Guidelines for Interest Subsidy Scheme for Housing the Urban Poor

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.

Eligibility:

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.

    ‘Affordable Housing for All’ is an important policy agenda of the Government of India. The Government has sought to create an enabling and a supportive environment for expanding credit flow to the housing sector and increasing home ownership in the country. Various national policy pronouncements have reinforced the primacy of the housing sector and the need to provide shelter opportunities to all. A major initiative has been launched for provision of housing for the Economically Weaker Sections (EWS) and Low Income Groups (LIG) through the Jawaharlal Nehru National Urban Renewal Mission (JNNURM).

1    The Ministry of Housing and Urban Poverty Alleviation (MH&UPA), Government of India has designed an Interest Subsidy Scheme as an additional instrument for addressing the housing needs of the EWS/LIG segments in urban areas. The Scheme envisages the provision of interest subsidy to EWS and LIG segments to enable them to buy or construct houses.

2.     BROAD FEATURES OF THE SCHEME

2.1    Purpose - The Scheme will provide home loan with Central Government subsidy to EWS/LIG persons for acquisition of house as also for construction of house to such beneficiary, who does not own a house in his/her name or in the name of his/her spouse or any dependent child. Such beneficiaries who own land in any urban area but do not have any pucca house in their name or in the name of their spouse or any dependent child will also be covered under the Scheme.

2.2    Eligibility - The economic parameter of EWS is defined as households having an average monthly income upto Rs.3,300 and the economic parameter of LIG is defined as households having an average monthly income between Rs.3,301 upto Rs.7,300. This will be subject to revision by the Steering Committee of the Scheme from time to time.

2.3    Loan amount admissible - The scheme will provide a subsidized loan for 15 – 20 years for a maximum amount of Rs.1,00,000 for an EWS individual

for a house at least of 25 sq.mts. Additional loans, if needed would be at unsubsidized rates.

2.4    A maximum loan amount of Rs.1,60,000 for a LIG individual for a house at least of 40 sq.mts will be admissible. However, subsidy will be given for loan amount upto Rs. 1 lakh only. Additional loans, if needed would be at unsubsidized rates.

Terms for Loan and Subsidy Reimbursement

2.5    The subsidy will be 5% p.a. on interest charged on the admissible loan amount for EWS and LIG, over the full period of the loan for construction or acquisition of a new house. The subsidy will be passed on as follows:-

2.5.1    The Net Present Value (NPV) of this subsidy will be arrived at on the basis of notional discount rate of 9% p.a., (equivalent to Government Security rate) for the period of the loan and on the interest chargeable at the time the loan is contracted.

2.5.2    Loan repayment periods will be permissible generally ranging from 15-20 years.

2.5.3    The Nodal agencies for the scheme will be the National Housing Bank (NHB) and Housing & Urban Development Corporation Ltd. (HUDCO). The nodal agencies will not lend directly to the borrower but through banks or Housing Finance Companies (HFCs) who agree to be part of the Scheme as the lenders. The NPV subsidy will be released by the Government to the nodal agencies on quarterly basis in advance based on the number of housing loans sanctioned by their lenders who join the scheme.

2.5.4    The NPV of the subsidy will be given by the Government to the lenders through its nodal agencies on upfront and quarterly basis. It will be passed on by the lender to the borrower by deducting the subsidy amount from the principal loan amount of the borrower and charging interest on the net amount of loan at the agreed rate of interest.

2.5.5    The agreed rate of interest would be fixed by the lending banks keeping in view the RBI guidelines for lending by banks for loans upto Rs. 2

3    ROLE OF THE STATE GOVERNMENTS/URBAN LOCAL BODIES (ULBS)

3.1    State Governments / ULBs will:

5.1.1    identify a local level nodal agency and inform MH&UPA of the nodal agency identified. Such local level nodal agency will identify, motivate and organize beneficiaries to seek loans for building or buying houses.

3.2    help local level nodal agency to identify and motivate beneficiaries who have land and are prepared to build for themselves including beneficiaries within urban limits of homestead schemes being implemented by the State Governments / ULBs. In identifying beneficiaries nodal agency/ULB will seek to follow a cluster approach, as also encourage and assist beneficiaries to form Group Housing Societies.

4     ROLE OF CENTRAL NODAL AGENCIES
4.1    The National Housing Bank (NHB) and Housing & Urban Development Corporation Ltd. (HUDCO) will be the Central Nodal Agencies (CNAs) for disbursement of the subsidy and monitoring the progress. NHB/HUDCO will enlist lending agencies with the approval of the Steering Committee who will disburse loans under the Scheme.

5    ROLE OF THE BANKS/HOUSING FINANCE INSTITUTIONS (HFIs)

5.1    Banks/Housing Finance Institutions (HFIs) i.e HFCs, MFIs etc. will have the option to avail the resources of either of the Nodal Agencies for the period of the Scheme.
5.2    Banks/HFIs will have to provide Utilisation/End use Certificate to NHB/ HUDCO on a half yearly basis.

6    EVALUATION AND MID-COURSE ADJUSTMENTS

A detailed review of provision of subsidy by PLIs to EWS & LIG beneficiaries will be undertaken by the Ministry through an external institution of repute after every 2 years. Such reviews are intended with a view to making mid-course adjustments and improvements in the implementation of the Interest Subsidy Scheme.