Aarti Dhar

NEW DELHI: The government on Thursday announced an interest rate subsidy of one per cent for housing loans up to Rs.10 lakh. A sum of Rs.1,000 crore has been allocated for the scheme for 2009-2010, which is expected to benefit 10 lakh people.

The subsidy will be available for the first 12 equated monthly instalments (EMIs) on loans up to Rs.10 lakh for houses costing less than Rs. 20 lakh, Information and Broadcasting Minister Ambika Soni told journalists after a Cabinet meeting chaired by Prime Minister Manmohan Singh.The Cabinet approved the scheme, in pursuance of Finance Minister Pranab Mukherjee’s announcement while replying to the budget debate in July.

The interest subsidy will be routed through commercial banks and housing finance companies registered with the National Housing Bank. The Reserve Bank will be designated the nodal agency for scheduled commercial banks, and the National Housing Bank, for housing finance firms. The interest subvention will be made available on individual loans for construction or purchase of a new house or extension of an existing one provided the cost does not exceed Rs. 20 lakh.

The subsidy will be computed for 12 months on the disbursed amount and adjusted up front against the principal outstanding, irrespective of whether the loan is fixed or on a floating rate basis.

Mr. Mukherjee proposed the subsidy to support lower and middle income housing, as there was a pronounced deceleration in sectoral credit flow attributed to house price increase, slackening of income growth, and a rise in interest rates. It is expected that the cut in interest rates will reduce EMIs and create additional demand for housing. This, in turn, should stimulate demand in the construction industry and in steel and cement units with employment potential and income multiplier effect.