Pradhan Mantri Awas Yojana (PMAY) – A proposition of Housing Loan for all

[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]B[/dropcap]anks and formal financial institutions, save a government dictat to Public Sector Banks, have always been and are likely to be hesitant to lend to the EWS / LIG sections of the populace given their inability to produce formal proof of income – an income tax return.

In India, there are people who have Income but not necessarily “a documentary proof of income”. They comprise – a vast majority of people – employed in the unorganized / informal sector – small and marginal traders, tradesman, workers in small scale and cottage industries, etc. Their incomes are below the threshold subject to Income Tax and thus don’t generally file tax returns and till recently, i.e., prior to the advent of Jan Dhan Yojana, were highly unlikely to bank with. Obviously, in the absence of paperwork, the formal financial establishments generally don’t consider them credit worthy for extending credit. However, the Government of India’s Financial Inclusion drive – such as Jan Dhan Yojana and MUDRA Loans are intended to reach this Bottom of the Pyramid. So is another ambitious scheme – Housing For All by 2022.

The Narendra Modi led NDA Government has launched an ambitious Housing For All by 2022 Scheme. The formal notification for Pradhan Mantri Awas Yojana (PMAY) was launched in April, 2016. According to the Government, “The Housing For All Scheme is a revolutionary scheme that will complete in the year 2022. It will be a great gift to the Indian Citizens on the eve of the 75th anniversary of our Independence. The Scheme is for Economically Weaker Sections (EWS) and Lower Income Group (LIG) sections of the society. In order to verify that the applicant belongs to the EWS / LIG group, the applicant has to submit self-certificate or Affidavit as proof of income. The Central Government has planned to grant affordable housing through credit linked subsidy of 1 lakh to 2.3 lakhs to the beneficiaries. EWS are defined as those who have annual family income of upto Rs. 3 lakhs and Houses of upto 30 square meters and LIG are defined as those who have annual family income of upto Rs. 6 lakhs and Houses upto 60 square meters.

What is the solution to this problem?

My suggestion is to replace the requirement of 3 year Documentary Proof of Income such as Salary Slips or Income Tax Return for a Housing Loan with 3 year deposit of EMI’s equivalent sum with Banks / Housing Finance Companies for EWS and LIG beneficiaries. This is in lieu of documentary proof of income and will earn market rates of interest such as on Recurring deposits. The core concept still remains the same – the credit worthiness of the proposed borrower. The deposit + interest accrued on the deposit is used to defray the Margin Money [Own Contribution] towards the acquisition / construction of property.

Lapse

In case the depositor does not intend / fails to buy property during the period – he gets refund of the deposit with due interest.

Collateral Advantages

1. To Banks and Housing Finance Companies – Initially deposit during the 3 year period, will shore up their deposit base.

2. Collection of statistics – KYC’s forms at the time of opening deposit accounts with Banks / HFCs may also collect data about the location(s) and property cost outlay where the buyer depositor wants to purchase the property. This will help Real Estate Developers plan and estimate the requirement of value & budget housing units especially in smaller towns where they are at present reluctant to launch projects.

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Nirmal Ghorawat

The author is a member of the Institute of Chartered Accountants of India.

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