What changed
RBI decided that loans from banks to Housing Finance Companies (HFCs) approved by National Housing Bank for refinance can be classified under priority sector if the HFCs' end-use housing loans do not exceed Rs 20 lakh per dwelling unit per family. This eligibility is capped at 5% of the bank's total priority sector lending on an ongoing basis. The special dispensation applies to loans granted up to March 31, 2010, and such loans continue to be classified under priority sector until repayment.
What it means for you
Banks can now channel more funds to HFCs for affordable housing and still meet priority sector targets, up to a 5% cap. This expands the pool of eligible priority sector assets without requiring direct retail lending. Lenders must track that HFCs' end-use loans stay within the Rs 20 lakh per unit limit and ensure the aggregate does not exceed the 5% threshold.
What you must do
- Verify that HFCs are approved by National Housing Bank for refinance before classifying loans as priority sector.
- Ensure each HFC's on-lending to individuals does not exceed Rs 20 lakh per dwelling unit per family.
- Monitor that total such loans do not exceed 5% of the bank's total priority sector lending on an ongoing basis.
- Apply this classification only to loans granted to HFCs up to March 31, 2010; loans granted after that date are not eligible.
- Maintain documentation to support priority sector classification for regulatory reporting.
Who it affects
All scheduled commercial banks (excluding Regional Rural Banks), Housing Finance Companies approved by National Housing Bank, Individual borrowers seeking housing loans up to Rs 20 lakh
What is the maximum loan amount per dwelling unit for HFC on-lending to qualify under this priority sector dispensation?
The housing loans granted by HFCs to individuals must not exceed Rs 20 lakh per dwelling unit per family.
Is there a cap on how much of a bank's priority sector lending can come from loans to HFCs?
Yes, the eligibility under this measure is restricted to five per cent of the individual bank’s total priority sector lending, on an ongoing basis.
Until when can banks grant loans to HFCs under this special dispensation?
The special dispensation applies to loans granted by banks to HFCs up to March 31, 2010. Loans granted by that date continue to be classified under priority sector until they are repaid.