India is planning to allocate 600 billion rupees ($7.2 billion) over the next five years to offer subsidized loans for small urban housing. Banks are set to launch the scheme in the coming months, strategically ahead of state and general elections. The initiative, first announced by Prime Minister Narendra Modi in August, will provide an annual interest subsidy ranging from 3 percent to 6.5 percent for housing loans below five million rupees with a 20-year tenure. It aims to benefit up to 2.5 million applicants from low-income groups living in urban areas, stimulating lending in the affordable housing sector.
India is embarking on an ambitious mission, contemplating the allocation of a staggering 600 billion rupees ($7.2 billion) over the next five years to extend subsidized loans for small-scale urban housing initiatives. This visionary endeavour comes as two well-placed government sources divulged the details to Reuters. Banks are poised to roll out this monumental scheme within the next few months, strategically timed ahead of state elections scheduled later this year and the impending general elections in mid-2024. This strategic move follows a recent reduction in cooking gas prices by approximately 18 percent in the South Asian nation, a pre-election manoeuvre aimed at curbing inflationary pressures.
The genesis of this ground breaking initiative can be traced back to Prime Minister Narendra Modi's August Independence Day speech, when he officially unveiled the grand plan. However, specific details of this sweeping initiative have been closely guarded until now. Under the scheme's provisions, borrowers can anticipate an annual interest subsidy ranging from 3 percent to 6.5 percent on loans amounting to a maximum of 0.9 million rupees. Eligibility criteria extend to housing loans below five million rupees, with a repayment period spanning two decades. An anonymous government official revealed that the interest subvention will be credited upfront to the housing loan accounts of beneficiaries.
The scheme, expected to continue until 2028, is in its final stages of preparation and awaits approval from the federal Cabinet. This audacious endeavour has the potential to significantly impact the lives of up to 2.5 million applicants hailing from low-income groups residing in urban areas. The actual quantum of subsidized credit, however, will be contingent on the demand for these affordable housing solutions. Modi's address in August underscored the immense significance of this initiative, particularly for families inhabiting urban locales but grappling with rented accommodations, slums, chawls, and unauthorized colonies.
In anticipation of these discussions, banks have already initiated the process of identifying potential beneficiaries, a proactive measure poised to invigorate lending in the affordable housing segment, thereby bolstering the broader home loan portfolio.
This endeavour stands as a significant milestone, building upon the government's prior efforts to provide interest subsidies to lower-income borrowers in urban areas. A similar scheme had been in operation between 2017 and 2022, resulting in an astonishing 12.27 million homes being sanctioned under its purview. As India charts this ambitious course, it seeks to transform the housing landscape and uplift countless lives in the process.
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