To cater to the diverse needs of housing in India, the HFIs / HFCs have tailored a variety of housing finance schemes. Let us discuss, in short, salient features of these schemes.
Housing Loan Schemes of Commercial Banks:
As observed earlier, 1.5 percent of incremental deposits of commercial banks have to be made available to the housing sector every year. These have to be done in accordance with RBI guidelines. The housing loans/ finance are provided to individuals, institutions, public agencies, and so on. The salient features of housing finance schemes of commercial banks are as following:
Loans to Individuals: Individuals eligible for housing loans fall into four categories, namely, those belonging to economically weaker section/ low, middle and higher income groups; those owning land and capable of liquidating the loan within stipulated time; those purchasing residential flats from state housing boards/ improvement trusts / cooperative societies / private builders and others and those belonging to SC/ST, who have been allocated land by the government.
The rate of interest is charged according to the amount of advance and RBI PLR. The SC/ST borrowers have to pay concessional rates on housing loan. Normally commercial banks do not pay full cost of the house and the owners/borrowers have to bring in the margin money. Normally margin money is 25% of the cost.
The amount of loan depends on the capacity of the borrower to repay and the cost of construction, subject to a maximum limit of Rs. 10 lakh.
Repayment of the loan has to be done in equal monthly installments within a maximum period of 15 years. Initial moratorium of 18 months or until completion of construction whichever is earlier may also be allowed. The normal security for the housing loan is mortgage of property purchased from the proceeds of the loan. However, where it is not feasible the banks may accept security of adequate value in the form of life insurance policies, Government promissory notes, shares and debentures, gold ornaments and such other securities.
Banks also entertain supplementary finance for repair/alterations/ additions to the house / flat/ building already financed by them.
Loans to Institutions / Public Agencies by Commercial Banks: This can be further classified into four categories:
Term loans to housing finance institutions: HFIs can avail of term loans from banks. The quantum is determined on the basis of debt equity ratio, track record, recovery performance and other relevant factors. In no case, the quantum of term loans to be granted to the HFC/ HFIs together with the outstanding loans in the existing term loans from the banking system should exceed their NOF. This norm is however, relaxable in the case of HFC/ HFIs promoted /sponsored by commercial banks as also in respect of the HUDCO and HDFC.
Lending to Housing Boards and other Agencies: Banks may extend term loans to state level housing boards and other public agencies on the same terms and conditions as indicated in the case of HFIs. Banks, however, look into the past performance of such boards in recovering the installments from beneficiaries and also stipulate that the boards ensure prompt and regular recovery of loan installments from the beneficiaries.
Financing for Land Acquisition: Banks grant loans to public agencies for acquisition and development of land provided it is a part of the complete project including development of infrastructure such as water system, drainage, roads, provisions of electricity and so on. The maximum period of repayment is three years if project also covers construction of houses. Credit extended to individual beneficiaries should conform to the terms and conditions applicable to individual borrowers.
Loans to Builders: Builders who wish to avails of credit for development of plots coupled with the construction of flats/houses under refinance scheme of the NHB are granted loans by the banks, subject to certain conditions like
(i) The loan amount in respect of at least 75% of the dwelling units (flats/houses) should not exceed Rs. 3 lakh per individual unit.
Builders’ own contribution should not be less than 25% of the cost of the project which is to be brought in first and used before disbursement of bank loan.
The bank loan is in the shape of term loan for a period of three to five years linked to each specific project. The finance is made available for the completion of the project which includes construction of the dwelling units.
The dwelling units should be sold through open advertisement, to the prospective buyers at the predetermined prices to avoid speculation.
On completion of the project, the dwelling units should be sold on outright sale basis to allottees who may avail of loans from banks.
Sale proceeds are to be utilized by builders strictly for repayment of the term loans given to them by the banks.