The government is finalizing a zero-collateral housing loan scheme for low- and middle-income groups, offering loans of up to Rs 2 million with minimal documentation or third-party guarantee, according to sources familiar with the matter. Amendments to the Credit Risk Guarantee Fund Scheme for Low-Income Housing (CRGFTLIH) are being reviewed to pave the way for this initiative, and it is expected that the loan could have a tenure of 30 years.

Under current provisions, housing loans up to Rs 0.8 million are eligible for guaranteed coverage. A government official stated that the goal is to provide credit to homebuyers who lack documented income or have minimal supporting documents.

Discussions are on-going between the finance and housing & urban affairs ministries, the National Housing Bank, and other commercial banks to finalize parameters such as eligible income, equated monthly instalment, and the net monthly income ratio. A bank executive mentioned that up to 70 per cent of the loan amount in default would be guaranteed under the CRGFTLIH scheme. The executive also indicated that changes to the operational guidelines, such as the extent of the guarantee and the coverage period, are being reviewed.

He added that the scheme would include the digital footprint of borrowers, such as utility payments, as a parameter for assessing loan risk. Banks are working on a new credit assessment model for small and medium enterprises, focusing on digital transactions and cash flows like employee salaries, electricity bills, municipal taxes, and employee provident fund contributions, rather than relying on traditional criteria such as tax returns and collateral.

According to existing provisions, households from the economically weaker section (EWS), with an annual income of up to Rs 0.3 million, are classified as lower income group (LIG) households, which have an annual income of Rs 0.3-0.6 million, and middle-income group households, which earn Rs 0.6-0.9 million annually.

In July, Finance Minister Nirmala Sitharaman had announced in the Union budget that the government would introduce an interest subsidy scheme to make loans more affordable for urban housing. In August, the government raised the corpus fund of the Credit Risk Guarantee Fund Trust (CRGFT) to Rs 30 billion from Rs 10 billion to extend the credit risk guarantee on affordable housing loans to EWS and LIG households.

Under the Pradhan Mantri Awas Yojana-Urban 2.0, the government will provide Rs 2.30 trillion in assistance to 10 million urban poor and middle-class families over five years, helping them construct, purchase, or rent homes at affordable rates in urban areas.