The Housing and Urban Poverty Alleviation Ministry launches a new scheme for financing low-income housing

Seeking to protect the interests of the poor and marginalised sections of society, the Housing and Urban Poverty Alleviation Ministry has launched a unique Credit Risk Guarantee Fund Scheme (CRGFS) for low-income housing.

The scheme envisages the creation of the Credit Risk Guarantee Fund Trust with an initial corpus of Rs. 1,000 crore translating into loan a disbursement of a whopping Rs. 60,000 crore. The launch witnessed signing of memorandums of understanding between the National Housing Bank (NHB) on the one side and the HDFC Bank, State Bank of India and Central Bank of India on the other. The trust and the scheme will guarantee housing loans made by lending institutions like commercial banks, regional rural banks, housing finance companies, cooperative housing finance societies, etc. once they get into an agreement with the National Housing Bank.

The scheme ensures that the loan amount, not exceeding Rs. 5 lakh per loan, shall be made available without any collateral and/or third party guarantees. Loans can be taken for purposes of home improvement, construction, acquisition and purchase of new or second hand dwelling units of size up to 430 sq ft (40 sq. mt) carpet area; beneficiaries would be new or existing individual borrowers from the economically weaker sections (EWS or LIG) and borrowers forming a group or housing society of at least 20 members.

Launching the scheme, Union Housing and Urban Poverty Alleviation Minister Ajay Maken said the housing sector was going through a piquant situation with a shortfall of about 18.5 million houses, even as 11 per cent of the existing houses were lying vacant. Indeed, the housing credit/loan sector was fast reaching a stage where there were serious risks of the housing bubble bursting if the banks and institutions continued sustaining speculative demand driven credit disbursement policy.

The increased pace of urbanisation during the last decade between 2001 and 2011, which witnessed the number of towns in the country growing from 5,161 to 7,935 with an urban population of about 31 per cent, has further compounded the problem with visible disparities existing in town and cities. As a first and most concrete step towards bridging this disparity, it was essential that banks and lending institutions readily come forward to provide housing loans to economically weaker sections and lower income groups in urban areas, Mr. Maken said.

Elaborating upon the gravity of situation in the housing sector, he said that an extremely incongruous situation has developed wherein while housing loans were available in abundance for artificial demand driven upper and middle class segments, there was an absolute lack of even basic housing amongst the economically weaker segments. That the banks were funding artificial demands was evident from the fact that in a place like Delhi, only 2.31 million housing units out of total 3.38 million units was being used for residential purposes, while 20 per cent of the houses were totally vacant, according to figures in 2001.

Such a situation, Mr. Maken said, arose mainly due to faulty planning, archaic tenancy laws and also because banks and lending institutions constantly exhibited diffidence in extending loans for EWS housing primarily because of lack of credit guarantees and collateral values. However, with the launch of the CRGF scheme and progressive legislations that intend to provide long term property rights to inhabitants of slum clusters, credit risks will be mitigated substantially and accordingly banks and lending institutions should start funding EWS housing in a major way.

Apart from this, measures ensuring provision of 35 per cent of total number of dwelling units or 15-20 per cent of FAR, whichever is more in new housing projects being constructed by the government or the private builders would ensure meaningful EWS housing, Mr. Maken pointed out.

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