Major Banks Urge Government to Redefine Affordable Housing as Inflation Erodes Current Price Caps
Mumbai, May 9, 2026: Leading financial institutions have formally petitioned the government to overhaul the existing definition of affordable housing, arguing that current property value and size thresholds have been rendered obsolete by years of inflation and rising interest rates, news reports said.
The push for reform comes as the banking sector reports a significant shift in market dynamics. State Bank of India (SBI) Chairman CS Setty noted that while the housing finance sector remains robust, the nature of the loans is changing. “We are the market leaders in housing finance and our home loan portfolio has grown by 13.7%. Our average ticket size has also gone up. The composition of affordable housing needs to change. This is what we have told the government,” Setty stated.
Industry veterans argue that static price caps fail to account for the volatile nature of the real estate market. Keki Mistry, Chairman of HDFC Bank, suggested that regulatory limits must become more fluid to remain effective. “With the passage of time, fixed limits lose their relevance. Today, it may not be possible to purchase a house within price thresholds that qualified as affordable 10 years ago. Ideally, these limits should be indexed to real estate prices,” Mistry said. He further highlighted that tax incentives have also lagged behind economic reality, noting that the ₹2 lakh deduction under Section 24(b) of the Income-Tax Act, set in 2014, now covers only a fraction of the average borrower’s interest outgo.
The current regulatory landscape is characterized by a fragmented set of definitions. Under the Pradhan Mantri Awas Yojana (PMAY-Urban), affordability is categorized by income brackets and carpet area, ranging from 30 square meters for economically weaker sections to 160 square meters for middle-income groups. However, developers argue these metrics are disconnected from the actual costs of modern construction.
The Confederation of Real Estate Developers’ Associations of India (CREDAI) joined the call for reform earlier this year, criticizing the long-standing ₹45 lakh value cap. According to the association, “The current definition, unchanged since 2017, restricts units to 60 sq m in metros and 90 sq m in non-metros along with a Rs 45 lakh value cap that no longer aligns with higher land and construction costs.” Industry leaders warn that the lack of a unified definition across agencies like the RBI, NHB, and RERA creates unnecessary complexity, hindering the growth of the affordable housing segment.
