Housing Loan 1% Interest subsidy : A – Z Guide

Under a scheme introduced in the year 2009, housing loan borrowers get 1 per cent interest subsidy on bank loans of up to Rs 10 lakh, provided the cost of the house does not exceed Rs 20 lakh.

In his Budget speech, Finance Minister Mr. Pranab Mukherjee said "To stimulate the growth in housing sector, I am liberalising the existing scheme of interest subvention on 1 per cent on housing loans by extending housing loan up to Rs 15 lakh where the cost of the house does not exceed Rs 25 lakh, from the present limit of Rs 10 lakh and 20 lakh respectively".

The central government recently approved low cost housing loans of Rs. 15 lakh will be eligible for one per cent interest Subvention, which will help in increasing the demand for such housing.

It will be implemented through the SCBs  (Scheduled Commercial Banks ) and HFCs  (Housing Finance Companies ) registered with NHB  (National Housing Bank).

The RBI  (Reserve Bank of India) and NHB will be the nodal agencies for the Scheme for SCBs and HFCs respectively. After sanctioning and disbursing the eligible loans, the implementing agencies will claim disbursement of subsidy from respective nodal agency on monthly basis.

Scheme of 1% interest subvention:  
In order to stimulate demand for credit for housing in the middle, lower income segment of population in India. The  central Government has proposed an interest subvention of 1% on all individual housing loans of upto Rs.15 lakh, provided the cost of the unit does not exceed Rs. 25 lakh will remain valid up to March 2012.
The Scheme recognizes that cut in interest rates has an important role to play in reducing EMIs (Equated Monthly Installments) of borrowers and creating additional demand for housing. 
All regions of the States and Union Territories in India, including rural and urban areas will be covered under the Scheme.

Main Objective:
The objective of the Scheme is to provide interest subsidy on home loan as a measure to generate additional demand for credit and to improve affordability of housing to eligible borrowers in the middle, lower income groups. 
The Scheme is expected to provide relief to prospective home owners and improve home ownership in the specified target segment.
Interest subvention of 1% will be available on housing loans upto Rs. 15 lakh to individuals for construction/purchase of a new house or extension of an existing house, provided the cost of construction/price of the new house/extension does not exceed Rs. 25 lakh. 
The scheme for 1% interest subsidy by union government on housing loans up to Rs 15 lakh will be available for the borrowers whose loans were sanctioned and disbursed from April this year (2011).
All such loans sanctioned and disbursed, during the period of one year from the date of publication of the Scheme shall be eligible for the said interest subsidy.

Duration of the Scheme: 
Loans sanctioned and disbursed between October 1, 2009, and March 31, 2011, are outside the ambit of the new scheme.

Interest subsidy:  
Subsidy of 1 per cent will be defined as reduction in interest rate by 100 basis points per year from the existing rate of interest for a particular amount and tenorIt will be applicable to the first 12 Instalments of all such loans sanctioned and disbursed during the currency of the Scheme and will be computed for 12 months on the disbursed amount. 
The subsidy amount will be adjusted upfront in the principal outstanding, irrespective of whether the loan is on fixed or floating rate basis.
Implementing Agencies (IAs):
The Scheme will be implemented through Scheduled Commercial Banks (SCBs) and Housing Finance Companies (HFCs) registered with the National Housing Bank.
Nodal Agencies:
The RBI and the NHB will be the Nodal Agencies for this Scheme for SCBs and HFCs, respectively. 
Awareness Generation: 
 The Implementing Agencies will give wide publicity to the Scheme bringing out its salient features and benefits to the borrowers.

Terms :

A. The interest subsidy of 1 percent per annum will be admissible for the first year on the amount sanctioned and disbursed against the eligible housing loans. In case the loan amount is disbursed in parts (instalments), the interest subsidy will be calculated for one year and claimed separately for every installment of the loan disbursement falling within the operating period of the Scheme.

B. The interest subsidy will be calculated on the interest chargeable at the time of disbursement of the loan.

C. The agreed rate of interest would be arrived at by the Implementing Agencies keeping in view the RBI and NHBs guidelines, if any, for loans upto rupees 15 lakh.

D. The borrowers may choose fixed or floating rate of interest. 

E. The mode of disbursement of the loan will be decided by the lending Implementing Agencies as per the requirement of the borrowers.

F. The Implementing Agencies will deduct the subsidy amount upfront from the principal loan amount of the borrower and charge interest on the net amount of loan at the agreed rate of interest.

G. The amount of reduction in the principal amount as a result of interest subsidy will be explained to the borrower by the bank or HFC officials. Implementing AgenciesEMIs.
H. It will be the responsibility of the Implementing Agency concerned to ensure security of the loan amount.

I.   The Implementing Agencies will follow the appraisal, documentation, etc., as per their approved policies and procedures including those for risk assessment.

Claim Admissibility:
After sanctioning and disbursing the eligible loans, the Implementing Agencies will claim disbursement of subsidy from the nodal agency by submitting their claims on the prescribed format on monthly basis. 
The subvention amount on the disbursed loan amount will be sanctioned to the Implementing Agencies by the respective Nodal Agencies on monthly/quarterly basis on receipt of the claim and the necessary information in the prescribed format.
Final reimbursement claim on Government:
The final quarterly reimbursement claim format the Implementing Agencies can be expected to be in the quarter immediately after completion of the one year from the date of notification of the Scheme.
Release of Funds from Government of India:
The Central Government of India will release the subsidy amount to the Nodal Agencies based on demand for sanction of subsidy received from the nodal agencies on quarterly basis.
Utilisation Certificates:
 The Implementing Agencies will be required to ensure proper end utilization of the funds and to submit utilization certificates, to their respective Implementing Agency against the amount of the interest subsidy released to them. The utilization certificate will be submitted in the prescribed form.
Inspection of Accounts:
The Implementing Agencies will flag all the loans covered under the Scheme in their  books of accounts for the purpose of inspection by the specified authority.
Monitoring and Evaluation:
All Scheduled Commercial Banks (SCBs) and Housing Finance Companies (HFCs) will submit a monthly consolidated return to the RBI (Reserve Bank of India) & NHB ( National Housing Bank), respectively, specifying the number of accounts, amount of loan disbursed, subvention given, etc., as per the formats prescribed by RBI or NHB for the purpose.
The NHB will scrutinise the monthly statement and send it to RBI for further consolidation. The RBI in turn will send a copy of the consolidated monthly statement to the DFS (Department of Financial Services), Ministry of Finance.
The impact of the Scheme will be evaluated through the respective nodal agencies at the end of the operation of the Scheme.
Source: RBI


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