19.5 per cent, translating into equated monthly instalments that range between Rs 6,000 to Rs 9,000, which is steep.
RV Verma, former chairman of the NHB says that the funds the government gave towards affordable housing has been fully utilised and in fact the demand for loans is high. “The money has been fully utilised in the past and there is a huge demand and absorption capacity for the same as a large number of intermediaries—housing finance companies, banks, regional rural banks are using this facility. NHB makes this money available to the intermediaries at almost 2-3 per cent lower than their normal cost of funding and charges a minimal spread,” says Verma.
Garg, however, worked around the problem for his project. Public sector banks, as compared to housing finance companies active in this space, have far lower rates of interest ranging from 10.25 per cent to 10.75 per cent. “There is a necessity for public sector banks to be active in this space for that has scope to reduce interest costs for the borrower. How will interest subvention schemes work, when the loans do not reach the borrower?” says Garg.
He found that the problem lay in the credit assessing norms that public sector banks employ, which equates high income and low income borrower. He successfully got the State Bank of India to design new credit assessment norms that take into account the circumstances of the borrower in this segment. This could reduce the EMI burden on the borrower by Rs 2,000-Rs 3,000, which is a substantial saving.
Bankers are waiting for the first bond issues to see how the market shapes up, but are optimistic. “We will have to wait and see how banks are planning the bond issues. Home loan rate will depend on the cost of raising such funds. But I think the interest rate environment is going to be better for housing loans. You can expect a rise in demand and a decline in rates,” says M Narendra, chairman and managing director, Indian Overseas Bank.
But the ground level, this segment too faces the same hurdles as any other housing project. “Regulatory hurdles run from getting development plans sanctioned to ensuring pollution control, among others. Construction can begin only after all these clearances are obtained, which often takes as long as three years. Add to these three more years of actual construction time. As a result of these impediments with