It may be a case of too little too late. The government is moving to provide some relief to small home loan borrowers by providing a 1% interest subsidy for loans upto Rs 15 lakh, provided the cost of the property does not exceed Rs 25 lakh.
The proposal, which is expected to be approved by the Union Cabinet on Tuesday, is aimed at providing some cheer to households saddled with high inflation and rising EMIs (equated monthly installments).
The move, announced in the budget, is being operationalised now to give a message that the government is trying to address concerns of households at the time of Diwali when low sentiments are affecting spending. The scheme is an improvement of the existing facility where the benefit of interest subsidy is available to loans upto Rs 10 lakh, provided the cost of the property is Rs 20 lakh.
But celebrations could be short-lived as the Reserve Bank of India has Increased the Key policy rates by 25 basis points (100 basis points equal one percentage point) Now. Taking cues from RBI, lenders are expected to hike rates further to aggravate homebuyers' woes.
For a loan of Rs 15 lakh, with 20-year tenure, a 25 basis point increase in interest rates will translate into EMI rising by Rs 375, and the annual impact will be to the tune of Rs 4,500. A 1% interest subvention will translate into a saving of Rs 1,500 a year.
"For the people at the lower rung, there will be some benefit since the impact of a hike by RBI may be partially negated," said a public sector bank chief.
Also, the benefit is expected to be offered only on new loans. In any case, the number of beneficiaries will not be significant in big cities given that there are few properties available with a price tag of less than Rs 25 lakh
Government officials themselves acknowledged that this is not a big deal.
They, however, pointed out that the finance ministry has asked banks to ensure that as far as possible, lenders should not increase the EMI but instead try to extend the tenure. Public sector players have started implementing the government directive.
Already, interest rates have increased by around 250 basis points over the last 18 months as RBI has raised key policy rates 12 times to tame inflation. There is, however, growing concern that the government has been unable to initiate moves to improve supplies and take fiscal measures to check price rise, resulting in inflation remaining in the 8-11% range for the past 21 months.
HIGHLIGHTS: Few gainers
* Benefit available only on properties with a price tag of upto Rs 25 lakh
* Eligibility capped at loan amount of Rs 15 lakh
* 1% interest subsidy will result in saving of Rs 1,500 a year. But a 25 bps increase in rates will push up EMIs by Rs 4,500 annually
* Benefit only available for new home loans
Source: ET
The proposal, which is expected to be approved by the Union Cabinet on Tuesday, is aimed at providing some cheer to households saddled with high inflation and rising EMIs (equated monthly installments).
The move, announced in the budget, is being operationalised now to give a message that the government is trying to address concerns of households at the time of Diwali when low sentiments are affecting spending. The scheme is an improvement of the existing facility where the benefit of interest subsidy is available to loans upto Rs 10 lakh, provided the cost of the property is Rs 20 lakh.
But celebrations could be short-lived as the Reserve Bank of India has Increased the Key policy rates by 25 basis points (100 basis points equal one percentage point) Now. Taking cues from RBI, lenders are expected to hike rates further to aggravate homebuyers' woes.
For a loan of Rs 15 lakh, with 20-year tenure, a 25 basis point increase in interest rates will translate into EMI rising by Rs 375, and the annual impact will be to the tune of Rs 4,500. A 1% interest subvention will translate into a saving of Rs 1,500 a year.
"For the people at the lower rung, there will be some benefit since the impact of a hike by RBI may be partially negated," said a public sector bank chief.
Also, the benefit is expected to be offered only on new loans. In any case, the number of beneficiaries will not be significant in big cities given that there are few properties available with a price tag of less than Rs 25 lakh
Government officials themselves acknowledged that this is not a big deal.
They, however, pointed out that the finance ministry has asked banks to ensure that as far as possible, lenders should not increase the EMI but instead try to extend the tenure. Public sector players have started implementing the government directive.
Already, interest rates have increased by around 250 basis points over the last 18 months as RBI has raised key policy rates 12 times to tame inflation. There is, however, growing concern that the government has been unable to initiate moves to improve supplies and take fiscal measures to check price rise, resulting in inflation remaining in the 8-11% range for the past 21 months.
HIGHLIGHTS: Few gainers
* Benefit available only on properties with a price tag of upto Rs 25 lakh
* Eligibility capped at loan amount of Rs 15 lakh
* 1% interest subsidy will result in saving of Rs 1,500 a year. But a 25 bps increase in rates will push up EMIs by Rs 4,500 annually
* Benefit only available for new home loans
Source: ET
No comments:
Post a Comment