Executive Director and CEO
Reliance Home Finance
The growth momentum in the Affordable Housing segment has been in
smithereens since the payment default crisis at the ILF&S Ltd. in
The government’s target of constructing 1 crore Affordable Houses by
2022 appears an uphill task now as the crisis has led to severe cash
crunch for the real estate sector with the banks further tightening
their purse-strings for both non-banking finance companies (NBFCs) as
well as housing finance companies (HFCs).
Currently, the total housing finance market in India is estimated to
be around Rs 16 lakh crore, and HFCs and NBFCs together account for 40
per cent of the total loan book. The cash crunch, hence, is threatening
to derail the Affordable Housing targets under the PMAY (U) as both
developers and home buyers are struggling to find finance resources.
Lack of funding is, therefore, leading to build-up of inventories,
slowdown in disbursals and higher costs of lending.
Further, added to the slowdown in bank lending and limited access to
capital markets, HFCs and NBFCs have been compelled to opt for
short-term borrowing channels such as commercial papers (CP) — a money
market instrument to raise short-term funds. This is a concerning trend
as higher dependence on such risky instruments could prove to be yet
another debilitating factor for the housing finance institutions in the
In the backdrop of mounting woes for the sector, the government may
consider bringing into immediate effect the below mentioned ‘5 policy
reforms’ that would to a great extent mitigate or even eliminate the
immediate impediments to the growth of India’s real estate sector.
- Prioritize Re-capitalisation of 11 banks under PCA Framework:
The government should prioritise immediate Re-capitalization of the 11
PSU banks, under the Reserve Bank of India’s (RBI) prompt corrective
action (PCA) framework. The move will revive the lending activities of
all these banks and ease out the current financing problem for the real
- Set 5% target for banks to lend either directly or indirectly to
Affordable Housing under Priority Sector Lending (PSL) mandate: The
Reserve Bank of India (RBI) mandates that 40 per cent of all loans of
the domestic and foreign banks in India should be to the sectors listed
under the “Priority Sector” category. The government should consider
setting a 5 per cent target for banks to compulsorily lend to
“Affordable Housing” segment, either under or in addition, to their 40%
lending target to the “Priority Sector”.
- Extend the Rs 2 lakh rebate on individual home loans:
In personal taxes, the current cap on tax deduction on housing loans is
Rs 2 lakh, which the government needs to ease to Rs 3 lakhs.
- Standardization of GST and Stamp duty rates:
The rates of applicable taxes, including GST and Stamp Duty, on real
estate purchases should be standardised. Currently, there is a
discrepancy on GST rates applicable to various categories of home
buyers, which is a deterrent for the growth of housing sector. The
government should also take measures to enforce rules for standardizing
of stamp duty on housing, which is imposed by State Governments, across
- Allow Deposit Taking Licence to HFCs with a good track record:
Since the traditional channels of credit for housing finance have been
running dry, HFCS that don’t possess a deposit taking licence are forced
to rely on securitization as the major source of funding. Currently, 18
out of 96 HFCs have deposit taking licence, hence, the government should
allow Deposit Taking Licence to those HFCs registered with the National
Housing Bank (NHB) and come with a good track record, decent book size,
high credit ratings and good asset quality.
Considering the current situation of India’s Real Estate Sector,
especially Affordable Housing which has been the focus of development
activities in the recent past, immediate implementation of some of the
aforesaid reforms would to a great extent help the sector achieve its
targets under the ‘Housing for All’ scheme.
(The writer is the Co-Chairman of the National Council on
Affordable Housing, ASSOCHAM and also the ED & CEO of Reliance Home