Finance minister P Chidambaram assured real estate developers that government will impress upon banks to accelerate lending to realty, which is facing one of the worst slowdown in the recent times. A delegation of builders under the Confederation of Real Estate developers’ Association of India (CREDAI), met Chidambaram on Wednesday to complain against banks’ reluctance to disburse loansto the real estate companies.

A source, who was present in the meeting, said the government accepted that real estate is an engine of growth. At a time when the economy is facing a threat of slowdown, the sector could be used to revive it. Chidambaram, it is learnt, told the delegation that the government will not only help infusing liquidity in the system, but will also work to bring down the interest rates.

In the last couple of years, realty has been affected adversely because of rise in interest rates, which went up from 8% to around 12%. The interest rate was increased because of the sharp rise in prices of real estate assets, which RBI thought could create a bubble. To discourage the price rise, RBI tightened the provisioning norms, making loans to the sector costlier. At the same time, in the last nine months, when the inflation shot up to cross 6%, level RBI started tightening liquidity to keep price rise under check.

Such a steep rise in the interest rates increased the equated monthly instalment (EMI) of a loan for the same period by almost 40%. This has affected affordability factor of buyers adversely and in turn brought down buying of houses. According to the source,FM said the situation has now changed and the policy would also be tweaked accordingly, so that the interest rate on home loan comes down, making it more affordable.

It is learnt that RBI is considering to remove the high risk weightage on the home loan to enable banks to lend at lower rates. At present, banks have to make provisioning of higher capital against the home loan of more than Rs 30 lakh. Because of this, the interest rate of home loan above that slab is around one percentage point higher than that of less than Rs 30 lakh.

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