CHENNAI: In a bid to cut down on risk of repayment of loans by economic weaker sections or low-income households, the State government is planning to set up a ‘Credit Risk Guarantee Fund’ or a ‘Housing Risk Fund’. The facility will cover repayment risks on loans provided by financial institutions and housing financial institutions. It is learnt that this is one of the recommendations of the draft Urban Housing and Habitat Policy.
As per official statistics, the State has a shortage of 1.5 mn homes in urban areas.
This also comes as the dream of owning a home in the city and State has eluded economic weaker sections and low-income groups during the last decade as credit flow from public sector banks failed to reach the lower strata.
Ministry of Housing and Urban Poverty Alleviation (MHUPA) has stated that despite an increase in the flow of credit to the housing sector in general, credit flow to the urban poor remains a challenge. Sources in real estate sector say that a risk guarantee fund will serve as a blanket for such financial institutions and will eliminate the risk of potential losses and at the same time will encourage financial institutions for lending more loans.
The draft Urban Housing and Habitat Policy also suggests encouraging housing loan insurance for affordable housing segment with nominal insurance premium. Under the insurance scheme, the insurer will be able to settle loan amount in case of unforeseen situation.It is also learnt that the policy makers are also exploring the government’s role in providing loan insurance premium to vulnerable sections of borrowers.
The State government has also been urged to promote registered mortgage as it serves as a guarantee against loan default. The draft policy states that such registration should be promoted by reducing registration fee for low-income category. Sources said this will cut down risk of duplicate mortgage. The draft report also suggested that loan procedures should be simplified and standard procedures should be adopted by all financial institutions to make credit more accessible to beneficiaries.
‘Will encourage financial institutions to lend more loans’
Sources in real estate sector say that a risk guarantee fund will serve as a blanket for such financial institutions and will eliminate the risk of potential losses and at the same time will encourage financial institutions for lending more loans
‘Declining’ trend
● Statistics from MHUPA reveal that loans below `two lakh have declined from 51 per cent in 2001 to 4.1 per cent in 2014 for public sector banks in relation to overall housing loans.
● Trend of lending for housing up to `5 lakh has reduced from 36 per cent in 2006 to 9.75 per cent in 2010 in relation to the number of housing units financed.
● Flow of public sector housing (around one lakh units as sanctioned during 2001-11) accounted for a mere four per cent of urban households.