Buyers in the economically weaker section and low income group category could come a step closer to achieving their dream of owning a house soon as the Ministry of Housing has proposed an overhaul of the Central Government’s Rajiv Rinn Yojana (RRY) to replace it with a new interest subvention scheme.

The Government has proposed replacing the existing system of quarterly reimbursement of interest subsidies to banks and housing finance companies and instead calculate the reimbursement on net present value basis which would be paid upfront by the Central Government. Further, the RRY scheme will be renamed.

Revamp of the scheme

The reason why the RRY scheme is being re-jigged is that ever since it was rolled out in October last year, it has benefited less than 100 beneficiaries against the target of 2.5 lakh beneficiaries in FY15.

Overall, one million beneficiaries are proposed to be covered under RRY during the 12th Plan period 2012-17 with a total outlay of ₹ 3,580 crore.

A senior official from the Ministry of Housing and Urban Poverty Alleviation said: “We realised that the RRY scheme was not finding any takers as it involved multiple number of transactions staggered over the tenure of the loan and provided for subsidy reimbursement to banks and HFCs with a lag effect creating a disincentive.”

“By proposing to do away with multiple transactions staggered over a period of time by providing for an upfront subsidy calculated on net present value basis, we have tried to make the scheme more practical. This would help attract banks as reduction in their cost of borrowing will spur demand for housing loans and ultimately benefit more buyers too,” he added.

RRY, which is aimed at addressing the housing needs of the EWS and LIG categories by enhancing credit flow, envisages fixed interest subsidy of 5 per cent (500 basis points) on loans granted by banks and housing finance companies to the targeted categories of borrowers to construct their houses or extend the existing ones. Under the Yojana, banks get reimbursement of interest subsidy on quarterly basis from Housing and Urban Development Corporation and National Housing Bank. The reimbursement is in turn funded by the Central Government. Second and subsequent instalments are released on a revolving basis on the basis of 70 per cent utilisation.

The end buyer is benefited by the scheme by way of reduced EMI’s after accounting for lower interest cost on account of the subsidy from the government.

Major overhaul

The move to overhaul RRY comes in the backdrop of the Btudget announcements to promote affordable housing and more recently, the RBI’s move to ease norms for banks to raise money through long-term bonds to support the sector.

According to a Technical Group study by the Ministry, the housing shortage in 2012 stood at 18.78 millions, of which 96 per cent was among the EWS /LIG households, making it a priority for the Government.

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