What changed
This master circular consolidates all prior instructions on housing finance for PCBs up to June 30, 2005, replacing the August 16, 2004 circular. It reiterates that PCBs can set loan amounts and margins based on commercial judgment with board approval, subject to a per-beneficiary cap of Rs 15 lakh and aggregate limits of 15% of capital funds for individuals and 40% for groups.
What it means for you
PCBs now have clear, consolidated guidelines to expand housing finance, especially to weaker sections, as priority sector lending. The flexibility to decide margins and loan amounts based on borrower repaying capacity allows banks to manage risk while meeting social objectives. Larger PCBs with surplus funds can use housing loans as a profitable investment avenue.
What you must do
- Review and update your housing loan policy with board approval, ensuring compliance with the Rs 15 lakh per dwelling unit cap and capital fund limits.
- Seek general permission from the Registrar to finance housing societies, if not already obtained, to avoid case-by-case approvals.
- Prioritize lending to economically weaker sections, low-income groups, and for slum clearance schemes to meet priority sector targets.
- Monitor aggregate housing loan exposure to ensure it does not exceed 15% of capital funds for individuals and 40% for groups.
Who it affects
Primary (Urban) Co-operative Banks (PCBs), Housing finance borrowers (individuals, societies, housing boards), Registrar of Co-operative Societies
What is the maximum loan amount per beneficiary under this circular?
The maximum loan per beneficiary is Rs 15 lakh for a dwelling unit, as per the circular dated August 11, 2005.
Can PCBs set their own margins for housing loans?
Yes, PCBs can decide margins based on commercial judgment and board approval, considering the borrower's repaying capacity.
Are housing loans to weaker sections treated as priority sector?
Yes, housing finance to specified categories up to prescribed limits is treated as priority sector lending, as highlighted in the circular.