The Pradhan Mantri Awas Yojana (PMAY)– Housing for All
aims at addressing the shortage of 20 million slum and non-slum urban poor households, by 2022. Under the PMAY, central assistance will be provided to the Urban Local Bodies (ULB) and other implementing agencies through union territories (UT) and states for the following –
In-situ rehabilitation of existing slum dwellers using land as a resource through private participation
Credit linked subsidy scheme (CLSS)
Affordable housing in partnership
Subsidy for survey-led individual house construction or enhancement
Among the above CLSS is the only scheme that is implemented as a central sector scheme, rest will be implemented as a central sector sponsored schemes. The CLSS is aimed at increasing the institutional credit flow to the housing needs of the urban poor as a demand side intervention.
This Scheme is being implemented through two central nodal agencies – National Housing Bank (NHB) and Housing Urban Development Corp (HUDCO). Till date the Scheme has drawn a lot of traction from the housing finance industry with 185 primary lending institutions registered under the scheme, mostly represented by housing finance companies (HFCs).
This Scheme, certainly, would address the demand size issues of the affordable housing finance segment but there is matter of concern when it is looked at a bit closer. Under this scheme, upon the receipt of the subsidy, the entire amount is reduced from the effective loan amount at the inception of the tenure, which means the borrower will have to pay off only to extent of the principal, arrived at, after the adjustment of the principal. If the borrowers think of repaying the principal amount before the end of the loan tenure, the very intent of this Scheme will be defeated.
Let us understand this with the help of an example – say a homebuyer borrows Rs100 from an HFC against which a subsidy of Rs10 is allowed under the Scheme; therefore, the borrower will actually have to pay back Rs90 towards the principal. Now if the borrower decides to prepay the loan, it will have to pay principal to the extent of Rs90, while it received Rs100. So there will be a gain of Rs10 in the hands of the borrower.
However, the merits in this Scheme are far more to cover this drawback.
The CLSS is applicable only for affordable housing loans availed by Economically Weaker Sections (EWS) and Low Income Groups (LIG) seeking housing loans from banks and housing finance companies and such other institution as may be eligible to be a part of this scheme.
Here the amount of interest subsidy allowed by the central government is apportioned directly against the principal outstanding of the loan amount at the very inception of the loan tenure.
The quantum of interest subsidy will be at a rate of 6.5% for a tenure of 15 years or during the tenure of the loan, whichever is shorter, which is to be discounted at the rate of 9%. Let us understand this by way of an example.
Principal – Rs1 lakh
Tenure – five years or 60 months
Rate of interest – 13%
The interest rate subsidy at the rate of 6.5% is to be calculated at the rate of 6.5% for a period of 60 months using the “IPMT” formula in Excel. The figures will look like –
The figure, as calculated above, is same as that of the amount of subsidy shown by the calculator prepared by the central government in this regard.
There are additional conditions which should be satisfied in order to avail benefits under the Scheme and they are –
Subsidy shall be available only in case of loans up to Rs 6 lakh;
Credit linked subsidy would be available for housing loans availed for new construction and addition of rooms, kitchen, toilet etc. to existing dwellings as incremental housing;
The carpet area of houses being constructed under this component of the mission should be up to 30 square metres and 60 square metres for EWS and LIG, respectively in order to avail of this credit linked subsidy.
(Abhirup Ghosh works as Senior Manager at Vinod Kothari Consultants P Ltd)