Home loans up to Rs 20 lakh get priority tag

MUMBAI: The RBI has increased the limit on priority lending for the housing sector from Rs 15 lakh to Rs 20 lakh.

RBI rules require banks to lend 40% of their advances to the priority sector, 18% of which should be to agriculture. The central bank has penalties on banks who fail to keep the mark.

However, bankers and analysts do not see rates for home loans up to Rs 20 lakh easing soon.

“This move by the RBI is following a demand by bankers to the FM ahead of the policy to include home loans in the priority sector. However, priority does not mean that banks get any monetary benefit, so rates may not ease. However, it means that banks have got a wider choice to fulfil their priority obligations,” said an official from State Bank of India.

Tarun Bhatia, head corporate and government ratings, Crisil, also feels that it will give banks a wider choice, but he also expects the incremental rate increase by banks to be lower for loans in this bracket compared to loans above Rs 20 lakh. “Banks will prefer to lend in housing among the priority sector because the yield there is higher and it is also safer compared to say the small scale industries,” Bhatia said.

He sees the demand for these loans particularly in the Tier II and III cities where property prices are not very high.