To encourage infrastructure development and affordable housing, the RBI on Tuesday issued new guidelines under which banks would be exempted from reserve requirements when raising long-term bonds for infrastructure.
The RBI said that lending for affordable housing means loans eligible under priority sector, and loans up to Rs. 50 lakh to individuals for houses costing up to Rs. 65 lakh located in the six metropolitan centres - Mumbai, New Delhi, Chennai, Kolkata, Bengaluru and Hyderabad.
For other areas, it covers loans of Rs. 40 lakh for houses with values up to Rs. 50 lakh.
"The recent move by RBI is a welcome move as it would help stimulate demand for housing and make houses affordable to some extent," said Neeraj Bansal, partner and head of real estate and construction at KPMG.
"The move is expected to reduce Equated Monthly Installment (EMI) of a home loan borrower by 8-10 per cent, which coupled with recent income tax incentives have the potential to boost annual savings of an individual to the tune of Rs. 1 lakh."
The step taken by the apex bank is a positive step towards improving liquidity and reducing cost of funds for the infrastructure sector.
"The inclusion of housing sector in this provision is a positive initiative by RBI and would help stimulate demand for housing in the country," Mr Bansal added.
The cost of funds to infrastructure sector is expected to come down by 100-200 basis points as banks would no longer need to meet regulatory requirements of maintaining required cash reserve ratio (CRR), statutory reserve ratio (SLR) and priority sector lending (PSL) on funds raised for infrastructure and housing sector.
"Currently, housing loans below Rs. 20 lakh have lower interest rates as they fall into priority sector lending. With this step, loans up to Rs. 50 lakh in 6 metropolitan cities (housing costing up to Rs. 65 lakh) and Rs. 40 lakh in other cities (housing costing up to Rs. 50 lakh) - a major chunk of housing demand - are set to get cheaper," he said.
The apex bank had said on Tuesday it intends to "ease the way for banks to raise long term resources to finance their long term loans to infrastructure as well as affordable housing".