Housing min tweaks Parekh panel report

Housing min tweaks Parekh panel report
The Financial Express, October 27, 2009, Page 23

Kakoly Chatterjee, New Delhi

The housing ministry is fine-tuning the recommendations of the Deepak Parekh committee on affordable housing. The ministry does not want the monthly installments of both the categories, the economically weaker sections (EWS) and the lower middle income group (LMIG), to exceed more than 25-30% of the monthly income of the house owners.

The equated monthly installments (EMI), in absolute terms, should be in the range of Rs 500 to Rs 750. The ministry has suggested that the duration of payments should be around 15 years.

If an owner is paying interest of Rs 750 for Rs 100,000 every month, the interest rate works out to be 0.75%. Banks are reluctant to give loans at such low interest rates mainly because people from economically weaker sections do not have any regular jobs and therefore their payments on loans is uncertain.

With banks and home finance companies reluctant to lend to this category owing to the high risk of defaults, the ministry is looking at setting up a housing micro finance company. For this, the ministry has set up a committee to find out if there should be a micro finance company with focus on housing finance. The ministry is also considering whether the housing micro finance company should take household savings as deposits. The ministry is in consultation with banks and financial institutions as to how funds can be availed at a cheaper cost. The Deepak Parekh committee report on affordable housing had suggested that EMIs for EWS and LIG housing should not exceed 30% of gross monthly income, while for MIG, it should not be more than 40% of the gross monthly income. People earning up to Rs 3,300 a month come under the EWS category, while people earning up to Rs 7,300 fall under the MIG category.