Banks must lend more to HFCs: NHB

KOLKATA: National Housing Bank, or NHB, said it will request RBI to encourage banks to lend more to housing finance companies (HFCs) under priority sector status.

Loans classified as priority sector are cheaper than normal rates. Banks offer around 100 basis points discount for its priority sector loans to housing finance companies.

Banks give indirect housing loans to HFCs for on-lending to individuals. At present, such loans up to Rs 5 lakh have been classified as priority sector lending. NHB plans to suggest the central bank to raise the ceiling to at least Rs 10 lakh.

“Banks should be incentivised to lend to HFCs,” NHB executive director RV Verma told ET. He said NHB has informally raised this issue with RBI. “We will now formally advocate to enhance the limit to at least Rs 10 lakh,” he said.

NHB, which is wholly owned by RBI, is the central agency for promoting and regulating housing finance companies.
NHB plans to push the Rs 10-lakh cut-off simple as the government offers 1% interest subvention on housing loans up to Rs 10 lakh.

It may be recalled that under the government’s stimulus package, RBI increased the cut-off amount for priority sector indirect housing loans to Rs 20 lakh from Rs 5 lakh. The norm was in force till March 31, 2010. However, banks’ direct housing loans up to Rs 20 lakh continued to earn priority sector status.

“In case it is deemed to have been withdrawn from April 1, 2010, it is going to affect the fund flow to HFCs from banks,” said DHFL Vysya Housing Finance managing director R Nambirajan.

Dewan Housing Finance Company general manager Prashant Chaturvedi said: “We will approach RBI to extend the benefit.” GIC Housing Finance senior vice-president Rajib De expects RBI to extend the benefit.

The Rs 5-lakh limit for priority sector lending was originally fixed to encourage lenders to channel housing loans to economically weaker segment (EWS). But experts in the real estate field said it is difficult nowadays to restrict the project cost for EWS dwelling units to Rs 5 lakh.

“With the sharp rise in prices of land building construction materials, Rs 5 lakh limit for priority sector loans is not justified. RBI should review this aspect to boost the housing industry,” Mr Nambirajan added.