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Housing Finance

Housing Finance

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Published by rajuarora40

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Published by: rajuarora40 on Jan 31, 2011
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Housing is one of the basic necessities of man and the capital required for the same is so large that few individuals can raise it from their own savings. There is a great need and scope for the development of arrangements for supplying the finance for the purpose of house construction. Earlier finance for housing is provided in the form of mortgage loans, i.e. it is provided by the security of immovable property of land and buildings. The suppliers of house mortgage loans in India are the following: The Housing and Urban Development Corporation (HUDCO) The apex Co-operative Housing finance Societies and Housing Boards in different states Central and state governments LIC Commercial banks GIC A few private housing finance companies. 


It was set up in July 1988 as an apex level housing finance institution and as a wholly owned subsidiary of the RBI. It began its operations with a total capital of Rs. 170 crore. In 1995-96, the paid up and authorized capital of NHB was raised to Rs. 300 crore with an additional capital contribution of Rs. 50 crore by the RBI. Thus, the resource base of the NHB has been made quite strong.

Operations/ Role of NHB
1. 2. Promoting, establishing and support of housing financing institutions (HFIs). Making of loans and advances or rendering any other form of financial assistance for housing activities to HFIs, banks, state cooperative or any other institution notified by the Government. Guaranteeing the financial obligations of HFIs. Underwriting the issue of stocks, shares, bonds etc. of HFIs. Drawing, accepting, discounting and dealing in bills of exchange, promissory notes etc. Setting up of mutual funds of undertaking housing finance activities Participating in housing mortgage insurance. Undertaking research and surveys on construction techniques.

3. 4. 5. 6. 7. 8.

9. 10. 11. 12. 13. 14. 15. 16. Formulating schemes for purpose of mobilization of resources and extension of credit for housing. Formulating schemes for the economically weaker sections of society. Organizing training programmes and seminars on matters relating to housing. Providing guidelines to HFIs to ensure their growth on sound lines Providing technical / administrative assistance to HFIs. Coordinating with LIC, UTI, GIC and other FIs, in the discharge of its overall functions. Acting as an Agent of the Central/State Government. Doing all such activities which are included in its powers and duties under NHB Act.

Borrowing and Acceptance of Deposits
For purposes of carrying out its functions, the NHB may: Issue and sell bonds and debentures with or without the guarantee of Central Government.  Borrow money from the Central Government, banks and FIs.  Accepting deposits on terms approved by RBI.  Borrow money from the RBI by way of loans and advances.  Receive remuneration, commission, service charges or any fees in respect to the services rendered.  Receive gifts, grants, donations from the government or any other source.

There was an immense need of efficient institutional arrangements for implementation of housing finance policies. The setting-up of the National Housing Bank (NHB), a fully owned subsidiary of the RBI, as an apex institution was the ultimate result for the fulfillment of the need of the housing finance industry in India. Few years before, there are about 320 housing finance companies of which 26 are registered with the NHB and which offers 98% of total housing finance.

Central and State Governments
They indirectly support the housing building effort. The Central Government has introduced various social housing schemes time to time. In addition to the schemes, the role of Central Government is confined to laying down broad principles, providing advice & rendering financial assistance in the form of loans and subsidies to the State Governments and Union territories. The Central Government has set up Housing and urban development programs, development of land for satellite towns, besides setting up of a building materials industry. Central Government formulates housing schemes, the state Governments are the actual implementing agencies.

Housing and Urban Development Corporation (HUDCO)
HUDCO was established on 25th April 1970, as fully owned Government of India enterprises. Its main objectives are:1. To provide long-term finance for construction of houses for residential purposes. 2. To finance the setting-up of new satellite towns. 3. To undertake the setting-up of the building materials industries 4. Administer the monies received from the Government of India 5. To subscribe to the debentures and bonds issued by the state housing boards, improvement trusts or development authorities. In Brief the main objective of HUDCO was to improve the housing conditions of the low income group and economically weaker sections.

Insurance Organizations
The LIC and GIC support housing activity both directly and indirectly. Besides subscribing to the bonds of HUDCO and state housing boards, LIC grants loans to the states for their rural housing programmes and to the public sector companies for construction of staff quarters. LIC had also promoted a subsidiary for this purpose, namely the LIC Home Finance Ltd. The GIC supports housing indirectly by subscribing to bonds/debentures floated by the HUDCO and state housing boards. It has also set up a housing finance subsidiary called the GIC Housing Finance Ltd.

Commercial Banks
The report of the working group on the Role of Banking System in Providing Finance for Housing Schemes (RC Shah Working Group, the RBI, 1978) has emerged the trend in commercial banks to provide the loans to the individuals for housing purpose. As per RBI guidelines, scheduled commercial banks are required to allocate 1.5 % of their incremental deposits for disbursing as housing finance every year.

Cooperative Banks
The cooperative banking sector consists of  state cooperative banks (SCBs),  district central cooperative banks (DCBs) and  primary urban cooperative banks (PUCBs). The guidelines for these banks were issued by RBI in 1884. Cooperative banks finance individuals, cooperative group housing societies, housing boards and others who undertake housing projects for LIGs (low income group) and MIGs (middle income group).

State Housing Finance Societies (SHFCs)
State Housing Finance Societies (SHFCs) constitutes another major source of funds in the residential mortgage market. These societies advance loans to the Primary Cooperative Housing Societies for construction of dwelling houses, purchase of land, additions and improvements to existing houses, purchase of house and repayment of earlier mortgage debt. The terms and conditions of loans vary from state to state and also vary with other factors like location, income, purpose etc. The maximum amount of loan varies between 65 to 80 % of the value of land and buildings.

Housing Development Finance Corporation Ltd. (HDFC)
The Housing Development Finance Corporation Ltd. (HDFC) has been playing an important role in meeting housing finance requirements. It was set up in 1977 by the ICICI by keeping in mind that a specialized institution was needed to channel the household savings as well as funds from the capital market into the housing sector. HDFC¶s loans were linked up with planned saving. Given the sum needed for a house, a part of it has to be in the form of saving contribution and the rest was given by the HDFC in the form of loan. The saving part was 30% and the loan portion was 70 % of the cost of the house.

The entry of the LIC in the direct household mortgage loan  The entry of the commercial banking system in direct loan  The entry of the GIC in the home loan  The co-promotion of two regional housing finance companies by the UTI  The liberalization of guidelines by the RBI  The establishment of the NHB


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