Revamping the Credit Risk Guarantee Scheme for Loans
In a significant development for the affordable housing sector, Housing Finance Companies (HFCs) are urging the Indian government to revamp the credit risk guarantee scheme known as the Credit Risk Guarantee Fund Trust for Low-Income Housing (CRGFTLIH). The proposal includes increasing the guarantee cover for home loans up to ₹25 lakh, a substantial rise from the existing limit of ₹5 lakh.
Key Highlights of the Proposal
HFCs are seeking a guarantee cover of up to 75% for home loans of ₹25 lakh under the credit risk guarantee scheme, aiming to enhance access to credit for low-income families. The current CRGFTLIH scheme, with a budgetary allocation of ₹550 crores, offers a 90% guarantee for home loans up to ₹2 lakh and an 85% guarantee for loans ranging from ₹2 lakh to ₹5 lakh.
The revamped scheme is expected to broaden its scope, including a wider demographic within the low-income housing sector across 124 districts. This initiative will complement the existing Pradhan Mantri Awas Yojana (PMAY), which aims to provide affordable housing for all.
Insights from Industry Leaders
The proposal comes from chief executives of leading housing finance firms, emphasizing the urgent need to modify the existing credit risk guarantee scheme, which has seen limited uptake due to its narrow focus. One CEO, who preferred to remain anonymous, highlighted the importance of this overhaul, stating, “The Union cabinet is currently reviewing the proposal, and discussions are underway regarding the new scheme’s framework.”
The suggested modifications to the credit risk guarantee scheme include replacing the existing structure with a new scheme that accommodates home loans up to ₹25 lakh. While the proposal initially requests a 75% guarantee cover, there are indications that the government might also consider a 60% cover for these loans. Additionally, a guarantee cover fee ranging from 50 to 75 basis points is proposed, which would be covered by mortgage lenders annually.
Impact on the Affordable Housing Sector
Originally introduced in 2012, the credit risk guarantee scheme struggled to gain traction due to its limited scope. The proposed enhancements aim to stimulate growth in housing-starved regions, enabling affordable housing companies to enter these markets and support new credit customers.
Under the current credit risk guarantee scheme, the trust offers a credit risk guarantee fund to lending institutions for housing loans of up to ₹5 lakh. These loans are primarily aimed at borrowers from the economically weaker sections and lower-income groups in urban areas, requiring no collateral or third-party guarantees.
Conclusion
The push to revamp the credit risk guarantee scheme is a crucial step towards improving access to affordable housing finance for low-income families in India. By broadening the loan limits and guarantee covers, this initiative has the potential to empower housing finance companies and expand opportunities for underprivileged borrowers.
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