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Home loans up to Rs 10 lakh will get 1% interest rate subsidy


The Indian government has approved the Scheme of 1% interest subsidy on housing loans up to Rs.10 lakh and the allocation of a sum of Rs.1000 crore for the Scheme.

The Finance Minister in his reply to the debate on the Finance Bill in the Lok Sabha on 27th July, 2009 had proposed to provide support to borrowers by way of interest subvention of 1% on all housing loans up to Rs.10 lakh to individuals, provided the cost of the house does not exceed Rs.20 lakh.

Point-wide Details:

Interest subvention of 1 percent will be made available on individual housing loans upto Rs.10 lakh for construction / purchase of a new house or extension of an existing house provided the cost of the construction/price of the new house/extension does not exceed Rs. 20 lakh.

The Scheme will be implemented through Scheduled Commercial Banks (SCBs) and Housing Finance Companies (HFCs) registered with the National Housing Bank (NHB).

The first twelve instalments of all such loans sanctioned and disbursed during the period of twelve months from the date of publication of the scheme will be eligible for interest subvention.

Subsidy of one percent will be computed for 12 months on disbursed amount and adjusted upfront in the principal outstanding irrespective of whether the loan is on fixed or floating rate basis.

Reserve Bank of India (RBI) will be designated the nodal agency for SCBs and National Housing Bank (NHB) will be designated the nodal agency for HFCs.

Implementation Strategy and targets:



All Scheduled Commercial Banks (SCBs) and Housing Finance Companies (HFCs) will submit a monthly consolidated return to the Reserve Bank of India (RBI) and National Housing Bank (NHB) respectively, specifying interest subvention given.

The nodal agencies will put up a demand to the Government of India for release of subsidy amount and the Government of India in turn will sanction and release the subsidy amount based on demand received.

The number of beneficiaries covered under the scheme will depend, interalia, upon the size of the loan amount and the number of beneficiaries approaching the nodal agency for interest subvention. Being a demand driven scheme no specific targets for coverage of beneficiaries have been fixed.

It is expected that cut in interest rates should reduce Equated Monthly Instalments (EMIs) of borrowers and create additional demand for housing. This in turn should stimulate demand in construction industry as well as industries such as steel & cement having employment potential and income multiplier effect.

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