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INTRODUCTION
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
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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:
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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.
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The ultimate result has been the housing shortage in both rural and
urban areas. In 1971, the Banking Commission, headed by Shri. Bhabatosh
Datta submitted its report on the Non-Banking Financial Intermediaries.
This report, besides other aspects of banking systems, dealt at length with
the present and prospective housing finance and the need for a specialised
institution for housing. The Commission made the following
observations:
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and supply factors with the demand side including the population,
income etc. and the supply side covering institutions, policy etc.
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Plan.
The Table 4 giving the housing scenario will further indicate the
housing shortage in the past and the prospective housing shortage by
2001.
Housing shortage in India
Rural Urban Total
1 1991 2 1981 1991 2 1981 1991 2001
981 001 001
a. No. of house 94.1 113.5 137 29.3 45 69 123. 158. 206
holds 4 4
b Households 94.1 113.5 137 30.7 47.1 72.2 124. 160. 209
. adjusted for 7 8 6
congestion
c. Housing 88.7 106. 128 28 42.6 64.8 116.7 148. 193
stock 2 8
d Of which 77.8 92.9 112 23.7 36.7 56.7 101. 129. 168
. acceptable 5 6
e. Housing gap 16.3 20.6 25.5 7 10.4 15.5 23.3 31 41
•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.
•The housing gap goes on increasing over years. 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.
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•The report also indicated that more number of persons lives in a room and
lack of privacy connotes the need to augment housing supply.
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The First Five Year Plan (1950-56) aimed at enhancing the housing
stock of minimum standards over next few years. It suggested reducing
the cost of construction of houses especially with regard to material and
labour by encouraging economical, architectural and structural designs.
The First Plan gave due consideration to the role of private sector to help
solving the problem of housing shortage. Two schemes viz., Subsidised
Industrial Housing Scheme (1952) and Low Income Group Housing
Scheme (1954) were introduced during this period.
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The Third Five Year Plan (1961-66) aimed at land acquisition and
development as also an effective control on urban land. The Annual Plans
(1966-69) brought in the concept of "economically weaker sections". The
annual plans integrated this concept with the Subsidised Industrial
Housing Scheme which was in operation since the First plan. Up to 1970,
the bulk of funds were provided by the Government of India and Life
Insurance Corporation of India as loans and subsidies. 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 extent of finance made available was usually 80% of
the cost of construction as maximum and this varied from scheme to
scheme. In case of Land Acquisition and Development Scheme, 100%
financial assistance as loan was given to Local Bodies / Urban Estate
Department.
The Fourth Five Year Plan (1969-74) emphasised the low cost
housing schemes in view of
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The conclusion that could be drawn from the above table is:
- The First Plan gave top priority to housing next to food since majority
of the population was poor.
- There have been a decline in the investment in housing during VII Plan
which was disproportionate to the total investment in economy.
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•To assist all people and in particular the homeless and inadequately
housed and vulnerable sections, to secure for themselves affordable
shelter through access to developed land, building materials, finance and
technology;
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the lenders and borrowers. Despite the frenetic pace of growth in housing
finance over the past 5 years in India, mortgage penetration as a
percentage of GDP continues to remain low, at 4 percent. This means that
there are considerable growth opportunities in housing finance. 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.
The lending criteria set out by formal financiers are more appropriate to
the life style of the middle-level income group. To obtain a housing loan,
a combination of conventional (assets that can be mortgaged) and non-
conventional collateral such as peer pressure is required. Lack of
mortgage insurance is also a reason why the private formal sector
bypasses the low-income segment.
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During the Sixth Plan period, other housing finance companies also
entered the market. Towards the mid and late 1980s a few housing
finance companies were set up either as private limited companies (e.g.
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direct subsidies are given for construction cost (e.g. the VAMBAY
scheme) and/or indirect subsidies on interest rates are provided. The latter
could be in the form of the interest differential subsidy amounts being
remitted directly in the HFC loan accounts of the borrowers, so as to
bring down their loan liability. These loans are characterised by
conventional mortgage lending, have a longer-term tenor and repayments
are in equal monthly installments (EMIs).
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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
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. In general it is believed that the
residential house is a non-productive asset. It does not generate any
income by itself so as to make the loan self liquidating. The question is to
be understood in the larger developmental context. The investment
decision and the activity pattern of any family are influenced to a large
extent by the location and type of residential accommodation. The
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The RBI in its priority sector lending guidelines clearly stated that
1.5% 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. The
finance will be in terms of both direct and indirect mode. 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. Further 30% will be utilized by way of term loans to
housing finance companies, housing boards and other public housing
agencies. 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 "housing finance'' by the banks is granted for the following types of
construction:
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•Shopping Complexes, 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.
•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.
•To bodies constituted for undertaking repairs and for individuals either
singly or collectively, in buildings owned or occupied backed by security
or guarantee.
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HUDCO and HDFC which have done pioneering work in the fie»d of
housing finance. The public sector banks like the State Bank of India,
Canara Bank, Punjab National Bank, Indian Bank, 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. The amount of public deposits which the housing companies can
raise under the Housing Companies (NHB) Directions, 1989, is equal to
10 times of their Net Owned Funds. With the emergence of housing
subsidiaries together with the apex institution- National Housing Bank, the
housing finance scenario has taken a new turn.
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HOUSING REFINANCE
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Scope
Eligibility Criteria
(i) Only such HFCs that conform to the 'Guidelines for Extending
Refinance Support to Housing Finance Companies', as amended
from time to time, and which have been approved by the NHB
(discussed earlier) for the purposes of refinance support are
eligible to avail refinance from the NHB,
(ii) Overdue housing loans of the HFCs, including those covered under
the NHB refinance, should not exceed 10 per cent of the total
housing demand (including overdues) for the preceding twelve
months. The level of overdues should be assessed, taking into
account only the amounts overdue for over three months,
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Period of Refinance
Procedure
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Since the repayment period should not exceed the life span of the
house/unit financed out of the housing loan, it should be ensured that the
construction is pucca/semi-pucca, with a life span of not less than 30
years.
Post-disbursal Discipline
Maintenance of Recovery
Recall of Refinance
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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.
The NHB may call for any information or returns from the HFC
availing of refinance, in respect of housing loans and refinance
sanctioned under this scheme. It would also have the right to collect such
information directly from the HFC's constituents, its lenders, auditors,
credit rating agencies and so on.
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.
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BUSINESS ACTIVITIES
NHB, as the Apex level financial institution for the housing sector
in the country, performs the following roles:
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public deposits, rate of interest, period, liquid assets, etc). NHB has also
issued Directions on prudential norms in regard to capital adequacy, asset
classification, concentration of credit, income recognition, provisioning
for bad and doubtful debts etc. NHB supervises the working of HFCs
through on-site inspection and off-site surveillance.
(c) Financing:
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and sell Bonds with or without the guarantee of the Central Government
for the purpose of carrying on its functions.
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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.
Considering the need for trained personnel for the sector NHB has
designed and conducted various training programmes.
CASE STUDY
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Since interest rates have already been rising, the latest increase
could take them close to levels that prevailed during the much-maligned,
pre-reform years of `financial repression'. This would in turn necessitate
an increase in lending rates, which would have adverse consequences for
growth.
The evidence shows that even before inflation raised its head
interest rates had been on the rise. 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. Deposit rates
have to be hiked because savers now earn better returns on instruments
such as mutual funds and unit-linked insurance. 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, banks were competing
with one another and with other financial businesses to offer better
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funds to move into the market and privileging financial savings in forms
other than bank deposits through its tax policies. Tax benefits given on
equity investments, 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, have all discouraged savings in
bank deposits and encouraged investments in other kinds of financial
assets. This is why there are demands being made that the coming Budget
must `level the playing field' for the banks. That would save them from
pushing interest rates to higher levels.
INFLATION CONTROL
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months that inflow of foreign exchange has been unrelenting. The rupees
RBI outlays to buy up these dollars are contributing to an increase in
liquidity and money supply.
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. Not surprisingly what the central bank has done is to signal its
desire to keep interest rates rising by raising the Repo Rate to 7.50 per
cent from 7.25 per cent. This has created a rift between the central bank
and the Finance Ministry. The latter, enamoured by the high growth the
economy is recording, is against raising interest rates since that could
slow down growth. It has, in fact, tried to pressure public sector banks not
to raise interest rates on housing loans. But faced with little option in
protecting their profits, banks are unwilling to oblige. Many public sector
banks have indeed hiked their prime lending and housing finance rates.
The Finance Ministry cannot make the banks pay the cost of its
honeymoon with the stock market.
This raises the question as to which is better for the economy and
the common man: higher or lower interest rates. In principle, higher
interest rates benefit the rentier classes at the expense of those involved in
productive activity.
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FORMS
APPLICATION FOR CERTIFICATE OF REGISTRATION (COR) OF
HOUSING FINANCE COMPANIES
By Registered Post
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To
The General Manager,
Department of Regulation & Supervision,
National Housing Bank,
India Habitat Centre, Core 5 A, Lodhi Road,
NEW DELHI -110 003.
Dear Sir,
We make this application in terms of Section 29A of the captioned Act for issue of a Certificate
of Registration (COR). The required documents/information as per the instructions are
enclosed.
3. We declare that to the best of our knowledge and belief the information furnished in the
statements enclosed is true, correct and complete.
Yours faithfully,
Date:
Place:
GENERAL
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ANNEXURE-I
1. S. No. (8) In case the company has changed its name earlier, 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.
2. S.No.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.
3. S. No. 8 (b) If the company has ever defaulted in timely repayment of deposit and
payment of interest, a list of all such pending cases and the action taken in respect of
each case should be furnished. The company should also submit a list containing the
details of all the court cases pending against it, including those pending in consumer
forum, pertaining to its deposit acceptance activities.
ANNEXURE-IV
La test return relating to prudential norms, as certified by the Auditors to be enclosed. The
format should be as given in the Housing Finance Companies (NHB) Directions, 2001
(Format available on Bank's website: nhb.org.in
ANNEXURE-1
PARTICULARS OF IDENTIFICATION
(To be filled in BLOCK LETTERS)
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Company Code-------------
(To be filled by NHB)
1. Name of the Company
2. Date of incorporation:
3. Date of commencement of business
-(if applicable)
4. State in which the company is registered
5. Full Address of the registered Office with
Phone Number (with STD code), Fax Number
and Email address
6. Full Address of Corporate/Administrative
Office with Phone Number (with STD code),
Fax Number and Email address
7. Status: (strike out whichever is not (a) Public Limited Company
applicable)
(b) Private Limited Company
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Date:
Place:
ANNEXURE-2
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UNDERTAKING:
I confirm that the above information is to the best of my knowledge and belief true and
complete. I undertake to keep the NHB fully informed, as soon as possible, of all events which
take place subsequent to the information provided above.
Designation:
Date
ANNEXURE-3
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Notes:
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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, lots of efforts are being made
to provide housing finance to the poor who represent the majority of
those facing housing problems .the NHP was the first efforts in this
direction .besides that ,several other organizations like the LIC of India,
HUDCO, HDFC are also involved to a greater extention to housing
finance. All those efforts, it is hoped would reduce the housing shortage
in India to a greater extend.
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BIBLIOGRAPHY
1. Financial services
WEBSITE VISITED
1. www.nhb.org.in
2. www.google.com
3. www.business-standard.com
4. www.unece.org
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5. www.hinduonnet.com
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The National Housing Bank has been set up under the National Housing
Bank Act of 1987, which was passed on 9th July, 1988. It is wholly owned by the Reserve
bank of India and was established to encourage housing- finance institutions and provide
them with financial support.
The National Housing Bank also provides several other channels of support for housing-
finance institutions, by dint of the authority invested by the National Housing Bank Act. For
example, the National Housing Bank can give directions to the housing finance institutions to
ensure that their growth takes along appropriate tracks. Besides, 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.
• 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 National Bank for Housing gives registration certification to companies so that they
can carry out the business of financing houses. The National Housing Bank also has a
training division, besides its lending operations. This division trains officials who are working
in the housing finance and housing areas in order to improve their management capabilities.
The National housing bank has helped enormously in the growth of the housing sector in
India. 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
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Origination Period: While default risk for earlier period loans is observed to rise only during
the later years of loan age, the loans during the recent period show an increase in probability
of default during the earlier years of loan age.
Loan Amount: Smaller loans have higher risk of default during the later years of loan age.
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.
Borrower profession: Self employed borrowers carry higher risk, except in recent loans.
Loan Purpose: Loans for new dwelling units higher risk compared to the loans for old
dwellings.
The Study observes a significant difference in default rate as the Loan to Cost Ratio
increases, except in the largest LCR Category.
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