In a boost to low-cost housing, the Prime Minister’s Office has worked out a plan to ensure credit flow of Rs 2.3 lakh crore to home loans that would help build 11.5 lakh such homes.
According to the proposal worked out by the PMO, the Employees’ Provident Fund Organisation (EPFO) and insurance firms will deploy 15 per cent of their corpus towards home loans of up to Rs 25 lakh for low-cost housing.
Accordingly, the Central Board of Trustees of the EPFO is set to consider a proposal to deploy 15 per cent of its Rs 6.5 lakh crore kitty in the bonds of housing finance companies engaged in low-cost housing as well as amend the scheme to allow premature withdrawals by subscribers before the minimum service period of five years for servicing home loans.
“The proposal from the PMO has worked out that this decision shall generate a credit flow of Rs 70,000 crore towards home loan for low-cost housing, which in turn will create Rs 3.5 lakh additional low- cost homes,” said the agenda for the CBT meeting on December 19. The PMO has further said that insurance companies and the EPFO should be directed to invest any shortfall in investments into the Rural Infrastructure Development Fund (RIDF) NABARD bonds in line with the priority sector limit shortfall guidelines for banks.
The move comes at a time when the Centre is working to promote affordable housing as well as develop 100 smart cities. Contending that housing loans given by housing finance companies are relatively low risk credits, the EPFO has accordingly suggested that its investment norms should be relaxed to allow more HFCs to become eligible.
Current investment norms allow the EPFO to invest in dual AAA rated bonds of companies making only seven HFCs eligible. These include HUDCO, HDFC, LIC Housing Finance, National Housing Bank, PNB Housing Finance, Dewan, Housing Finance Ltd and IndiaBulls Housing to which the EPFO has invested Rs 8,067.25 crore.
The EPFO has suggested that in order to invest the balance of Rs 55,618 crore in such companies, it should also invest in AA rated+ bonds of HFCs in which the government or any PSU or dual AAA rated private company has more than 25 per cent stake. Further, the current limit under which it can invest up to 40 per cent of the company’s networth should be increased to up to 60 per cent.
These relaxations will make more companies eligible including GIC Housing, Canara Home Finance, ICICI Home Finance, Gruh Finance and Sundram Paribas allowing additional investments of Rs 1,044 crore by the EPFO.
However, experts warn that home loans are not a low risk proposition and such decisions must be based on risk and returns. “The larger stakeholder should be involved. Investment decisions must be restricted to investment needs and not for imperatives for larger society,” said Amit Gopal, senior vice-president, India Life Capital Pvt. Ltd, an investment and legal consulting firm in retirement benefits.
Official data reveals that non-performing assets in the housing loan segment of public sector banks have shot up by over Rs 1,000 crore to around Rs 6,200 crore during the first six months of calendar 2014.