Increased thrust on housing to give a filip to banks and NBFCs

Union Budget 2025

In what could be a significant thrust to demand for home loans, the government in its Budget for FY25-26 has announced an allocation of Rs 1 lakh crore toward housing project. Termed as the Urban Challenge Fund, which will focus on city redevelopment, water and sanitation projects, industry experts say the fund could infuse a fresh lease of interest in the real estate sector. While the final print of this proposal is awaited and it is not sure whether the government will distinguish between residential and commercial projects for the purpose of city redevelopment, lenders say the move will enhance their confidence to lend to the real estate sector.

Likewise, the Special Window for Affordable and Mid-Income Housing or SWAMIH Fund announced with an fresh funding of Rs 15,000 crore to address nearly one lakh stalled housing project is another major bump up to the industry. First introduced in 2019, SWAMIH has helped several housing finance companies and banks, including LIC Housing Finance and PNB Housing Finance to remedy their troubles in the real estate funding or corporate loan book side. Bankers acknowledge the extension of this measure as a prudent step to provide assurance to lenders to continue their interest in the Real Estate market.

What is also noteworthy, particularly with the Urban Challenge Fund is the specific mention that it would be extended to bankable projects upto 25 percent of the loan eligible for funding through banks. As a prerequisite to availing this loan, the project must already have a diversified funding source upto 50 percent of its requirements through a mix of bonds and bank loans.

Experts say such cautionary measures can alleviate project risks to some extent. “It is good that the government is factoring in for the project viability while including them in such schemes,” said a banker.

While stocks of banks, housing finance companies and NBFCs haven’t reacted positively to these measures yet, it is gathered that with risk aversion marginally increasing towards housing sector, these measures can mitigate the perception a bit.

To be sure, off take of mortgages has been in the 11-13 percent range for most of last year (calendar year 2024) as per data from RBI. While an immediate reversal of cautious approach to home loans may not reverse, in the medium term, the proactive steps taken in Budget 2025 may convert to positive outcomes.