrowers.
It must be noted that the MCLR was mandated by RBI in April this year giving flexibility to banks to review interest rates once in a month to pass on immediate benefits of rate cuts made by the apex bank to consumers. This system has replaced the base rate system followed by banks for decades now.
The real estate advisory arm of the Housing Development Finance Corporation (HDFC), HDFC Realty, has come up with a new strategy aimed at aggregating all services provided by local property brokers. The strategy was formulated against the increasing and long running slowdown prevalent in the real estate markets in India. Chief Executive of HDFC Realty, Vikram Goel, stated that with the setting up of a large distribution network, comprising of brokers in multiple cities around the country, developers can begin to market their housing projects to populations in other cities rather than restricting themselves to their home markets. He also stated that brokers would be able to take advantage of increased opportunities to sell their projects across a range of different cities, and could also get a consistent supply of projects that they could sell far beyond the confines of the smaller markets in their local area. HDFC Realty has shown a growth rate of 50 per cent year on year, with the firm selling properties in excess of Rs 10,000 crore over the previous four years.
In the next bi-annual meet of the RBI, Governor Raghuram Rajan is expected to announce a further repo rate cut of around 25 basis points for home loan borrowers. This will bring down the monthly installment or EMI of home loan borrowers in the country.
The idea behind this is to give a push to the currently sluggish real estate sector and to infuse a renewed enthusiasm among property buyers in the country. Experts feel that even a push of mere 25 basis points will lend major liquidity to the market and help real estate pick up. The new rate cut will be beneficial mainly to new home buyers, existing home loan borrowers may enjoy but a limited share of this rate cut.
Banks such as ICICI Bank, SBI, Canara Bank and Punjab National Bank revised their MCLR (Marginal Cost of Funds-based Lending Rates) for the month of June. MCLR of these banks were dropped between 0.05 to 0.15%. While PNB and SBI did not revise the MCLR for a tenure of one year and maintained at 9.40% and 9.15%.
Canara Bank slashed its MCLR rate by 0.10% to 9.35%, while State Bank of Bikaner and Jaipur dropped its rate by 0.15% to 9.55%.
The MCLR lending rate system has been introduced by RBI to bring about uniformity and transparency in the calculation of home loan rates for both banks as well as borrowers. The new rates are aimed to meet RBI's main objective of accelerating monetary policy transmission, apart from other things.
The risk weight is basically the assessment of risks in giving out huge amount as home loan as recognized by RBI. Every loan approval comes after this process and it varies for each mortgage category. After the phenomenal repo rate cut by 50 bps by RBI, it has succeeded in bringing down risk estimation criteria. The RBI allocates a risk weight to every asset owned by lenders including those availed by people as well as corporates. As per the risk weight specified for a certain asset, the bank should keep aside some part of its value as capital to preserve the Capital Adequacy Ratio (CAR). RBI directs personal house loans of up to INR 75 lacs and those exceeding INR 75 lacs hold a risk weight of 50 percent and 75 percent in that order.
Prime Minister Narendra Modi's objective to offer a roof for over 1.3 billion populace of the country recently experienced a prolific boost, thanks to the 50 bps repo rate cut by RBI Governor, Mr. Raghuram Rajan. After bringing down the standard re-sale rate by a whopping 50 basis points the previous month, RBI has taken a significant step in easing country’s home loan rules. This permit banks to keep aside less funds to cover house loan default risks, successfully aiding to bring down expenditures regarding funds. Mr. Rajan's schemes are beginning to get positive outcomes in an effort to boost Modi's plan for t crore houses by the year 2022.
The previous RBI recommendations had a Loan To Value ratio of 90 percent and a risk assessment of 50 percent. The shaky arena of Indian real estate was provided an inducement when repo rates were slashed by RBI by 50 bps in one go. For those in the quest of this much-required breathing space, RBI declared a fresh set of norms on LTV ratios and risk weights for home loans for individuals. This is a field in which life is really dependent on quick and hassle free access to housing finance and hence the announcement has come at a ripe time. The latest minimum home loan slab is up to INR 30 lacs with the LTV ratio of up to 80 percent and 35 percent risk weight. And if the same is more than 80 percent, the risk weight would be 50 percent.
Ironically, new and upcoming housing loan applicants will be paying more interest than prevalent customers, as most banks are revising rates following RBI’s 50 bps repo rate cut. If you had availed a house loan from SBI or ICICI Bank six months ago, you would be paying a relatively lesser interest than those who applied for home loans later. Although SBI has slashed its base rate by 40 bps to 9.3 percent, the extension for recent housing mortgages has been escalated from 5 bps to 25 bps. This basically means that someone who got a loan approval in the last six months is expected to shell out an interest of 9.35 percent while it is 9.55 percent for the new debtors. In the same way, ICICI Bank has also brought down its base rate by 35 bps to 9.35 percent, but for the new customers, it is costlier by 10 bps. Good news for new clients is that when rates dip again, almost every bank will permit them to transfer to the current interest rate system for a small fee, which is called as resetting of a home loan.
DHFL, one of country’s premier home financing firms publicized its decision to reduce the rates by 20 bps. Unlike other banks, they have also brought down rates for new and future clients and the rate now stands at 9.65 percent. Moreover DHFL has been talking about a festive season deal in which it will provide a promo rate of 9.55 percent to the upcoming customers planning to take loan less than INR 25 lacs, which will be valid until the last day of the year. The firm mainly tailors to those belonging to the low and middle income sector in the Tier II, Tier III towns, with a regular mortgage ticket size less than INR 15 lacs. The new rates can coax more people into buying home of their own as hoped by Mr. Kapil Wadhwan, MD and Chairman of DHFL.
Ironically, real estate arena sees little scope to celebrate the RBI’s 50 bps repo rate cut. It should be, since affordability and investment guarantee are key factors for prospective home purchasers. They see only a slight increase in demand so far and do not hold much hope in this move catalyzing to boost sales. After the proclamation of the unanticipated repo rate cut of 50 bps by the RBI in September, it was likely that this step will boost the market performance, causing more demand as well as deals particularly as a mere part of the various rate cuts of up to 75 bps achieved this year before this landmark decision. But currently, in a couple of weeks after declaration, the optimisms of real estate stakeholders and potential house buyers appear to have been dashed as the banks and financiers have not conveyed the cut to the customers. However, local home purchasers, mainly end-consumers who form the majority are not yet motivated enough to hop in the fracas. They seem to be smartly waiting for costs to dip further.
Amid dwindling home loan rates, it makes absolute sense for current mortgagers to shoot up their EMIs and speed up settlement of principal. Including the most recent 50 bps repo rate cut, RBI has reduced 125 bps this year. However, lenders and home finance firms providing house loans have slashed their rates only up to 50 bps this year. SBI is delivering home loan at 9.55 percent rate to employed people, while HDFC offers loan at 9.6 to 10.15 percent for all loan sums. ICICI Bank’s current rate varies from 9.6 to 9.65 percent for sums that do not exceed INR 75 lacs. Hence, if a new debtor avails an INR 50 lacs home loan for over 20 years at 9.55 percent rate annually. And the tentative EMI would be INR 46,770.
1. Preferably, EMIs must not be more than 40 to 50 percent of your earnings per month.
2. If your EMI is lesser than this, increase it to settle the loan quicker.
3. When the interest rate dips, the debtor must escalate the EMI and speed up the repayment.
4. If your bank is levying you more, do not hesitate to change the bank.
5. Make sure that the variation in the rates between your previous and the new bank is minimum 75-100 bps to nullify the burden if processing and legal charges.
After its greater competitor the State Bank of India, ICICI Bank has also increased its extents on housing loan rates and not delivered on the whole perk of base rate dips to future borrowers from this month onwards. In the event of both females and salaried employees for floating rates, ICICI escalated its base rate shelled out by a customer by .10 percent. The bank had already slashed its base rate to 9.35 percent. For that reason, women borrowers choosing for home loans under INR 5 crore will have to shell out an interest of 9.60 percent against the previous 9.85 percent while employed clients will have to disburse 9.65 percent as opposed to the earlier 9.90 percent. The SBI offers a 9.50 percent to female borrowers while it is 9.55 percent for the rest.
New Delhi Housing Development Finance Corp., SBI and ICICI Bank can be said as the country’s largest loan providers. They have brought down housing loan rates considerably to create demand. But lesser mortgaging expenses are just not sufficient to allure purchasers as real estate costs remain at higher levels across metros and other regions. Indian property firms have been contending with lesser demand in the past few years as rising costs, interruptions in housing ventures and costly loan expenditures have discouraged house purchasers here. But four sequences of fiscal easing by the Reserve Bank of India in 2015, have encouraged banks and financiers to go a tad easy on loan rates. But not many view this as a game changer in anyway.
Renowned private home financing firm, DHFL has brought down its regular prime lending rate by 20 bps and currently delivers home loans for latest customers at 9.65 percent. It has also proclaimed a festive offer of 9.55 percent on housing loans up to INR 25 lacs in force up to the end of this financial year. As per the company guidelines, their loan products are greatly aimed at people with a medium or low income. These customers in the Tier II and III categories have the general loan ticket size to be of INR 15 lacs and would stand to gain the maximum.
Have you been thinking of means to avert the sum saved on EMIs after the RBI publicized the 50 bps repo rate cut? You must have been quite jubilant when your loan provider informed you off the rate cuts they have decided to implement from this month onwards? But you are in for a rude awakening and your fantasies of saving thousands on EMIs are going to be crushed if you take a look at the rate slashes declared by most banks. Ever since the base rate system was announced in 2010, banks have handed on nearly the whole upsurge in repo rate to clients. In the current financial year, RBI brought down repo rates on four occasions to the tune of 1.25 percent. And the rates were slashed slightly by .60 to .70 percent. Even RBI has noticed that many banks have not transmitted their given policy actions through bonds. If we take a look at the major banks that have reduced the rates following the RBI announcement, this could be proved true.
Following the lead of other banks, state-managed IDBI Bank has announced a .25 percent cut in its base rate by 0.25 per cent to 9.75 per cent, a day after the Reserve Bank slashed its key repo rate by 50 basis points. The revised base rate came into effect on 5th October. The dip in rates is anticipated to boost the growth of loan applications in a positive way. After RBI’s radical deduction .50 percent in the repo rates (from 7.25 percent to 6.75 percent), this was only to be expected. As of now State Bank of India has made the maximum reduction. Later Axis Bank (.35 percent), Bank of Baroda (.25 percent), Oriental Bank (.20 percent) and Punjab National Bank (.40 percent) followed suit. It is not just the big banks that have been doing this. Renowned state-managed banks like Andhra Bank and Bank of India too were quick to cut .25 percent. Home loan users who opted for floating interest rates have certainly hit the jackpot with this.
RBI Governor Raghuram Rajan announced the most landmark financial decision in his career – to reduce the repo rate by 50 bps, which is 6.75 percent. Country’s premier banks and financiers have a lot to say on this.
1. According to MD of ICICI Bank, Chanda Kochhar, this is a sign that the home loan rates will dip following this move.
2. ICICI Bank Chief maintains that majority of the deduction in rates is likely to be diffused. Transmission of rate reduction will occur but with a lag.
3. MD of HDFC is expecting a sizable marginal value of resources to dip.
4. Automobile sales are going up in a stable and strong manner, hence demand for credit must also grow as per the ICICI Bank Chief, who also called for a Discom reform.
5. But Mr. Aditya Puri of HDFC Bank is positive that this move will make loan recovery easier.
Axis Bank and IDBI Bank too have joined the bandwagon in reducing the home loan base rates. This was following the RBI’s revolutionary move of slashing 50bps for housing loan rates, bringing down EMIs drastically. Axis Bank, India's third biggest private lender, reviewed its base rate by 35 bps, making it 9.50 percent from 9.85 percent. As a result, the operative rate applicable to house loans and working capital loans to corporates and small enterprises that are associatedx to this rate will also see a reduction of .35 bps. IDBI Bank home loans will also become cheap with its 25 bps rate cut. ICICI Bank has brought down rates on certain bulk deposits of more than INR 1 Crore by up to 25 bps, which will be reviewed this week.
India’s largest private sector lender, ICICI Bank, has opted an aggressive strategy for unsecured loans. An unsecured loan is the one that is offered without any property guarantee. ICICI Bank home loans witnessed a growth of 26% among credit cards, personal loans and automobile loans which grew by 18%, 61% and 21% respectively. Also, 70% of incremental unsecured lending is for existing ICICI customers. Since 2012, ICICI has been expanding the retail loan book which stood at 42% in March 2015. The bank has also witnessed a 20% CAGR (Compound Annual Growth Rate) since 2012. ICICI Bank is leveraging the technology and market strengths to increase and improve the retail banking and unsecured lending portfolio.
The West Bengal chapter of CREDAI (the Confederation of Real Estate Developers Association of India) has announced that they see no more possibility for any kind of decline in house prices. Actually, the building developers’ association has necessitated a drop in housing loan rates and quicker approvals. This step had been taken in barely a week after the RBI Governor, Raghuram Rajan, directed housing industrialists caught in unsold properties to slash the rates.
Any more cuts in sale amount will be preventive for development of this industry and the builders are hoping that the government and RBI would downsize the taxes and restructure the normal approval procedure of building plans and other associated authorizations.
CREDAI announced that there is no room to decrease housing costs after the RBI governor Raghuram Rajan suggested that builders with unsold properties must cut prices. Instead, CREDAI demanded that taxes and interest rates for home loans should be reduced to increase the demand. CREDAI also stated that a substantial decrease in property costs have already happened across India. CREDAI also quoted that the property prices have decreased by 15-20% across India on an average and the input costs have grown by 15-20%. CREDAI also suggested a rate cut in home loans and rationalization of taxes to bring down property costs. A report from Knight Frank India suggests that over 7 lakhs properties in eight major Indian cities still remain unsold and it will take over three years to exhaust the list. The property sales dropped by a whooping 19% in the National Capital Region as compared to the previous year.
India’s largest lender, State Bank of India is making a tryst with “Teaser loans” for the second time by pitching for home loan interest rates under the base rate. In the late 2008 soon after the Global Financial Crisis (GFC), the bank went aggressive on offering loans below the prime lending rate for the first time. That was done with the support from UPA government and the Indian Banks’ Association to avoid any adverse fallout of Indian economy and also to increase demand for home loans. The benchmark prime lending rate was, at that time, the reference interest rate used to price loans. Launched under two special interest schemes, the house loans offered by SBI in 2008 after GFC had the interest rates fixed below the interest rate in market after which, the rates would be floating.
However, teaser loans like this do cause a concern and the bank must make sure that customers who borrow home loans at special interest rates can repay the debt when interest rates increase.
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With a view to capture greater retail market share, banks have been accelerating loan sanction process and disbursal to customers. Many financial institutions like ICICI Bank, State Bank of India, HDFC Bank and Axis Bank have decreased their turn around time to as low as 10 seconds. Time taken from loan application by a customer to final disbursal is referred to as turn around time. Recently, HDFC Bank had launched a 10-second, real-time loan approval and disbursement process where the customer has to just click on the option through the Net Banking account. Growing number of tech-savvy customers and the need to do away with paperwork has motivated the banks to come up with unique loan products. When it comes to SBI, the bank has reduced the average loan-processing time from 35 days to 22 days. In case of home loans with builder tie-ups, the loan processing can take as less as 7 days. Also, for home loans, the average loan sanction time taken by banks is 5 working days and 2 days for disbursement.
Aadhar Housing Finance Company, which mainly provides home loans to low income strata of the society is aiming to manifold its loan book size to INR 2000 crore during the present economic year. In the past year, their loan book was at around INR 972 crore. By the end of July 2015, Aadhar had already shinned up INR 1115 crore in developments according to the CEO, Mr. Deo Shankar Tripaathi. He went on to compliment the contribution of Uttar Pradesh in this whopping number, which is more than 30%. With a pan-India network of around 70 branches, it is aiming to take this figure to 100 this year.
Fullerton India, wholly owned subsidiary of Singapore's Temasek Holdings, is set to strengthen its presence in India through establishment of a new housing finance subsidiary - Fullerton India Home Finance. It has recently received approval from National Housing Bank on the housing finance license that the Company had applied for earlier this year.The mortgage company aims to offer products and services like home loans, mortgage loans, loan against property, etc. This step has been taken following the steep rise in demand for affordable housing finance across the country.
In Q1 of the current financial year, the housing finance company Dewan Housing Finance Corporation Ltd (DHFL) has announced an 18% hike in its net profit. This was the result of an increased demand for home loans in Tier-II and Tier-III cities and due to better margins. In the previous year the company has gained a net profit of Rs.147 crore and currently it has increased to Rs.173 crore. Net interest margin has seen a rise of 2.96% as compared to a 2.78% rise in Q1 of the previous financial year. Loan sanctions has increased by 33% and loan disbursements have increased by 14%. The company has stated that the average loan quantum has been less than Rs. 15 Lakh since the focus was on lending to low-income and middle-income segments and this has subsequently been one of the factors contributing to the rise in demand.
Central Cooperative Bank of the Salem District has proposed to set up a headquarters for quick sanctioning of housing loan to its member. This decision was taken after the meeting with R. Elangovan, Chairman of the bank.
At the meeting, R. Elangovan said that loan assistance will be tuned to Rs.30 lakhs towards construction of new house for the members and Rs.20 lakhs will be given as house mortgage loan. He also suggested to increase the target for crop loan by Rs.100 crores for the crop season.
During the current year, the bank had disbursed loan of Rs.432.05 crore under various heads to its members. Rs.33 lakh was given as housing loan and Rs.1.33 crore as house mortgage loan.
The meeting was attended by A.K. Sivamalar, Managing Director of the bank, S. Tamil Selvan, General Manager in-charge and other officials.
In a meeting presided over by the chairman of the bank, R. Elangovan, a decision was taken that the Salem District branch of Central Cooperative Bank will create a special section that will quickly scrutinize and sanction home loan applications. Mr. Elangovan also made an announcement at the meeting that a loan amount of Rs 30 lakhs will be sanctioned for people looking to construct new houses and Rs 20 lakh as loan for those who want to mortgage their homes. He also suggested that an amount of Rs 100 crore will be offered as crop loan during this season.
In the current year, the Central Cooperative Bank has disbursed a total amount of Rs 432.05 Crore as different types of loans to the customers. The bank is one of the top lenders in the state of Tamil Nadu and has a presence across the state.
After a sustained duration when India’s apex bank, the Reserve Bank of India (RBI) repeatedly cut the applicable repo rate, and prodded banks to pass along this benefit to the customers in terms of cuts in their own base lending rate, its the banks’ time to talk. In a recently convened ‘performance review’ meeting, the banks asked the RBI and the government alike to lower provisioning requirement when it comes to home loans, thereby actively lowering the applicable home loan interest rates. Currently, the rate stands at around 9.75%, a number that is still seen as a huge deal by most borrowers, thereby leading the banks to make this suggestion and probably dropping the ball back into the RBI’s court.
In an effort to spur economic growth, Finance Minister Arun Jaitley is to review the annual performance of state-run banks at a meeting on Friday and consider further rate cuts to improve the housing loan portfolio. A rise in the housing loan sector will bring benefits to the overall infrastructure.
With the economy experiencing a low credit growth in the last fiscal year, FM Jaitley is expected to push state-run banks to boost housing loans with lowered rates and maybe come out with special schemes. State-run banks have been asked to submit their data on housing loans and to look for ways to increase the housing loan portfolio. Banks also have an added incentive to reduce rates as bad home loans remain at the lowest.
The Reserve Bank of India saw a reduction of 75 basis points in the key rates through the last six months. Home loan rates are in the single digits at certain banks after many years. The finance ministry will also look into state-run and private sector banks’ credit related issues.
According to a recent report from CIBIL(Credit Information Bureau Limited), country’s first credit information company, the percentage of non-performing assets (NPAs) in the home loan sector has witnessed a great fall from 1.06% in March 2010 to 0.57% at the end of 2015. In just under 5 years, the numbers have halved owing to various factors.
As per the report, Pune & Mumbai make the most number of inquiries from banks for availing credit reports of applicants followed by Bengaluru and Delhi. During the first quarter of 2015, a little over 3.9 lakh new home loans were opened across the country. The report also states that banks are throwing weight behind the retail sector, specially home loans, owing to slow growth in the corporate space.
State owned Bank of Maharashtra has cut in base interest rate by 25 basis points. This predictable step comes months after RBI affected a cut in repo rate by 0.25% (in January 2015) and repeated the feat again in March 2015 with a similar 0.25% cut. Henceforth, all loan products from Bank of Maharashtra will be available at a base rate of 10%. This move comes after other banks (including SBI, PNB, Andhra Bank etc.) had earlier affected similar rate cuts. Bank of Maharashtra might be a tad late to the party, but its big base of customers will be happy with this development- and the bank’s loan products, car, retail and home loans are likely to receive renewed interest.
The banking giant HDFC Ltd. has reported that the prices of housing has increased by record amounts in the last decade. However, purchasing a house is still affordable due to the fact that homebuyer's disposable income has increased in the same period of time. The affordability ratio of housing prices to income levels is now 4.4, which is only a decimal point higher than the all-time low ratio of 4.3, recorded in 2004.
The low value of the ratio indicates that houses are more affordable these days. Affordable interest rates, tax incentives and an increase in disposable income has led to an improvement of the affordability factor of houses. The tax incentives offered by the government and factors such as low interest rates, make it the ideal time to opt for a home loan in India.
India Home Loan has reported total sales of Rs 0.66 crore and a profit (net) of Rs 0.10 crore for the first quarter of 2015. For the same quarter, the total income and net profit from operations were Rs 0.49 crore and Rs 0.14 crore respectively. On 15 May, 2015, the shares of India Home Loan closed at 47.65 in Bombay Stock Exchange. These shares have given a return of 7.32% over the last 6 months and 6.39% over the last 1 year.
Buoyed, from the very encouraging sale of shares earlier this month, HDFC bank is all set to raise Rs.4,500 Cr through the sale of infrastructure bonds by the end of March this year. The bank raised over Rs. 9,766 crores earlier this month through sale of shares to ADR (American Depository Receipts) and domestic institutional investors.
HDFC intends to use this money largely to fund its lending offerings. The demand for retails loans is ramping up and is likely to head northwards in the next few quarters owing to softening interest rates and low inflation levels. Many banks like Axis, ICICI & Kotak have been taking the infra bonds route over the last couple of months to pump money into its operations to meet the growing demands in retail lending. The sale of Infrastructure bonds by HDFC will be under the guidelines of the new rules framed by the Reserve Bank of India.
Home loans applicants can rejoice as it seems like 'Acche Din' or 'Better Days' are here for them at last. The State Bank of India has reduced the interest rate on home loans by 25 basis points. It will be effective from 13 April, 2015 on all new home loans from SBI. Similarly, ICICI Bank also reduced the interest rate on home loans by 25 basis points. The banks reduced their lending rates after the Reserve Bank of India took a very tough stand on reduction of interest rates. In April 2015, Raghuram Rajan, the governor of RBI, argued that the cost of lending has reduced for the banks and so they should be able to help the borrowers by offering them with low cost loans. Apart from prodding the banks to reduce their rate of lending, the RBI has also made it compulsory for banks to display on their website, all the costs associated with processing a loan.
One of India’s premier gold financing company, Muthoot Finance, is venturing into the lucrative sphere of home loans. The company has a very expansive and versatile branch network across the country, a resource that the company will benefit immensely from when leveraging it towards its impending home loan targets. This new entity is named Muthoot Homefin, and it will start dispersing housing loans in Kerala from today (Wednesday, 22-04-2015). In the next stage, the company plans to expand into Tamil Nadu, Karnataka and Andhra Pradesh. The prospective home loan will amount from Rs.1 lakh to Rs.5 crore, attracting interest rates from 10.20% and with tenures ranging upto 30 years.
Heeding to RBI Governor’s tough talk on banks not passing benefits of Repo rate cuts to customers, major lenders swiftly acted by announcing that they were chopping base rates (minimum lending rate) with immediate effect. During the press conference that followed RBI’s first bi-monthly monetary policy for 2015-16, Dr. Rajan came down heavily on lenders for not lowering base lending rates despite two Repo rate cuts earlier this year.
Leading the pack was State Bank of India (SBI) which quickly reacted by cutting the base rate to 9.85%, down by 0.15%. Following the bandwagon, HDFC lowered its base rate by 0.15% to 9.85% and ICICI, which made a substantially higher cut of 0.25% to stay put at 9.75%. Axis bank was also quick to announce a reduction in base rate by 0.20%.
We can expect more banks to follow suit in the near future. Lower base rates directly impact customers by giving them the benefit of lower interest charges on retail loan products.
Dewan Housing Finance Limited, India’s second largest housing finance institution has submitted an application to Reserve Bank of India (RBI) for small finance bank license. As per RBI norms, small banks can disburse retail loans only if half of their loan portfolio covers loans below Rs.50 lakhs.
If RBI grants small finance bank license, DHFL is willing to convert into a banking institution. At present, this BSE listed public company is categorised as a Housing Finance company (HFC) which also offers deposit products to its customers.
According to RBI rules, 75% of the loan portfolio of banks & NBFCs should be in the priority sector. DHFL meets this requisite which betters its chance of getting a license to operate in the small finance bank segment.
With everyone eagerly looking forward to Budget 2015 there is a lot of speculation doing the rounds about what might be announced in this budget. For people paying home loans there is more at stake because there has been speculation that the government might raise the interest reduction on home loans by Rs. 50,000. This, coupled with last years increase in tax deduction on interest payment from Rs. 1.5 lakhs to Rs. 2 lakhs, might give those paying home loans a reason to heave a sigh of relief.
In an interview, about the upcoming budget, Pratik Jain, partner (tax) at KPMG, said that the government should not levy the ‘Swach Bharath’ cess. He also said that to support the “Make In India” campaign the government needs to work on simplifying the process of doing business in India. In taxation, he called for the removal of certain surcharges and the education cess. He also said that the Rs. 50,000 exemption on home loan interest was a possibility but not too much should be expected to change in the slabs.
India’s central bank, the Reserve Bank of India (RBI) has slashed its benchmark interest rate by a quarter percentage point with effect from January 15, 2015. This is predictably expected to force banks to lower their prevalent interest rates on the entire arsenal of loan products, including home loans. This move from RBI is in response to a balanced out inflation situation, an economy that needs to show concrete improvements and the need for actual growth. By making credit easier to obtain for corporates and consumers alike, the RBI is taking its first tentative step in this ambitious direction. Already, state run banks- United Bank of India and the Union Bank of India have taken the bait and slashed their lending rates by a quarter percentage point to arrive at 10%. The moral of the story- if you are looking for an auto or home loan, the time to apply is now!