Role and Functions in Housing Sector

The National Housing Bank (NHB) was set up in July 1988, under an Act of the Parliament. The Bank is wholly owned by the Reserve Bank of India. The NHB at present has a paid-up capital of Rs.350 crores. The NHB was conceived and promoted to function as the apex institution in the housing sector. The need to set up this institution stemmed from the fact that the housing sector had not received the attention it required not only in terms of finance for individual loans but also in terms of buildable or serviced land, building materials and cost effective technology.

• To promote a sound, healthy, viable and efficient housing finance system to cater to all segments of the population.

• To establish a network of housing finance outlets to adequately serve different regions and different income groups.

• To promote savings from housing.

• To make housing more affordable.

• To promote appropriate technologies for housing.

• To augment the supply of land and of building materials for housing.

• To enable public agencies to emerge, primarily, as facilitators and suppliers of serviced land.

• To augment and upgrade the housing stock in the country.

• To strengthen the backward and forward linkages of the housing sector with rest of the economy.

• To augment the financial resources for the sector.

• To enable the housing finance system to access the capital market for resources.

NHB was set up at a time when the local and regional level housing finance institutions were nearly absent and the banking sector had no pressing priority to do housing finance at a significant level. As a result, the sector has been grossly capital-deficient and the housing shortage in the country has grown alarmingly. The purpose of setting up more local and regional level specialised institutions is to have dedicated outlets for supply of housing credit. NHB is of the opinion that intervention through institutional credit can be made more effective by adoption of different approaches to cater to the needs of different income groups. With the setting up of NHB in 1988, there has been sustained efforts at creating and supporting new set of specialised institutions to serve as dedicated centres for housing credit. NHB's role in this regard can be measured from the fact that from a handful of companies that were acting as dedicated housing finance institutions when NHB came into existence, there are now more than 345 such specialised institutions spread over the vast span of the country. Also from 2 Housing Finance Companies (HFCs) approved for refinance assistance in the year 1989, when NHB had just come into existence, at present there are 29 HFCs whose disbursement of housing loans was approximately Rs.7,400 crore during the year 1998-99.

The second important function of NHB is the regulatory role assigned to it. This responsibility becomes all the more relevant as the housing finance system enters a secondary phase of development in terms of integration with the debt and capital markets. The case for regulation also emanates from the need for a credible and stable housing finance system. Without in any manner going against the free market approach, NHB has attempted to put in place an effective system of "responsive regulation". The housing finance system is still evolving in the country and in this context it becomes necessary that it exhibits a greater amount of stability in terms of resources development, policy development and institution building. NHB has evolved over a period of time directions and guidelines in keeping with the various functions it has to carry out. NHB has come out with a guideline for approving HFCs for its financial assistance and for participating in their equity. NHB has also issued The Housing Finance Companies(NHB) Directions and guidelines for prudential norms for income recognition, assets classification etc. These guidelines have been formulated keeping in view the mandate given to NHB to establish a sound and healthy housing finance system in the country. With these guidelines in place and close monitoring and off-site and on-site supervision by NHB, the HFCs may be considered as more organised segment of the NBFCs group. Till date NHB has prohibited 31 HFCs from accepting public deposits.

The third important role of NHB is to provide financial assistance to the various banks and housing finance institutions. As an apex refinance institution, the principal focus of NHB's programmes is to generate large scale involvement of various primary lending institutions to serve as dedicated outlets for assistance to the housing sector. These institutions include scheduled banks (both commercial and co-operative), regional rural banks, specialised housing finance institutions, state-level agriculture and rural development banks and the state apex co-operative housing finance societies. NHB has formulated schemes to support all these agencies and help them to cater to the housing needs of the community at large. NHB also undertakes direct financing in respect of government sponsored bodies/institutions for projects only.

During eleventh year of its operations NHB has registered a growth of over 45% in its lending operations. NHB has disbursed an aggregate financial assistance of Rs,774.25 crore during the year 1998-99 (July-June) as against Rs.457.18 crore and Rs.532.98 crore disbursed during the years 1996-97 and 1997-98 respectively. The cumulative financial assistance extended by NHB till June 1999 amounted to Rs.4421.91 crore. Of the cumulative financial assistant of Rs.4421.91 crore extended by NHB, 77.70% has gone to Housing Finance Companies (HFCs), 16.90% to co-operative sector institutions and 5.40% to the banking sector.

The refinance assistance provided by NHB to HFCs , has enabled them to increase their operations and cover a larger section of the population. During the year, the outstanding deposits and housing loan portfolios of the NHB approved HFCs have witnessed significant growth. The public deposits of the NHB approved HFCs have increased from Rs.5196.03 crore, as on March 31, 1997 to Rs.6631.30 crore, as on March 31, 1998 and to Rs.7326.70 core, as on March 31, 1999. Similarly, the housing loans disbursed by these companies have grown from Rs.4627.74 crore during 1996-97 to Rs.5783.36 crore during 1997-98 and to Rs.7413.44 crore during the year 1998-99. Thus, the HFCs have registered a 28.19% growth in the volume of housing finance disbursed by them during the year 1998-99 as compared with 24.97% during 1997-98. Also, there has been a marked growth in the position of housing loans outstanding of these companies from Rs.15,489.32 crore, as on March 31,1997 to Rs.18,048.32 crore, as on March 31, 1998 to Rs.21,765.33 crore, as on March 31, 1999. Keeping in view the significant performance of HFCs during the 8th Five Year Plan period, their contribution to the overall flow of funds for housing sector has been raised from Rs.5000 crore during the 8th Plan period to Rs.9500 crore during the 9th Plan period.

The need for easy flow of institutional credit for housing in rural areas was being considered necessary for quite sometime. This formed the background for the announcement of a separate scheme for financing rural housing by the Government of India. NHB formulated the Swarna Jayanti Rural Housing Finance Scheme which was launched in August 1997. It envisages provision of institutional credit to individuals desirous of constructing or acquiring new dwelling units and for extensions or repairs of existing units, in the rural areas of the country. In view of a flexible approach needed to modulate the options according to the shelter needs of different sections of the population, the terms of loan under the scheme has been suitably framed and is being operated through the banking sector, the co-operative sector institutions and the HFCs which possess a substantial geographic coverage, functional reach and necessary infrastructure to ensure its effective operation. In this context, conscious about the long term nature of housing finance, sufficient backup has been in-built by way of refinance facility from NHB to all the eligible institutions in order to supplement their efforts. The targets of financing 50,000 and 1,00,000 dwelling units during the first two years of operation of the scheme have been successfully achieved by the various implementing institutions. For the current year, a target of financing 1,25,000 dwelling units under the scheme has been set.

NHB is also considering to mobilise the support of NGO's and community based financial institutions in extending housing finance to the people who have not had the access to the formal sector credit. NHB is of the view that the sectoral policy environment must also be sensitised to the needs and potentials of the informal sector. Recognising the scope and potential of mortgage securitisation as a viable and sustainable means for generation of large volume of resources for the housing sector, NHB has taken various initiatives towards asset securitisation. Even though a lot of work has been done by NHB for the introduction of mortgage securitisation and eventually a secondary mortgage market, several hurdles relating to legal, accounting and taxation are being faced. High stamp duty on conveyance, cumbersome and time consuming process of registration, absence of enabling legislation and speedy foreclosure, lack of suitable provisions in Insurance Act, SEBI guidelines etc. are some of the issues which are to be addressed urgently. These aspects have been taken by NHB to overcome them through a combination of operations and policy interventions . NHB`s pilot issue of MBS is likely to be launched in the near future.

With flexible and responsive policy measures , NHB is committed to the growth of Indian housing finance system.