Union Cabinet approved setting up of a Urban Poor Housing Credit Risk Guarantee Fund Trust

The Union Cabinet on 23 March 2012 approved the setting up of a credit risk guarantee fund trust with an initial corpus of Rs. 1200 crore to with an objective to encourage housing for low-income groups in the India. The scheme will work on the key principle that the lender shall secure loans to construct and upgrade low-income housing purely on the assets financed, without any other collateral.

The trust is to be set up under the Indian Trust Act and the Ministry of Housing. Urban Poverty Alleviation is to be its settler. It would be managed and administered by a Board of Trustees with cross-sectoral composition. Credit risk guarantee fund trust would be serviced by the National Housing Bank.

The establishment of the fund will help to disburse credit to the poor and flow of institutional finance for affordable housing. It is intended to mitigate risk, thereby enhancing the confidence of the lending institutions in lending to the poor. 

Loan Provisions

The trust will guarantee the housing loans made by the lending institutions to new or existing individual EWS (economically weaker section)/LIG (low income group) borrowers and eligible borrowers forming a group or housing society of at least 20 members. 
The loans are to be disbursed for a wide range of purposes — home improvement, construction, acquisition, and purchase of new or second-hand dwelling units of size up to 430 sq ft carpet area and involving an amount not exceeding Rs. 5 lakh.

The guarantee cover available under the scheme would be to an extent of 90 per cent of the amount in default and would be subject to a ceiling of 90 per cent of the sanctioned housing loans up to Rs. 2 lakh and 85 per cent of the amount in default, with a ceiling of 85 per cent for sanctioned housing loans between Rs. 2 lakh to Rs. 5 lakh.

The urban affordable housing deficit is estimated at about Rs. 26 million. The total housing loan outstanding was about Rs. 3.06 lakh crore, of which 24 per cent are for loans up to Rs. 5 lakh. This is where the importance of the scheme was felt.
The lending institutions covered under the scheme would include commercial banks, regional rural banks, housing finance companies, and cooperative housing finance societies.

Initial corpus of Rs. 1200 crore would be made up of a contribution of Rs. 1,000 crore from the Central government and the balance of Rs. 200 crore from State governments. The fund is part of the Rajiv Awas Yojana scheme for providing housing for the urban poor.