Home loans up to ₹20 lakh may get cheaper and easier

• The Reserve Bank of India has taken additional steps to bring India's shadow banks back on their feet.
• In the process, some lending caps have been eased both for agriculture investment, small and medium businesses and home loans.
• Home loans of up ₹20 lakhs will be considered 'priority' and these loans can be routed through non-banking financial companies (NBFCs).

The Reserve Bank of India has cut interest rates by 35 basis points on August 7 to take advantage of the tepid inflation and revive economic growth.

Aside from the broad move to reduce the policy rate, governor Shaktikanta Das also eased some lending caps to bring the country's shadow banks back on their feet. ""Rural demand in form two wheelers and tractors and the urban demand has slowed down as signalled by passenger vehicles. With measures undertaken by both the government and the RBI, we expect some recovery," Das said.

The NBFCs -- firms that do not take deposits but make loans-- are an important part of the economy to ensure money flow reaches unbanked areas and to meet the demand from people who cannot avail loans from banks. Business for these NBFCs had recently come to a grinding halt after the crash of infrastructure lending giant IL&FS. The spike in unpaid loans since then meant that the banks could not give the NBFCs more money to recover from the crisis.

But the RBI has taken the following steps today to help them out. Overall, banks have allowed to lend 20% of their tier-1 capital to any one NBFC. The cap was so far at 15%. The regulator has also cut the risk weight for consumer loans except credit cards. This will allow banks to lend more to individual borrowers.

Priority sectors

A set portion of all loans by banks must be made to certain sections of the economy, at a cheaper rate, because they need the affordable loans more than others. These are called 'priority sector' loans and were routed through the banks.

However, now the RBI has allowed the banks to route such loans via NBFCs too. The new limits for 'priority sector' loans are as follows:

• ₹10 lakh for agricultural investments
• ₹20 lakh for loans to micro, small, and medium enterprises
• ₹20 lakh for home loans

Simply put, if an NBFC borrows money from a bank and then lends it further to a home buyer within the ₹20 lakh threshold, it will be considered as a 'priority sector' loan.

The central bank is hoping that these measure would revive demand for homes, cars and motorbikes, as well as for investment into small businesses.

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