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The basic needs of mankind have been the food, shelter and clothing. Keeping this in mind, lots of efforts have been made to provide food through the poverty alleviation programmes since substantial portion of the Indian population are still in the clutches of object poverty. The poverty alleviation programmes both credit oriented and non-credit oriented ones described in earlier Units would have thrown light on the efforts taken in providing food for the poor which is primary among the basic needs. However, it is an irony of life that a large section of the population in India and other developing countries do not afford these needs both in their quantitative as well as qualitative dimensions. In fact, non-affordability of these facilities is a sine quo non of poverty. This Unit highlights the need for housing and the efforts taken by the Government in housing. The responsibility to provide housing finance largely rested with the Government of India till the mid-eighties. The setting up of the National Housing Bank (NHB), a fully owned subsidiary of the Reserve Bank of India (RBI) in 1988, as the apex institution, marked the beginning of the emergence of housing finance as a fund-based financial service in the country. It has grown in volume and depth with the entry of a number of specialised financial institutions / companies in the public, private and joint sectors, although it is at an early stage of development. The implementation of housing finance policies presupposes efficient institutional arrangements. Although there were a large number of agencies providing direct finance to individuals for house construction, there was no well established finance system till the mid-eighties in as much as it had not been integrated with the main financial system of the
HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK
country. The setting-up of the National Housing Bank (NHB), a fully owned subsidiary of the Reserve Bank of India, as an apex institution was the culmination of the fulfillment of a long overdue need of the housing finance industry in India. The system has also been characterised by the emergence of several specialised financial institutions that have considerably strengthened the organisation of the housing finance system in the country. At present, there are about 320 housing finance companies, of which 26 are registered with the NHB and which account for 98 per cent of the total housing loan disbursed.
HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK
CENTRAL AND STATE GOVERNMENTS
Till the mid-eighties, the responsibility to provide housing finance rested, by and large, with the government. The Central and state Governments indirectly support the housing building effort. The Central Government has introduced, from time to time, various social housing schemes. The role of the Central Government visa-versa these schemes is confined to laying down broad principles, providing necessary advice and rendering financial assistance in the form of loans and subsidies to the state governments and union territories. The Central Government has set up the Housing and Urban Development Corporation (HUDCO) to finance and undertake housing and urban development programmes, development of land for satellite towns, besides setting up of a building materials industry. The Central Government provides equity support to the HUDCO and guarantees the bonds issued by it Apart from this, both Central and state Governments provide house building advances to their employees. While the Central Government formulates housing schemes, the State Governments are the actual implementing agencies.
HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK
HOUSING PATTERN IN INDIA
It is a known fact that year after year more people are added to the category of homeless as the population is on the increasing trend. The weaker sections that constitute this group are handicapped in getting shelter at affordable cost. Housing, as such, in any country depends or the following factors: - Demand factor - Growth in population, formation of households, development of new townships, and increase in income.
Supply factor - Availability of institutional credit, cost of construction, availability of land and building materials, and fiscal and legal provisions affecting building construction. Though both the type of factors play their role equally, it is to be
understood that everyone wants to have a house constructed either through own money or borrowed funds. But the growing population makes it impossible to construct houses and satisfy this need for all the people in desired proportions.
HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK
The National Sample Survey 44th Round compiled data on the types of dwellings in India. Some aspects of these data are presented in Table 1. Table 1. Types of Dwellings in India
Percentage Distribution Rural % Urban % 52.4 17.2 10.8 90.6 100 Independent houses Flats Chawls Others 82.6 2.7 3.0 11.7 100
a. b. c. d. Total
From the above table it could be seen that the rural areas have more independent houses compared to urban centers. However, there has been some tendency to go in for flats also, trend of which is more perceptible in urban areas. This pattern is due to the fact that while some space is available for construction of small dwellings in rural areas, it is a critical constraining factor in urban areas. This necessitates the urban house aspirants to go in for flats. The NSS further observed that in rural India, 39.4% houses are kutcha houses, 34% semi-pucca and 27% pucca ones while in urban areas the percentages for the above categories of houses being 11, 18 and 71 respectively. This also shows that an urbanite is interested to have a pucca house while a ruralite is prepared to live in a house in whatsoever may be the type of construction. Again, the socioeconomic conditions of the ruralites do not permit them to go in for a big permanent dwelling. Yet another observation made by the NSS indicates that in the past three decades, there has been an increase in the pucca houses in the rural areas on one hand and the kutcha houses are on a declining trend in urban centers on the other. Some trends and progress in housing in India over years as reported
8 18. U – Urban. While indicating the relative growth of housing stock in the intercensor period.Total The conclusions that emerge from the table are as follows: # house T 18.1 28.6 16.9 29.3 15.9 79. T .4 On an average. the NSS report analysed whether the growth in the housing stock is commensurate with the growth in the population.1 U 12.7 88.4 78.7 1 4. The Table 3 seeks to provide an answer to the above issue.7 10.9 90.6 20.0 64.5 R – Rural.1 65.9 84.1 72.7 holds R U 1 5.8 116.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK by the NSS are presents in Table 2: Year No of house holds R 1951 1961 1971 1981 53.3 T 65. Inter – census period Annual growth of the dwelling per 1000 increase in the population 6 .0 1 0.0 22.6 94.3 13.6 68. The addition to the number of households was more during the decade of 1971-81. # The number of households added during decades had shown fluctuations in rural areas but there was a steady increase in urban centers.9 3.3 8.3 5.5 123.5 100. # within this overall pattern the percentage of occupied residential houses is more in rural areas as compared to urban centers.4 No of occupied addition Decades during residential houses R U T 54. about 90% of the total households have occupied residential houses throughout the past.
2 4. witnessed a large increase in the annual growth of dwellings per .0 3. The Commission made the following observations: a. Bhabatosh Datta submitted its report on the Non-Banking Financial Intermediaries. In 1971. The house construction.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK Rural 1951-61 1961-71 1971-81 • Urban 5.1000 population and like the earlier patterns. dealt at length with the present and prospective housing finance and the need for a specialised institution for housing. depends on the demand 7 . the Banking Commission.9 3. the increase in urban population was as high as 50% which was almost three times of 18% experienced in rural area All these facts lead to the conclusion that the growth rate in housing did not keep pace with the rate of growth in population in the entire country. It is interesting to mention here that during this period.3 2. It needs to be noted that during this period.5 7.8% which was. The extent of shortfall was more pronounced in rural areas.9 Total 3. The percentage increase in population during this decade was 24.4 4.4 1. The ultimate result has been the housing shortage in both rural and • • • urban areas. The decade of 1971 -81. the increase was more in urban centers.4 The growth of the dwellings per 1000 increase in population was slow during the period 1961-71. the total population growth was more than yester years. the highest during the period under reference. This report. The rate of addition of dwellings in relation to the population in rural areas was lower as compared with the urban centers. as indicated earlier. headed by Shri. besides other aspects of banking systems. in fact.
Thus there was only one pucca house for every three households in urban areas. the report indicated that there were an estimated 6. According to an estimate. The third indicator. Canada and Japan.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK and supply factors with the demand side including the population.2 million urban pucca housing units for an estimated 18 million urban households. At the end of 1967. whereas in developed countries only about 5% of the houses are in this category (Palvia. for an estimated 81. The second indicator for the housing shortage was the comparison between the number of dwellings and the number of households. income etc. and the supply side covering institutions. was the investment in housing as proportion of the total investment in the public and private sectors. The estimated rate of living constructions in India was around two dwellings per 1000 population per annum as against 10 per 1000 population as recommended by the United Nations in developing countries during the development decade of 1961-71. according to this report.6 million households. An idea of the overcrowding in dwellings could be obtained from the fact that about 77% of the total dwellings are of 1-2 room size. the number of pucca housing units was only 12 million. The percentage of total investments allocated to the housing sector had declined from 34% in the First Plan to 12% in Fourth 8 . this proportion in India was only 23% as compared to 96-99% in some of the Western countries like USA. In rural areas. The following are the three indicators for housing shortage: The first indicator was provided by the proportion of pucca dwellings to the total housing stock. 1969). policy etc.
8 129.6 64. Households adjusted for 88. This was indicated earlier by the fact that the annual growth rate in number of dwellings for every 1000 increase in population was very less leading to housing shortage. The Table 4 giving the housing scenario will further indicate the housing shortage in the past and the prospective housing shortage by 2001.9 20.3 128 28 94.5 137 congestion c.1 113.7 7 36.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK Plan. of house 94.7 106.7 148.3 45 2 001 69 Total 1981 1991 123.5 101.8 72.5 23.1 7 42. 8 158.1 holds b .4 56. 4 124. No.7 15.8 92. Housing stock d . Housing shortage in India Rural 1 1991 981 a. Housing gap 16.5 137 30.6 112 25. 2 which 77. 6 193 168 41 209 2001 206 001 113. •The housing gap goes on increasing over years.2 2 Urban 1981 1991 29. 9 .3 The above table leads to the following inferences: •A sizable number of people are without any house and every year more and more people continue to be added to the category of homeless.7 10.7 47. 5 23. Of acceptable 116. 4 160. 6 31 e.
This might. It is estimated that in India. power. high capital-output ratio and top priority given to sectors like the agriculture. it should also be remembered that the flat system of houses which needs a multi-storied structure requires a special infrastructure which is just not available in rural areas at present. The conclusion arrived at by studies has been that developing countries are giving low priority to housing and this is again due to factors like large capital resources required.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK •The housing gap was prominent in rural areas as compared to urban centers. An analysis was made in various studies on the cause for the housing shortage in developing countries like India. All these go to show that there is a need to give priority to housing since it is the basic need for the mankind. as compared to housing. Houses can not usually be built out of the current income of the individual. be due to the reason that in rural areas still people are inclined to go in for independent: houses whereas there is a trend towards flats in urban centers. communication etc. The importance of finance as a factor in house construction may also be examined from the point of view of individual who wants to own a house.9 years' income of an unskilled labour is require to get 30 sq. industries. •The houses of acceptable conditions were almost 86% of the housing stock in both the rural and urban areas. The growing rate of population needs more investment in the housing sector.m. •The report also indicated that more number of persons lives in a room and lack of privacy connotes the need to augment housing supply. It is also indicated that 10 . Besides the needs and likings of the rural people regarding separate houses. House. •Each of the households had on average 5-6 members both in rural as well as urban areas. 4.
HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK in an economy like ours. The rate of interest charged also plays a role in housing finance. HOUSING AND FIVE YEAR PLANS 11 . How far our planning has taken care of the housing sector over years is given in the succeeding paragraphs. about 75% of house-buying involves loan finance and over 5C% of all new and old houses are encumbered with debt. All these go to indicate the need for housing finance and assistance for a common Indian.
the sector is not altogether neglected. The First Plan gave due consideration to the role of private sector to help solving the problem of housing shortage.. Two schemes viz.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK Even though housing sector got a relatively low priority in the allocation of public outlay in the five year plans. Seven specific schemes were introduced during this period. The Second Five Year Plan (1956-61) continued its emphasis on the Subsidised Industrial Housing and Low Income Group Housing Schemes. They are as follows: • Plantation Labour Housing Scheme (1956) • Slum Clearance and Improvement Scheme (1956) • Village Housing Project Scheme (1957) • Middle Income Group Housing Scheme (1959) • Land Development and Assistance Scheme (1959) • Rental Housing Scheme for State Government Employees (1959) 12 . over the years. It suggested reducing the cost of construction of houses especially with regard to material and labour by encouraging economical. Subsidised Industrial Housing Scheme (1952) and Low Income Group Housing Scheme (1954) were introduced during this period. In fact. This section highlights the treatment given to the housing in different Five Year Plans. housing has been recognised as an important element in the poverty alleviation programmes. The First Five Year Plan (1950-56) aimed at enhancing the housing stock of minimum standards over next few years. architectural and structural designs.
In case of Land Acquisition and Development Scheme. The Third Five Year Plan (1961-66) aimed at land acquisition and development as also an effective control on urban land. Up to 1970. The schemes of housing have social objectives because they were meant for people belonging to the SC/STs or to the specified classes of employees and income groups. The Fourth Five Year Plan (1969-74) emphasised the low cost housing schemes in view of (a) High cost of construction of the dwelling units (b) Insufficient contribution by the private and Cooperative sectors to meet the growing needs of houses for the poorer sections. The extent of finance made available was usually 80% of the cost of construction as maximum and this varied from scheme to scheme. The annual plans integrated this concept with the Subsidised Industrial Housing Scheme which was in operation since the First plan. 100% financial assistance as loan was given to Local Bodies / Urban Estate Department. It was in April 1970. the bulk of funds were provided by the Government of India and Life Insurance Corporation of India as loans and subsidies. and (c) Deteriorating condition of older slums. that the Housing and Urban Development 13 . The Annual Plans (1966-69) brought in the concept of "economically weaker sections".HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK • Jhuggee and Jhopri Removal Scheme (1960) It should be noted that all the above mentioned schemes aimed at improving the quality of housing for lower income category of population.
It was during 1977. It was an important addition to this sector. The Fifth Plan (1975-80) aimed at providing house sites to four million landless labour and intensifying research on low cost housing mainly through manufacture of low cost building materials.7 million units. A scheme for improving the existing housing was also introduced during the Fifth Plan. The plan period added a feather in the cap of housing by the establishment of National Housing Bank in 1988. the Minimum Needs Programme and in 1975. Various State Governments started Housing Boards funded through State budgetary allocation and the Slum Clearance Schemes were initiated. The Sixth Plan (1980-85) attempted to use the public sector resources in such a way that they yield optimum results and provide maximum possible houses to absolutely shelter less people. The Seventh Plan (1985-90) estimated the housing shortage at 24. It also stressed the need to strengthen the HUDCO and creation of new Cooperative Building Societies. In 1974. It called for establishment of proper and diversified institutional credit for housing and construction to cater to the needs of housing development. The Housing Boards of the States started issuing debentures on State Government Guarantee to which institutions like the nationalised banks contributed. This function is to create and manage the housing stocks. The Housing Boards are essentially construction agencies and not funding agencies. that the Housing Development Finance Corporation (HDFC) was started for housing finance. It decided to enhance the financial assistance to the State Housing Board* and Local Bodies. the Twenty Point Economic Programme were launched which emphasised providing housing for the poor and housing construct through wage employment. This gave a new direction to the decentralised housing 14 .HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK Corporation (HUDCO) was started.
Crores) 1150 1300 1550 2800 4436 19. Crores ) First Second Third Fourth Fifth Sixth Seventh 3340 6750 10. that 15 .2 14.49.000 3. .4 9. self employed.438 in Percentage Investment 34.2 19. It was during the 8th Plan. .There have been fluctuations in percentage of housing investments to the total investment in economy during different periods.There have been a decline in the investment in housing during VII Plan which was disproportionate to the total investment in economy.5 9. The Eighth Plan (1992-97) covered the strategy of creating an enabling environment for housing activity by eliminating various constraints and providing direct assistance to the disadvantaged groups consisting of the rural and urban poor. widows and single women.491 31.561 1.The First Plan gave top priority to housing next to food since majority of the population was poor. Plans Total Investment in Investment the plan (Rs.148 Housing (Rs.0 of Housing to total The conclusion that could be drawn from the above table is: .400 22. The data in Table 5 indicate the relative share of housing in the investment in the economy during the Plan periods.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK finance system by promoting housing finance institutions and facilitating proper cooperation amongst various agencies relating to housing. physically handicapped.9 12.3 12.56.635 47.
25000 cores.20000 . During 1995-96.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK the Shelter Up gradation Scheme under the Prime Minister's Integrated Poverty Eradication Programme was initiated with a loan component of Rs. the role of institutional finance for housing has assumed vital importance and many agencies are drawn into the fold of housing finance. subject to the condition that the borrower holds the title to the land.to be arranged from the HUDCO/any other financial institution including Commercial Banks. This has a subsidy component too. The Ninth Plan Approach paper indicates that housing will be given priority as one of the seven principles of development.5 cores. The 8th Plan outlay on housing has been Rs. Therefore. About 90% was spent on dwellings for the weaker sections and low income groups. 1229. the HUDCO sanctioned Rs. The analysis of the above facts on housing and investments during the plan periods indicates the need for more funds for housing. NATIONAL HOUSING POLICY 16 .1967 cores as loans and actually released Rs. 10000/.
000 crores based on the price index of 1985. The total funding to create so many units is estimated to be around Rs 2. steps for improving the housing 17 . •To expand infrastructural facilities in rural and urban areas in order to improve the environment of human settlement.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK According to an estimate made by the Sub group of Urban Ministry on the "Magnitude of Housing Problem". about 64. increase the access of poorer households to basic services and to increase the supply of developed land for housing. This being a herculean task. finance and technology.35.4 million new houses will be needed by 2001. •To undertake. a comprehensive policy on housing was felt essential. For this purpose. The objectives of the National Housing Policy (NHP) are as follows: •To assist all people and in particular the homeless and inadequately housed and vulnerable sections. it needs the cooperation of Centre and the States and the private sector to increase the availability of houses at affordable rates. Hence the Comprehensive National Housing Policy prepared by the Ministry of Urban Development was placed before the Parliament in 1988 and was discussed subsequently in 1990 at the Home Ministers Conference. building materials. within the overall context of policies for poverty alleviation and employment. •To create an enabling environment for housing activity by eliminating constraints and by developing an efficient system for delivery of housing inputs. to secure for themselves affordable shelter through access to developed land.
Banks. • Floating of specialised housing finance subsidiaries by the Scheduled Commercial. the following steps were taken.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK situation of the poorest sections and vulnerable groups by direct initiative and financial support of the state. 18 . • Setting up of an apex institution . To achieve these objectives. In order to achieve the NHP.National Housing Bank (NHB) as a subsidiary of Reserve Bank of India under the NHB Act. and • To promote a more equal distribution of land and houses in urban and rural areas and to curb speculation in land and housing in consonance with the macro-economic policies for efficient and equitable growth. 1987. the Government should take initiatives for directing the activities of public agencies towards increasing the supply of serviced land for various groups and essential purposes directing towards poorer sections. •To help mobilise resources and facilitate expansion of investment in housing in order to meet the needs of housing construction and up-gradation and augmentation of infrastructure. • Large flow of credit through the Housing and Urban Development Corporation (HUDCO). The weakness of the NHP has been that it did not set any time bound targets owing to resources constraints.
Whereas today. which was introduced in 1988. disbursement and recovery of funds. Profit is the overarching goal. the government is the sole financier. Finance companies are able to mobilize funds from shareholders and investors by offering competitive rates of interests. most financial companies were reluctant to lend to low-income groups because the small amounts do not justify the costs.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK • Emergence of LIC as an important contributor of housing Finance. These funds will be disbursed to those who are deemed eligible. Until now. There are difficulties in assessing credit risks and a lack of clarity on recoveries. Innovative financial instruments that will spur the flow of funds from the private sector is one of the focal points of this policy. • Financing for housing through Government Schemes. Involving the private sector in housing finance For the past decade. the growing realization of the insufficiency of public funds to meet the demands for financial schemes in the housing sector is evident in the aims of the 2007 policy. and these institutions try to efficient in the mobilisation. land title and possession. These problems have led to a scenario where the popular perception was that the requirements of low-income housing were incompatible with formal housing finance. However. the Ministry of Urban Development is exploring a new financial architecture that will make loans for low-cost houses affordable for both 19 . The first attempt in this regard was the National Housing Policy (NHP). after assessment of application forms and personal interviews. the Government of India attempted to strengthen the housing sector by introducing various loan schemes for the rural and urban population. in low-cost housing.
To obtain a housing loan. The lending criteria set out by formal financiers are more appropriate to the life style of the middle-level income group. at 4 percent. This is further corroborated by the fact that despite the impressive rate of growth in the housing finance sector in the recent period. financing through the organised sector continues to account for only 25 percent of the total housing investment in India. Lack of mortgage insurance is also a reason why the private formal sector bypasses the low-income segment. Despite the frenetic pace of growth in housing finance over the past 5 years in India.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK the lenders and borrowers. This means that there are considerable growth opportunities in housing finance. DEVELOPMENT OF HOUSING FINANCE IN INDIA The early development of housing finance in India is a result of the 20 . mortgage penetration as a percentage of GDP continues to remain low. a combination of conventional (assets that can be mortgaged) and nonconventional collateral such as peer pressure is required.
This plan in fact became the benchmark for subsequent Five Year Plans for the next two decades. and gave rise to State Housing Boards that still remain in existence. the government decided to encourage private and co-operative housing schemes by providing financial assistance. the first retail housing finance company. in 1977. Despite these efforts. During the Sixth Plan period. For the first time. groups. Affordability was emphasized. It was during the fifth plan (1974-79) that as a completely private sector initiative. seeking to provide financial assistance to individuals. the majority of activity still remained within the public sector. housing was introduced into the policy framework at the national level. Towards the mid and late 1980s a few housing finance companies were set up either as private limited companies (e. the government was faced with the dual problem of a rapidly growing population and a slow growing housing stock. However. In the first Five Year Plan (1951-56).HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK housing policies implemented by the government. 21 . and government support through subsidies and loans were deemed necessary. other housing finance companies also entered the market. by the fourth plan (196974). Housing Development Finance Corporation (HDFC) was set up. The government also recognized the need to provide housing finance to low-income groups and thus set up the Housing and Urban Development Corporation (HUDCO) in 1970. The second plan (1956-61) strengthened the schemes of the first plan by expanding coverage. co-operative societies and companies for staff housing.g. HUDCOs mandate was to provide such groups with loans below peak interest rates and with longer repayment periods.
PNB Housing Finance). The seventh plan period saw the UN Global Shelter Strategy. Public housing finance corporations have schemes that encourage beneficiaries to invest their own money in their dwellings. Even state owned insurance companies like the Life Insurance Corporation and the General Insurance Corporation of India set up housing finance arms.g.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK Dewan Housing Finance Limited) or as a joint venture with partnership from the state government (e. It may also formulate schemes for the purpose of mobilisation of resources and extension of credit for housing. 22 . issue directions to housing finance institutions to ensure their growth on sound lines. To make housing loans affordable for the urban poor. This gave the impetus to the drafting of a National Housing Policy for the first time. Another major reform that took place at the time was the founding of the National Housing Bank (NHB) in 1988. Secondly. the National Housing Bank Act. Can Fin Homes. The act empowers the National Housing Bank to first. The beneficiaries are granted larger housing loans. state or provincial act and engaged in slum improvement. The NHB was founded to promote and regulate housing finance companies and to mobilize additional resources for housing. than what may be available from informal sources. of which India subscribed to.g. The National Housing Bank (NHB) was established in July 1988 under an act of Parliament viz. Gujarat Rural Housing Finance Corporation) or bank sponsored housing finance companies (e. 1987. SBI Home Finance. being passed in the UN General Assembly in 1988. but do not offer opportunities for beneficiaries to deposit savings. make loans and advances or render financial assistance to scheduled banks and housing finance institutions or to any such authority established by or under any central.
These loans are characterised by conventional mortgage lending. Emphasis was particularly laid on market friendly reforms for improving both taxes and infrastructure to help increase investments into housing. The eighth plan recommended that reforms be made on both. The ninth and tenth five-year plans are also characterised by the aggressive entry of commercial banks into housing finance. the VAMBAY scheme) and/or indirect subsidies on interest rates are provided. HOUSING FINANCE: INSTITUTIONS. SCHEMES & SUPPORT 23 . It laid special emphasis on government incentives to enhance the flow of credit to the housing sector through housing finance institutions. the financial and legal aspects to allow the mortgage market to develop further. so as to bring down their loan liability. have a longer-term tenor and repayments are in equal monthly installments (EMIs). The latter could be in the form of the interest differential subsidy amounts being remitted directly in the HFC loan accounts of the borrowers.g.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK direct subsidies are given for construction cost (e. Both the ninth (1997-2002) and tenth (2003-2007) plan recommended further reforms to enable the government to play its role as a facilitator and encourage the development of the mortgage market.
It does not generate any income by itself so as to make the loan self liquidating. scheduled commercial banks are required to allocate 1. the RBI. 10 per cent of the allocation has to be in rural and semi-urban areas. HOUSING FINANCE THROUGH COMMERCIAL BANKS The Reserve Bank of India has brought the Commercial Banks too under the fold of housing finance which did not exist prior to 1979. The balance 50 per cent is for subscription to the HUDCO.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK COMMERCIAL BANKS The trend of commercial banks lending to individuals for housing emerged in the wake of the report of the working group on the Role of Banking System in Providing Finance for Housing Schemes. The 24 . and the NHB bonds. The question is to be understood in the larger developmental context. The basic question that needs to be debated is as to why the commercial banks are interested in extending loans for the housing facilities particularly to the poorer sections of the society. The investment decision and the activity pattern of any family are influenced to a large extent by the location and type of residential accommodation. housing finance companies (HFCs) and public housing agencies for the acquisition and development of land and to private builders for construction. that is. They have been lending to the housing sector based on annual credit allocations made by the RBI. In terms of the RBI guidelines. 1978). (R C Shah Working Group. 20 per cent has to be by way of direct housing loans of which again at least half. Of this allocation. Another 30 per cent could be for indirect lending by way of term loans to housing finance institutions (HFIs).5 per cent of their incremental deposits for disbursing as housing finance every year. In general it is believed that the residential house is a non-productive asset.
is a lesser risk for the banker. The RBI in its priority sector lending guidelines clearly stated that 1. The balance 40% of the allocation for housing should be provided in the form of subscription to guaranteed bonds and debentures of the National Housing Bank and HUDCO only. The settled borrower.5% of the Bank's incremental deposit as at the end of the previous financial year should be earmarked for housing and ensures that the bank finance for housing flows to the needy segments of the society. housing boards and other public housing agencies. The housing finance for the poor people. therefore. The "housing finance'' by the banks is granted for the following types of construction: •Residential houses to be constructed by public housing agencies like the 25 . The reasonable housing facility is one of the facilitating factors for the borrower to take up and maintain a productive enterprise. The finance will be in terms of both direct and indirect mode. therefore. Further 30% will be utilized by way of term loans to housing finance companies. is capable of creating a better production environment. All these factors have induced the policy makers in India to include the housing loan for the poor in the priority sector lending.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK banker's relationship with the prospective borrowers for a productive activity is of long term nature and the banker has to communicate with the borrower before the loan disbursement and more so during the post loan period. Thirty per cent of the total allocation for housing should be by way of direct finance and of which half should be extended as direct housing loans in rural and semi urban areas.
individuals. till the completion of construction or 18 months from the disbursement of the loan. low and middle income groups. markets and such other centers catering to the day- to-day needs of the residents of housing colonies and forming part of a housing project. local bodies. •Educational. the repayment period is fixed at not exceeding 15 years (including a moratorium. Some of Government sponsored schemes like the Differential Rate of Interest have the component for housing for the weaker sections. There is no ceiling on housing finance for housing construction. priority being given for economically weaker sections. in buildings owned or occupied backed by security or guarantee. In the DRI scheme. •To bodies constituted for undertaking repairs and for individuals either singly or collectively. Banks may consider additional finance as per their terms and conditions too.which is besides the normal 26 . social. housing finance can be given to an individuals belonging to SC/ST up to Rs. whichever is earlier) with graduated installments.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK HUDCO. at the option of the beneficiary. Housing finance is extended to persons affected by natural calamities for house repairs / constructions also. •Shopping Complexes.5000/. Cooperative Societies or employers. For regular housing finance. •Construction meant for improving the condition of the slum areas for which credit is extended directly to the slum dwellers on the guarantee of the Government or indirectly to them through the State Government. Housing Boards. cultural other institutions/centers which are part of housing project and which are necessary for the development of settlements or townships. health.
per unit was given. During 1995-96. the Government provides a subsidy of Rs. a non-credit linked programme. that it is a part of the complete project for infrastructural development.424. track record. HDFC and Housing Finance Companies promoted/sponsored by the commercial banks. Banks extend loans to the State Housing Boards and other public agencies for housing also. Shelter Up-gradation Scheme with a loan component of Rs. 56 lakh houses were under progress against which Rs. A major development in the area of housing in recent years has been the entry of the commercial banks by establishing subsidiaries either on their own or in collaboration with other financial institutions including 27 . In the Jawahar Rozgar Yojana.1000/. The Indira Awaas Yojana provides houses for the poverty sticken people and those belonging to SC/ST and freed bonded labour in rural areas. about 8. These are term loans given taking into consideration the institution's debt-equity ratio. In view of the need to increase the availability of land and housing sites for increasing the housing stock.78 crores was spent.64 lakh houses were constructed and till October.2500/.per household for up-gradation of housing of urban poor along with a loan from the HUDCO. Under the Nehru Rozgar Yojana. The banks extend loans to the housing finance institutions as indirect advance. the banks are extending finance to the public agencies for acquits ion and development of land.is arranged through HUDCO/any other financial institution and a subsidy of Rs.1194 crores was allotted under the Indira Awaas Yojana. provided. During 1996-97.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK assistance. Indira Awaas Yojana. In schemes like the PIUPEP.. The term loans are given to HUDCO. 2. less than one of its components viz.82 lakh houses were constructed and 3. 10000/. emphasis has been laid on housing finance. recovery performance and other relevant factors. 1996. a sum of Rs.
is equal to 10 times of their Net Owned Funds. the LIC has "Own Your House" scheme for its policy holders against mortgage of immovable property. Punjab National Bank. It gives long term credit for housing. the housing finance scenario has taken a new turn. The LIC spent Rs. 1989. Canara Bank. Indian Bank. The amount of public deposits which the housing companies can raise under the Housing Companies (NHB) Directions. Bank of Baroda and Central Bank of India from the public sector and Vysya Bank limited from the private side have started separate subsidiaries for housing finance.National Housing Bank.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK HUDCO and HDFC which have done pioneering work in the fie»d of housing finance. With the emergence of housing subsidiaries together with the apex institution. HOUSING FINANCE THROUGH OTHER INSTITUTIONS Some specific Organizations are extending housing finance as described below: LIFE INSURANCE CORPORATION OF INDIA The LIC of India is the oldest organizations connected with housing finance. to public limited companies for the purchase of houses for their employees. The Government of India makes allocation to different states out of the said amount. in addition. The public sector banks like the State Bank of India.1570 28 . The LIC also advances to the Apex Cooperative Housing Finance Societies on guarantee from the State Governments and those societies in turn make advance to the Primary Cooperative Housing Finance Societies for house construction. It makes available every year certain amount to Central Government for financing certain specified housing schemes of various State Governments. It also finances for approved parties for construction of housing/commercial/office complexes.
For instance. The corresponding rate for the loans for the up-gradation in run areas is 10% while it is 11 to 13. to 15 per cent in urban areas. State Finance Societies in the urban and rural areas and Improvement Trusts. HOUSING AND URBAN DEVELOPMENT CORPORATION (HUDCO) Established as a Government of India undertaking in 1970. the chief objective of HUDCO is to finance housing and urban development particularly for the poorer sections of the society. The objective of the scheme is to provide refinance to the institutions that finance for housing in rural areas which would facilitate the ruralites for access to housing credit to build modest new house or to improve or add to 29 . However.5 per cent in urban areas. HOUSING REFINANCE The National Housing Bank extends refinance to the Commercial Banks on the housing finance extended by them. The refinance provided by the NHB up to March. a Golden Jubilee Rural He Refinance Scheme has been introduced by the NHB. It provides finance for the schemes formed by the State Housing Boards. 1995 was of the order of Rs.2254. the banks are free to fix the rates of interest. The rate of interest charged by the NHB to the banks on the refinance is linked to the purpose of loan and the geographic regions.04 crores. the refinance rate o interest for acquisition or construction of new units in rural areas ranges from 10 to 15% and 11. the repayment period extending up to 22 years and interest rate ranging from 4% to 15% per annum.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK crores during Seventh Plan towards housing. except in up-gradation i rural areas where there is a ceiling for charging interest from bank to borrower. HUDCO's loan schemes are on soft terms. Considering the Golden Jubilee of Indian Independence. for others.
taking into account only the amounts overdue for over three months. however.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK the old dwelling. Regional Rural Banks. should not exceed 10 per cent of the total housing demand (including overdues) for the preceding twelve months. loans given for acquisition of old housing units/second sale would. and which have been approved by the NHB (discussed earlier) for the purposes of refinance support are eligible to avail refinance from the NHB. The aggregate amount of assistance from the NHB will in no case exceed the aggregate amount of outstanding housing loans from the primary lending institutions to the borrowers (excluding overdues). Overdue loans/bought over loans from any other HFCs banks. This scheme is applicable to Scheduled Commercial Banks. Scope Refinance would be provided only in respect of direct lending to individuals/groups of individuals (formal or informal. State Cooperative Bank. Cooperative Housing Finance Societies and Housing Finance Companies. The NHB will be extending 100% refinance under the scheme. The level of overdues should be assessed. (ii) Overdue housing loans of the HFCs. not be eligible for refinance under the scheme. State Cooperative Agriculture and Rural Development Banks. including those covered under the NHB refinance. 30 . as amended from time to time. including cooperative housing societies). Eligibility Criteria (i) Only such HFCs that conform to the 'Guidelines for Extending Refinance Support to Housing Finance Companies'.
Additional security such as charge on immovable properties/movable properties. If at any time the NHB is of the opinion that the security provided by the HFC has become inadequate to cover the outstanding refinance. such additional security as may be acceptable to the NHB to cover such deficiency. in a particular year. guarantee of promoters. is released on the basis of the refinance limit sanctioned to the HFC for the year (July to June). based on the weighted average period of housing loans (WAPOL) in respect of which refinance is claimed. either by its own officers or a firm of chartered accounts appointed by it for the purpose. Period of Refinance Refinance from NHB to HFCs would be repayable during a period not exceed 15 years. Procedure Application for Annual Refinance Limit The refinance operations of the NHB are centralised at New Delhi. recover the cost of such verification from the concerned HFC. Refinance. at its discretion. It may. it may advise the HFC to provide and furnish to the satisfaction of the NHB. Security for Refinance Refinance from the NHB would be secured by charge on the book debts of the HFC. with respect to the loans included in a particular refinance application. The NHB may get the loan accounts and associated documents verified.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK (iii) The percentage of net non-performing assets should not exceed risk weighted assets by more that 5 per cent. Any HFC approved for the purpose of refinance should submit to the NHB its 31 . additional margins and so on may be stipulated at the NHB's discretion.
Maintenance of Recovery Performance Continuance of refinance facility under the scheme would be subject to maintenance of satisfactory a recovery performance by the HFC. Post-disbursal Discipline There should be proper post-disbursement supervision and followup of housing loans to ensure proper end use of funds as also timely and regular repayment of the loans. The list of loan accounts along with necessary details. registers and so on should be maintained branch-wise by the HFC with respect to housing loans for which refinance has been extended by the NHB and these should be kept up-to-date. from the beneficiaries. Life Span of Dwelling Units Since the repayment period should not exceed the life span of the house/unit financed out of the housing loan. in the prescribed annual credit review format. It should conduct its business with due diligence and efficiency and have due regard to these principles in the conduct of its business.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK annual projections for sanction of refinance limit. should be readily available with the respective branches. it should be ensured that the construction is pucca/semi-pucca. with a life span of not less than 30 years. together Other Terms and Conditions Separate Books Separate and proper books of accounts. Recall of Refinance 32 . in terms of the NHB's refinance.
Borrowings from Institutions other than the NHB In case the HFC borrows funds from banks/financial institutions other than the NHB. 33 . Such modifications are being brought out in the form of circulars/letters. in respect of housing loans and refinance sanctioned under this scheme.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK The NHB reserves the right to recall the refinance in the event of diversion of the relative funds for purposes other than housing or for suppression of any material information by the borrowing bank. depending on its performance. and have become part of the scheme. It would also have the right to collect such information directly from the HFC's constituents. credit rating agencies and so on. Insisting on Deposits from Borrowers The HFCs availing of refinance from the NHB should not insist that borrowers place part of the housing loans disbursed to them in deposit accounts or retain the entire proceeds disbursed as deposits or insist on deposits as a precondition for sanctioning housing loans. or in respect of any one HFC. giving particulars about the security offered for such borrowings and obtain a 'no objection' from the NHB. auditors. it should inform the NHB about the same. NHB's Right to Call for Information The NHB may call for any information or returns from the HFC availing of refinance. NHB's Right to Modify the Scheme The NHB may modify the clauses of the Refinance Scheme in respect of all HFCs. its lenders. They are required to follow the necessary procedures and furnish details of their borrowings. from time to time.
as amended from time to time. prudential norms for income recognition. provisioning for bad and doubtful debts. capital adequacy and concentration of credit/ investments. Guidelines on Prudential Norms The HFC (NHB) Directions. as amended from time to time. should be deemed to be a part of this refinance scheme.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK Compliance with HFCs (NHB) Directions. 2001 and guidelines for refinance support to HFCs. 2001. accounting standards. NATIONAL HOUSING BANK (NHB) 34 .
the National Housing Bank Act. empowers NHB to: • Issue directions to housing finance institutions to ensure their growth on sound lines • Make loans and advances and render any other form of financial assistance to scheduled banks and housing finance institutions or to any authority established by or under any Central. with due regard to public interest. 1987 to function as a principal agency to promote Housing Finance Institutions and to provide financial and other support to such institutions. if he is a whole-time Director or if he is holding offices both as a Chairman and a Managing Director (CMD) or (b) the MD. State or Provincial Act and engaged in slum improvement and • Formulate schemes for the purpose of mobilisation of resources and extension of credit for housing Management The general superintendence. while discharging its functions. or by the RBI in matters of policy involving public interest. the Board. all directions given by the Chairman.NHB are vested in its Board of Directors. direction and management of the affairs and business of the. has to act on business principles. in the discharge of his powers and functions. In general. Subject to the provisions of the NHB Act. (a) the Chairman. the NHB is to be guided by the directions given in writing by the Government in consultation with the RBI. can also exercise these powers of the Board. In the discharge of its functions.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK The National Housing Bank (NHB) was established on 9th July 1988 under an Act of the Parliament viz. The MD has to follow. if the Chairman is not whole-time director or is absent. The Act. inter alia. which exercises all powers and executes all acts and things on its behalf. 35 .
two Directors who are persons with experience in the working of institutions involved in providing finance for housing or engaged in housing development or have experience in the working of financial institutions/banks. two Directors from amongst experts in the field of housing. excepting the RBI's Directors and those elected by the shareholders. finance. engineering. (v) (vi) (vii) institutions owned/controlled two Directors from out of the RBI Directors. The CMD an other Directors. architecture. two Directors elected by shareholders other than the by (ii) (iii) (iv) RBI/Government/other Government. sociology. performs the following roles: (a) Promotion and Development: 36 . or in any other field. BUSINESS ACTIVITIES NHB.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK The Board of Directors of the NHB consists of (i) a Chairman and a Managing Director (CMD). special knowledge of which is considered useful to the NHB. as the Apex level financial institution for the housing sector in the country. are appointed by the Government in consultation with the RBI. law. The RBI nominates its Directors on the NHB. management and corporate planning. three Directors from amongst Central Government officials and Two Directors from amongst State Governments' officials.
The Bank's policies are directed towards promotion and development of housing finance institutions. NHB has a dedicated Training Division which organises regular training programmes in areas relating to housing and housing finance for development of management capabilities of officials working in the sector. All HFCs registered with the National Housing Bank u/s 29A of the National Housing Bank Act. It has also contributed to the equity capital of five HFCs. NHB's promotional endeavors are also directed towards capacity building for the housing finance system besides enlarging the credit absorption capacity. NHB is vested with powers to grant Certificate of Registration to companies for commencing/carrying on the business of a housing finance institution. 2001. As per the amendments to certain provisions of the Act. NHB has framed guidelines for HFCs with a view to promoting their development on sound and healthy lines. The guidelines are reviewed and modified from time to time in the light of developments in the financial and housing sectors. NHB regulates the deposit acceptance activities in accordance with the Housing Finance Companies (NHB) Directions. which came into effect from June 12.0 crores are eligible for refinance support.10. 2000. amended from time to time. 1987 and inter alia having minimum net owned funds of Rs. (b) Regulation and Supervision: NHB exercises regulatory and supervisory authority over the HFCs in the matter of acceptance of deposits by them pursuant to the powers vested in it under the Act.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK NHB operates as a multifunctional Development Finance Institution (DFI) for the housing sector. Besides. in the matter of ceiling on borrowings (including 37 .
(c) Financing: NHB raises resources for the housing sector towards increasing new housing stock and provides refinance to a large set of retail lending institutions. rate of interest. both domestic and external by issuing Bonds/ debentures. NHB has also a window for direct lending to Public Agencies such as. cyclone etc. the constraints facing the sector etc. period. earthquake. scheduled urban cooperative banks. Refinance is provided by NHB under various schemes. apex co-operative housing finance societies and agriculture and rural development banks. scheduled state cooperative banks. Under the Act. (d) Resources of NHB NHB raises resources from diversified sources. concentration of credit.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK public deposits. NHB is also operating a special window for extending financial assistance to the people affected by natural calamities viz. NHB is authorised to issue 38 . NHB supervises the working of HFCs through on-site inspection and off-site surveillance. These include scheduled commercial banks. State Level Housing Boards and Area Development Authorities for large scale integrated housing projects and slum redevelopment projects. liquid assets. NHB has also issued Directions on prudential norms in regard to capital adequacy. several aspects of the National Housing Policy. income recognition. asset classification. provisioning for bad and doubtful debts etc. borrowing from RBI and financial institutions/organisations etc. which are formulated taking into account. etc). specialised housing finance institutions.
As the apex body in housing finance sector in India. NHB has been playing a lead role in the sector in matters relating to policy environment as also operational mechanism for the development of a secondary mortgage market in India. In order to resolve the twin problems of affordability and accessibility affecting the growth of the housing finance business and the prospect of home ownership. 39 . (e) Rural Housing: NHB launched the "Swarna Jayanti Rural Housing Finance Scheme" to mark the golden jubilee of India's Independence. NHB has been entrusted with the responsibility of launching a Mortgage Credit Guarantee Scheme for protecting the lenders against default. (f) Recent Initiatives Securitisation of mortgage loans of the retail lending institutions facilitates for channelising household savings into the housing sector is seen as a potentially viable market oriented alternative. Support to Mortgage backed securitisation is a major policy initiative of the Government as manifested in its National Housing and Habitat Policy announced in 1998. The Scheme seeks to provide improved access to housing loans to borrowers for construction/acquisition/ up-gradation of a house in rural areas of the country.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK and sell Bonds with or without the guarantee of the Central Government for the purpose of carrying on its functions. This policy emphasises NHB's lead role in mortgagebacked securitisation and development of a secondary mortgage market in the country.
For this purpose.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK HFCs Promotion and Development The principal mandate of the Bank is to promote housing finance institutions to improve/strengthen the credit delivery network for housing finance in the country. As a part of its promotional role NHB has also formulated a scheme for guaranteeing the bonds to be issued by the housing finance companies. NHB has issued the Model Memorandum and Articles of Association. NHB has also issued guidelines for participating in the equity of housing finance companies. Considering the need for trained personnel for the sector NHB has designed and conducted various training programmes. All housing finance companies registered with NHB u/s 29A of the National Housing Bank Act. 1987 and scheduled commercial/co-operative banks are eligible for refinance support subject to terms and conditions as laid down under the respective refinance schemes. The Bank has played a facilitator role in this regard instead of itself opening such dedicated housing finance institutions. buoyancy in prices is likely to persist. 40 . CASE STUDY Of inflation and interest rates Unless the government penalises speculators and tightens further the regulations on futures trading.
HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK The Headquarters of the Reserve Bank of India in Mumbai. The cash reserve ratio is to be hiked in stages to impound the equivalent of Rs. especially since the price increase is sharper in the case of essential commodities.000 crores of loanable funds. But a less discussed fallout could be on interest rates as banks are forced to raise deposit rates to neutralise the effects of inflation and keep depositors happy. the government and the Reserve Bank of India have decided to sit up and take note. With inflation as measured by the wholesale price index inching towards 7 per cent and that measured by the consumer price indices ruling even higher. facilitated by excess liquidity and a liberalised futures market. Exports of some essential commodities have been restrained and the prices of petrol and diesel reduced. An obvious consequence of inflation that is of serious concern is its impact on the real earnings of the common man. Unless the government penalises speculators and tightens further the regulations on futures trading. 41 .14. None of these steps has as yet been effective in curbing inflation. buoyancy in prices is likely to persist. they are likely to be neutralised by speculation. Even if they impact prices with a lag.
pre-reform years of `financial repression'. The danger is that a quick and sharp rise in interest rates may not just correct such overexposure but dampen debt-financed consumer spending and housing construction and spoil the party for a government that prides itself on having moved the country onto a higher growth trajectory. Retail lending and housing finance have been growing at a pace that has forced RBI to warn banks repeatedly against overexposure in these markets. the latest increase could take them close to levels that prevailed during the much-maligned. The evidence shows that even before inflation raised its head interest rates had been on the rise. banks were competing with one another and with other financial businesses to offer better 42 . Those better returns are drawing savings away from traditional investments such as deposits at a time when banks are finding new opportunities to lend in the housing and consumer finance market. To cater to this demand.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK Since interest rates have already been rising. This effect on demand and growth would be more severe if rising rates precipitate widespread default of floating rate debt payments. Deposit rates have to be hiked because savers now earn better returns on instruments such as mutual funds and unit-linked insurance. is the reduction in nominal interest rates when compared with the pre-reform period. according to the government and RBI. This would in turn necessitate an increase in lending rates. These low rates have not only shored up corporate profits but also encouraged the debt-financed spending spree. One of the successes of financial sector reform. which would have adverse consequences for growth. which is an important driver of India's high growth. Part of the reason was that banks were being forced to raise deposit rates to attract depositors and were pushed into raising lending rates to cover the higher cost of funds.
the security of bank deposits appears to be a small recompense for the much lower returns they offer. the government has been privileging the equity market at the expense of banks. like a situation where they can continue with business as usual without raising rates. With returns on stock market investments placed at close to 50 per cent. But at the moment banks are finding it difficult to keep their traditional business going without raising interest rates to mobilise more deposits. But lending based on deposits is what banks still know to do best. banks should be happy. By relaxing regulations and norms that apply to both domestic and foreign investors in the stock market. Since this would require raising lending rates as well. which has resulted in a prolonged boom not warranted by fundamentals. They would. the government has been spurring the market by encouraging new investors such as those in charge of government pension 43 . Normally. so long as the Budget is `growth-oriented' in the sense that it is likely to keep growth going or spur it on. In addition. therefore. A booming economy should spell booming business for the banks. This has created a situation where banks have a special interest in this year's Budget. Higher interest rates in the retail and housing finance markets may curb credit demand. Banks today get a significant share of their income from other areas into which they are diversifying.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK deposit rates since they were confident of finding people willing to borrow even when lending rates were raised to cover the higher cost of funds. But for that the differences in rates of return in different financial markets must not widen. it has encouraged a flow of funds into that market. it may prove contrary. Unfortunately.
reflected in rising inflation. And in recent 44 . such as the abolition of the long-term capital gains tax on investments in the stock market and the decision not to tax dividends in the hands of the recipient.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK funds to move into the market and privileging financial savings in forms other than bank deposits through its tax policies. it is inflation that constitutes its primary concern. This pressure on the banks notwithstanding. have all discouraged savings in bank deposits and encouraged investments in other kinds of financial assets. Curbing credit growth is a problem because RBI has recently been buying up dollars flowing into the economy in order to prevent an appreciation of the rupee. Though RBI had chosen to focus more attention on growth and exchange rate management during the years of moderate inflation. INFLATION CONTROL RBI has only two levers to control inflation: curbing credit expansion and raising interest rates. the recent hike in rates would not have happened if RBI were not also keen on higher rates. in the final analysis. That would save them from pushing interest rates to higher levels. Tax benefits given on equity investments. This is why there are demands being made that the coming Budget must `level the playing field' for the banks. The central bank's call for moving up interest rates is driven by a completely different motivation: its concern with overheating in the economy. like all conservative central banks.
This raises the question as to which is better for the economy and the common man: higher or lower interest rates.25 per cent. This has created a rift between the central bank and the Finance Ministry. It has. enamoured by the high growth the economy is recording.50 per cent from 7. Not surprisingly what the central bank has done is to signal its desire to keep interest rates rising by raising the Repo Rate to 7. is against raising interest rates since that could slow down growth. in fact. 45 . To limit further credit creation on the basis of this increase in liquidity. it has recently chosen to raise the cash reserve ratio to be maintained by banks and expects to pre-empt around Rs. contributing further to their tendency to hike interest rates. The rupees RBI outlays to buy up these dollars are contributing to an increase in liquidity and money supply. tried to pressure public sector banks not to raise interest rates on housing loans. This has made the task of the central bank easier when it comes to the second of the levers it has at hand to curb inflation: raising interest rates. The Finance Ministry cannot make the banks pay the cost of its honeymoon with the stock market. The latter.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK months that inflow of foreign exchange has been unrelenting.000 crores of loanable funds. banks are unwilling to oblige.14. But this only increases the desire of banks to increase their deposit intake so as to maintain credit growth. Many public sector banks have indeed hiked their prime lending and housing finance rates. In principle. But faced with little option in protecting their profits. higher interest rates benefit the rentier classes at the expense of those involved in productive activity.
This is a fact that is forgotten when low interest rates are principally seen as reducing the return on deposits by individuals in the banking system.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK Higher rates. Higher interest rates are adverse for entrepreneurs not only because as investors they are hit by the higher cost of capital. But such a move would go contrary to the Finance Ministry's recent tendency to adopt measures aimed at sustaining the irrational boom in the stock market. the growth rates it proudly reports could be the casualty. If not. FORMS APPLICATION FOR CERTIFICATE OF REGISTRATION (COR) OF HOUSING FINANCE COMPANIES By Registered Post From: [Name and address of the Registered Office in BLOCK LETTERS) 46 . are not good for a developing economy. the concerns of senior citizens can be dealt with separately. As is the case currently. unless they are retired senior citizens depending on interest rates from fixed deposits for their income. It would require a change in the mindset that believes that a rising Sensex is a more potent indicator of the success of reform than low interest rates. therefore. they could also be hit by the fact that expensive credit can curtail the growth in demand for their products. this feature of high interest rates is worsened by the fact that growth has come to depend heavily on debt. In post-reform India. This should influence the Finance Minister not just to focus on inflation but actually to consider the case of the banks and level the playing field between the deposit market and the market for other kinds of financial assets so that they can keep deposit and lending rates down. These individuals are also income earners who could benefit from a growing economy.
Wherever space is insufficient.as Annexure-3 [if applicable] Board Resolution specifically approving the submission of the application and its content. Return on Prudential Norms for the latest period as Annexure-5 [if applicable] INSTRUCTIONS FOR FILLING UP THE APPLICATION GENERAL 1. duly indicating the cross reference. Yours faithfully. 2. correct and complete. The required documents/information as per the instructions are enclosed. India Habitat Centre.as Annexure-2 Financials for the last three years..as Annexure-3 6. Certified copy of the Memorandum & Articles of Association 2. National Housing Bank. therefore. We. THE NATIONAL HOUSING BANK ACT. 3. 5. Core 5 A. [Name and Designation] Common Seal of the Company Date: Place: Encl: 1. NEW DELHI -110 003. 3.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK To The General Manager. We are desirous of commencing the business of a housing finance company. 47 . 4. Particulars of identification. 1987 APPLICATION FOR CERTIFICATE OF REGISTRATION TO COMMENCE THE BUSINESS OF A HOUSING FINANCE INSTITUTION We make this application in terms of Section 29A of the captioned Act for issue of a Certificate of Registration (COR). Dear Sir. request you to issue the necessary Certificate of Registration under Section 29A of the said Act to enable our company to commence the business of a housing finance institution. Application should be made in the prescribed form only. Department of Regulation & Supervision. Lodhi Road.as Annexure-1 Particulars of Chairman/MD/Directors/CEO etc. We declare that to the best of our knowledge and belief the information furnished in the statements enclosed is true. information may be furnished in separate sheet/s.
Lodhi Road. 2. 4. ANNEXURE-IV La test return relating to prudential norms. Chief Executive Officer. ANNEXURE-I 1. as certified by the Auditors to be enclosed. A photo-copy of the application as submitted may be retained with the company for its reference and record. 3. 3. 6. (8) In case the company has changed its name earlier. India Habitat Centre. S. Department of regulation & Supervision. Application should bear the common seal of the company. A whole time Director). 8 (b) If the company has ever defaulted in timely repayment of deposit and payment of interest. New Delhi-110 003. 7. including those pending in consumer forum.org. No. S. The company should also submit a list containing the details of all the court cases pending against it. 2001 (Format available on Bank's website: nhb. Core 5A. Chairman. 5. S. Application should be signed by any of the following officials authorised by the Board of Directors of the company in this behalf (viz. No. a list of all the earlier names of the company and date/s of change together with the names of Chief Executive Officer and Chairman at the time of change of name should be furnished. Managing Director. pertaining to its deposit acceptance activities. National Housing Bank.No.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK 2. Company Secretary. a list of all such pending cases and the action taken in respect of each case should be furnished.8 (a) in Annexure I is applicable to those companies which was incorporated with the main object clause other than housing finance and subsequently switched over to housing finance as a principal business and still valid as on the date of submission of the application form.. The format should be as given in the Housing Finance Companies (NHB) Directions.in ANNEXURE-1 PARTICULARS OF IDENTIFICATION (To be filled in BLOCK LETTERS) 48 . to The General Manager. An acknowledgment for having submitted the application should be obtained. Application along with enclosures duly completed should be submitted in duplicate. The particulars/information to be furnished in Annexure-IV of the application should be based on figures as disclosed in the latest annual audited balance-sheet of the company.
Full Address of Corporate/Administrative Office with Phone Number (with STD code). Fax Number and Email address 6. Full Address of the registered Office with Phone Number (with STD code). Date of incorporation: 3. Particulars of Bank A/c: Type of account/ credit facility enjoyed Yes/No Yes/No 49 . State in which the company is registered 5. of branches/ offices (To be furnished State-wise) 10. Name and address of Statutory Auditors with Membership No. No. Date of commencement of business -(if applicable) 4. Whether the company is transacting the principal business of housing finance. Number of employees (Organisation chart Head Office/Branch to be furnished separately) 11. Telephone number. Name(s) & Address(es) of bankers with Telephone/Fax Numbers 13.(if applicable) If yes(a) the date of commencement of such business (b) Whether the company has defaulted in the repayment of principal and/or payment of interest of deposits 9. Name of the Company 2. Status: (strike out whichever is not applicable) (a) Public Limited Company (b) Private Limited Company (c) Deemed public (d) Government company (e) Other (to be specified) 8. Fax Number and Email address 7.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK Company Code------------(To be filled by NHB) 1. Mobile Number and Email address 12.
Relevant knowledge and experience Any other information relevant to Directorship of the HFC II RELEVANT RELATIONSHIPS OF DIRECTOR 50 . (a) Permanent Account Number under the Income Tax Act and name and address of Income Tax Circle (b) Director Identification Number (DIN*) * It is an unique Identification Number allotted to an individual who is an existing director of a company or intends to be appointed as director of a company pursuant to section 266A & 266B of the Companies Act. Date of Birth c. (SEPARATE FORM FOR EACH FUNCTIONARY) Name of the Company: __________________ PERSONAL DETAILS OF PROMOTERS. j. MANAGING DIRECTOR. 1956 (as amended vide Act No 23 of 2006) i. CHAIRMAN. DIRECTORS AND THE CHIEF EXECUTIVE OFFICER OF THE COMPANY I a. MANAGING DIRECTOR. Name and Designation of CEO/Authorised official with Telephone. E-mail Address / Telephone Number h. Full name b.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK 14. Relevant Background and Experience e. Educational Qualifications d. Mobile. DIRECTORS AND THE CHIEF EXECUTIVE OFFICER OF THE COMPANY. Permanent Address f. Names and addresses of the non-banking financial institutions with which the company has links in any manner 15. Fax numbers and Email Address Common Seal of the Company Signature of the Authorised Official: Name: Designation: Date: Place: ANNEXURE-2 INFORMATION ABOUT THE PROMOTERS. Present Address g. CHAIRMAN.
pending or commenced or resulting in conviction in the past against him/her or whether he/she has been banned from entry of at any profession/ occupation at any time. IF ANY. Whether the director attracts any of the disqualifications envisaged under Section 274 of the Company's Act 1956? Has the director or any of the entities at II (b) and (c) above been subject to any investigation at the instance of f. Cases. 1956) b. d. pending or commenced or resulting in conviction in the last five years against the director e.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK a. Professional achievements relevant PROCEEDINGS. MANAGING DIRECTOR. Whether associated as Promoter. presently availed of by him/her and/or by entities listed in II (b) and (c) above from the HFC. NBFC including a Residuary Non. where the director or entities listed in II (b) and (c) above are in default or have been in default in the last five years in respect of credit facilities obtained from the HFC or any other HFC. Details of criminal prosecution. if any. if any. Government department or agency? 51 . If the director is a member of a professional association/body. DIRECTORS AND THE CHIEF EXECUTIVE OFFICER OF THE COMPANY a. the name/s of the company/ies c. Fund and non-fund facilities. Chairman. MD. List of entities if any in which he/she is considered as being interested (Refer Section 299(3)(a) and Section 300 of the Companies Act. Details of prosecution. List of entities in which he/she is considered as holding *substantial interest. details of disciplinary action. pending or commenced or resulting in conviction in the past against the director and/or against any of the entities listed in II (b) and (c) above for violation of economic laws and regulations d. Director with any HFC. AGAINST THE PROMOTERS. III RECORDS OF PROFESSIONAL ACHIEVEMENTS a. Name of HFC in which he/she is or has been a member of the board (giving details of period during which such office was held) e. if any. IV CHAIRMAN. if any. 1956) c. if any. b.Banking Financial Company which has been prohibited from ccepting deposits/prosecuted by RBI/NHB If yes. List of Relatives if any who are connected with the HFC (Refer Section 6 and Schedule 1A of the Companies Act. f.
HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK g. DCA. if so give particulars h. I undertake to keep the NHB fully informed. Place: Signature of Authorised Signatory Designation: Date *‘Substantial interest' means holding of beneficial interest by an individual or his/her spouse or minor child. IRDA. FINANCIAL POSITION Paid up Capital Reserves and Surplus Net Owned Fund [as per return on Prudential Norms] Secured Loans Unsecured Loans (i) Public deposits (ii) Other deposits/borrowings 31/03/ 31/03/ 31/03/ 52 . Whether the director at any time come to the adverse notice of a regulator such as SEBI. as soon as possible. ANY OTHER EXPLANATION / INFORMATION IN REGARD TO ITEMS I TO III AND OTHER INFORMATION V CONSIDERED RELEVANT FOR JUDGING FIT AND PROPER UNDERTAKING: I confirm that the above information is to the best of my knowledge and belief true and complete. the amount paid up on which exceeds 10% of the paid up capital of the company or total capital subscribed by all the partners of a partnership firm. whether singly or taken together in shares of a company/capital of a firm. ANNEXURE-3 Name of the Company: __________________________________ SUMMARY OF FINANCIAL POSITION AND OTHER INFORMATION Amount-Rs lakhs S. No 1 2 3 4 5 A. Has the director at any time been found guilty of violation of rules/regulations/ legislative requirements by customs/ excise /income tax/foreign exchange /other revenue authorities. of all events which take place subsequent to the information provided above.
WORKING RESULTS 16 17 18 19 20 21 Income Expenditure Profit Before Tax(16-17) Provision for Tax Profit After Tax(18-19) (a) Amount transferred to Reserve Fund (b) Amount available for appropriation C. Cost-% to outstanding loans IMPORTANT RATIOS: a] Liquidity Ratio : Current Ratio b] Debt Equity Ratio: Loan Funds to Owned Fund I) Interest Coverage Ratio [times][PBIT/Interest] (ii) Return on Equity(PAT*100/Interest) 53 . OTHER INFORMATION 22 23 24 25 26 27 28 Dividend (%) Earning Per Share Price-Earning Ratio Housing Loans actually disbursed Percentage of over-dues (3 months and above) Admin. guaranteed Bonds (ii) Quoted shares (iii) Un-quoted shares 12 13 14 15 Current Assets.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK (iii) Aggregate Deposits 6 7 Loan Funds [4+5(i)+(ii)] Total Funds Employed(3+6) Towards : 8 9 10 11 Housing Loans[outstanding and % of total assets] Other Loans Fixed Assets Investments (i) Govt. Loans & Advances LESS : Current Liabilities & Provisions Net Current Assets(12-13) TOTAL B.
iii.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK (iii) Return on Total Assets[PAT*100/Total Assets] d] Capital Adequacy Ratio (%) 29 30 Non-performing assets (Amt. 54 . Present shareholding pattern of the company to be furnished separately. pointed out by NHB [Itemwise position] to be given in a separate sheet. ii. Position of rectification of deficiencies outstanding. and % to total assets) Asset quality: (a) Standard (b) Sub-standard (c) Doubtful (d) Loss assets 31 32 33 Income not recognised Provision made for NPAs Liquid assets maintained and shortfall. if any: (i) April-June (ii) July-September (iii) October-December (iv) January-March 34 Position of submission of returns (date): (a) Annual Return (b) Annual Report/Audited Balance Sheet (c) Auditors' Certificate (d) Advertisement or statement in lieu of advertisement (e) Half yearly return on prudential norms: (i) April-September (ii) October-March (f) Quarterly return on liquid assets: (i) April-June (ii) July-September (iii) October-December (iv) January-March 35 Credit rating and validity date Notes: i. if any. Annual reports along with audited balance sheet and profit and loss account for the three years should be enclosed.
55 .several other organizations like the LIC of India.the NHP was the first efforts in this direction .HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK SIGNATURE OF THE AUTHORISED SIGNATORY DESIGNATION: Date: CONCLUSION The past studies have indicated that any point of time there has been housing shortage in India and it grows at an alarming proportion to the population is increasing year after year.besides that . HDFC are also involved to a greater extention to housing finance. All those efforts. HUDCO. lots of efforts are being made to provide housing finance to the poor who represent the majority of those facing housing problems . it is hoped would reduce the housing shortage in India to a greater extend.
www.unece. The Indian financial system .com 3.in 2. Report of the study group on non-banking financial institutions and company. Khan 2.org 56 .nhb.google. Practical banking advances UBS publisher’s ltd 3.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK BIBLIOGRAPHY 1. 4. Financial services 3rd edition . www. Report on trends and progress of housing in India.M. www.vasant desai WEBSITE VISITED 1.com 4. www.business-standard. Y.org. 5.
HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK 5.hinduonnet. www.com 57 .
The National Housing Bank also provides several other channels of support for housingfinance institutions. The National Housing Bank also has a training division. 1988. Besides. besides its lending operations. It needs to work in close coordination with the Reserve Bank of India and the Indian government to ensure the upkeep and feasibility of housing projects in India 58 . the National Housing Bank also makes advances and gives loans to scheduled banks and formulates schemes that lead to the proper use of resources for housing projects. This division trains officials who are working in the housing finance and housing areas in order to improve their management capabilities. For example. The various objectives of the National housing bank are: • • • • To encourage healthy system for housing finance and which meets the needs of all the segments of the society To encourage housing finance institutions To gather resources and distribute them for housing projects To make affordable the credit taken for housing The places where National housing bank have offices are: • • • Head office in New Delhi Regional office in Hyderabad Regional office in Mumbai The National Bank for Housing gives registration certification to companies so that they can carry out the business of financing houses. which was passed on 9th July. The National housing bank has helped enormously in the growth of the housing sector in India. the National Housing Bank can give directions to the housing finance institutions to ensure that their growth takes along appropriate tracks. by dint of the authority invested by the National Housing Bank Act. It is wholly owned by the Reserve bank of India and was established to encourage housing.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK National Housing Bank The National Housing Bank has been set up under the National Housing Bank Act of 1987.finance institutions and provide them with financial support.
Loan term: Loans with term between 5 to 15 years carry higher risk as compared to the Below 5 years and the Above 15 year loans. Co-obligant: Presence of co-obligant significantly mitigates the risk of default except in the Northern region. except in the largest LCR Category. the loans during the recent period show an increase in probability of default during the earlier years of loan age.e.. except in recent loans. followed by the Southern. i. The salient findings of the study are: Geography: Loans originated in the West have higher default risk.Northern and the Eastern Region. in particular default risk and prepayment risk. The Study observes a significant difference in default rate as the Loan to Cost Ratio increases.HOUSING FINANCE WITH REFERENCE TO NATIONAL HOUSING BANK National Housing Bank studies risk in the Indian housing finance market The National Housing Bank has undertaken a study to understand the nature of risks endemic to the Indian primary housing finance market. Loan Purpose: Loans for new dwelling units higher risk compared to the loans for old dwellings.000 housing loans sanctioned from January 1988 to October 2004.50. A negative relationship between interest rate difference (defined as a reduction in interest rate) and the probability of prepayment is observed. Origination Period: While default risk for earlier period loans is observed to rise only during the later years of loan age. (National Housing Bank) 59 . Borrower profession: Self employed borrowers carry higher risk. a decline in interest rate of 1% reduces the probability of prepayment by about 30-40% and the probability is observed to increase over time. The sample size for the study of Credit Risks was over 6. Loan Amount: Smaller loans have higher risk of default during the later years of loan age.
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