RBI Revises Home Loans Limits for Affordable Housing Giving a Boost to Pradhan Mantri Awas Yojana

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Reserve Bank of India (RBI), in its new move has raised the Home Loan Limits under the Private Sector Lending (PSL) to boost supply of affordable houses. Now people can avail home loans upto Rs. 35 lakh in metropolitan areas (with population of 10 lakh or above) and Rs. 25 lakh in other areas for Affordable Housing. The new revised limit will give a much needed boost to Pradhan Mantri Awas Yojana (PMAY), a flagship housing scheme of central government.

RBI’s Revised PSL Guidelines for Housing Loans will provide low cost housing for people belonging to Economically Weaker Sections (EWS) and Lower Income Groups (LIG). From January 2014, this is the first time that RBI has raised the repo rate and reverse repo rate by 25 basis point. Now the repo rate reaches to 6.25 % and reverse repo rate is 6%.

Under PMAY-CLSS Scheme for EWS / LIG, central govt. is already providing a subsidy of Rs. 2.68 lakhs. This decision of RBI will provide additional benefits to all the first time home-buyers who wants to buy properties in Metropolitan Areas. As per the RBI Statement, the Central Government will issue a circular till 30 June 2018.

Positive Impacts of RBI Revised Home Loan Limits

Monetary Policy Committee of RBI has hiked the repo rates by 25 bps and will consistently track the retail price levels. Here are some of the positive impacts of this decision:
Housing Limits

For Homebuyers in Metropolitan AreasHousing Loan Limits for PSL Eligibility is now increased from Rs. 28 Lakh to Rs. 35 Lakh in metropolitan areas for Affordable Housing Scheme under PMAY. These Loans will qualify for the Priority Sector Lending. For this increased limit, the precondition is that the overall cost of the dwelling unit must not exceed Rs. 45 lakh.
For Homebuyers in Other AreasHome Loan Limits in all other areas is also hiked from Rs. 20 lakh to Rs. 28 lakh. The precondition is that the total cost of residential unit must not exceed Rs. 30 lakhs.

The primary objective is to give a push to the potential EWS / LIG homebuyers and thus to the Real Estate Sector which will lead to the overall economic development of the country.

Negative Impacts of RBI New Housing Limits under PMAY

This increase in the repo rate and reverse repo rate is done for the first time after January 2014. A few Commercial Banks have already raised their Marginal Cost of Funds Based Lending Rates (MCLR). The negative impacts for this new policy are described below:

  • This might proves to impact the affordable housing in a negative way as the Home Loan Interest Rates might increase.
  • This decision is balanced in the way that the actual EMI will not get changed significantly even after the revision in the interest rates.
  • Real Estate Industry was expecting that there should be a reduction in the repo rate by RBI. This hike may lead to suppressed growth of the Real Estate Sector.

However it is important to note that, RBI New Policy will not have any significant negative implications for PMAY Beneficiaries. There will be no additional borrowing costs for PM Awas Yojana Home buyers. Thus, there are both pros and cons of this decision, but RBI assures that the positive impacts of this decision will boost the “Housing For All by 2022” – PMAY Scheme.

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