Silver Jubilee Year 2012-13
Keynote Address
Housing Finance – The Way Forward
by
Dr. C. Rangarajan
Chairman
Economic Advisory Council to the Prime Minister
July 9, 2012
National Housing Bank
New Delhi
Housing Finance – The Way Forward
by
Dr. C. Rangarajan
Chairman
Economic Advisory Council to the Prime Minister
It is a pleasure for me to be speaking to you on this
important occasion that commemorates the Founders’ Day as
well as the Silver Jubilee year of the National Housing Bank
(NHB). I was touched when Mr. Verma came to my office to
invite me to this function, since National Housing Bank holds
a special place in my heart.
He reminded me that I had
headed the Working Group set up under the Seventh Five
Year Plan which recommended the establishment of an apex
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institution for the housing finance system in the country and
that institution came to be the National Housing Bank. It is
indeed very gratifying to see the progress made by NHB in
fulfilling
its
mandate
to
promote
appropriate
financial
institutions to provide housing finance and to create a vibrant
housing market.
Soon after the NHB was set up, the Indian economy
entered a new phase, as it prepared to transit from a regulated
regime to a liberalized and market-based system. With the on
set of financial sector reforms, new challenges were faced,
particularly by those institutions which had been newly set
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up. They had to cope with a paradigm shift. I am happy that
NHB met those challenges fairly and squarely both as a
regulatory and supervisory body as well as a developmental
financial institution for the housing sector.
Let me
congratulate the NHB, its management and staff, past and
present, on their achievements.
Over the last 25 years, there has been a veritable
revolution in housing finance in India. The formal institutional
funding for housing in 1982-83 was Rs.1,071 crores; in 2010-
11 the corresponding figure was Rs. 1,75,000 crores. In the
last five years, the housing finance portfolio of banks and
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housing finance companies has expanded at a Compound
Annual Growth Rate of
15.9 per cent.
Access to housing
finance has thus been considerably widened. Housing loans
are available at all the metropolitan, urban and semi-urban
branches of banks and in almost all branches of housing
finance companies.
No doubt, government and RBI policies have been
supportive. Tax concessions for housing, availability of land
at below market rates for sections of urban dwellers and
favourable regulatory treatment of housing loans by RBI as
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distinct from loans to commercial real estate have given major
fillip to institutional housing finance.
At any milestone in the life of any entity, it is customary
to do stocktaking – look back at the past – at successes and
failures and identify the road ahead. I am sure NHB and its
Board of Directors would have done this exercise.
In this
connection, it is useful to compare NHB’s achievements –
which are numerous and well acknowledged – with the
objectives originally envisaged by the High Level Group
which recommended the setting up of NHB in 1987.
The
Group envisaged broadly five main functions for NHB.
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 First, to promote new housing finance institutions (HFIs)-
some with countrywide remit and some with local
jurisdictions;
 Second, to regulate the working of the housing finance
institutions and coordinate their activities, as also those
of other agencies in the housing field;
 Third, to extend financial support to the housing finance
institutions at the national/regional/local level including
apex cooperative housing finance societies;
 Fourth, to formulate policies relating to mobilization of
resources and extension of credit for housing including
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creation of new instruments of savings linked to housing;
and
 Fifth, to play a facilitative role in identifying and removing
various impediments – legal, fiscal, physical, technical,
environmental,
to
the
active
involvement
of
the
household sector in deploying their savings in housing .
A broad brush scanning of the housing finance field
reveals a substantive track record of NHB in discharging the
above functions. The number of housing finance institutions
registered with NHB has grown from an almost negligible
number to 52 currently.
I am happy
to note that these
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intermediaries are spread across the country and are quite
diverse in their housing finance activities. It should be a
matter of satisfaction to NHB as a regulator that none of the
registered housing finance companies went into distress even
at times of economic slowdown. NHB has also done well to
provide financial support to HFIs and even commercial banks
in times of need, in the form of refinance against the housing
loans that the HFIs have generated on their balance sheet.
NHB set up the Rural Housing Fund in 2009 to give an
impetus to rural housing and has been steadily enlarging its
corpus.
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NHB has also acquitted itself commendably in its
facilitative role – be it the support to Government and RBI in
policy formulation and modification or the various market
infrastructure building measures such as the setting up and
management of the Central Electronic Registry of Mortgages,
or its most recent initiative, which I understand has been
recently launched, viz., a Mortgage Guarantee Company.
These activities contribute to the widening and deepening of
the housing finance market.
While looking at the growth and developments in the
housing finance market, we should be sensitive to the
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housing needs of the lower segment of the population where
government support continues to be relevant.
A judicious
mix of market and state support will serve this segment
effectively. Also, in general, pro-active and efficient policies
in the real sector dealing with land, infrastructure, approvals,
stamp
duty
and
registration,
building
materials
and
technology will generate all round confidence of investors
and credit institutions.
Housing is one of the most important segments of the
economy due to its backward and forward linkages and
interrelationships with other sectors such as manufacturing
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and
services.
Housing
activities
not
only
generate
employment opportunities but also add to capital formation.
Improved levels of housing have an overall positive impact on
the human resource quality of the country.
A conscious
national policy of maximizing home ownership in the country
will certainly depend on the depth and stability of the
mortgage market. Thus, in a country such as USA, UK and
Western Europe where home ownership levels are very high,
the mortgage markets have been wide and deep. It is ironical
in a sense that precisely the mortgage markets in these
countries are the ones that were responsible for triggering the
current global crisis. However, we need to draw appropriate
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lessons from the sub-prime mortgage market crisis of the
advanced countries. There was an indiscriminate growth of
housing loans as the term ‘sub-prime’ indicates.
The
expansion of the mortgage markets was sustained, so long as
interest rates remained low and housing prices continued to
rise.
But once this phenomenon came to an end, the
mortgage markets collapsed. But this would have remained a
purely a mortgage market crisis, had it not been for the fact
that these mortgages were securitized and sold as investment
grade products. With the emergence of the housing crisis,
these products became suspect. The mortgage market crisis
spread initially to all the financial institutions which held
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these securitized products in their portfolio and eventually to
the rest of the financial system. Once again it is difficult to
fault with securitization as a means of mobilizing resources.
What was wrong to start with was loaning to borrowers whose
income and net worth did not warrant the grant of such loans.
What is clearly needed is a balance between regulation and
innovation. Too little regulation may lead to instability but too
much of it can come in the way of innovations which are badly
needed.
As far as housing market in our country is
concerned, we need to be imaginative and innovative and at
the same time the regulatory framework must be prudent. If
the normal precautions in the form of sufficient diligence,
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comprehensive appraisals and conservative valuations are
taken, there is no reason why loans should go bad.
The importance of customer protection and satisfaction
in
mortgage
lending
cannot
be
overemphasized.
The
mortgage lenders should strive to take all possible measures
to improve the level of transparency, by disclosing all terms
and
conditions,
not
imposing
any
hidden
charges
/
conditions, offering a fair treatment to the customers, as also
ensuring that the customers are aware of the exact
implications of the transaction and of its terms and
conditions. This will lead to increased customer confidence,
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boost the goodwill of the lenders and add to the vibrancy in
the markets.
As I mentioned earlier, housing to very low income
groups will need some State’s support. In this context, one
tends to ask the question, ‘Is the demand for housing finance
at reasonable terms fully met for the salaried class in the
public and private sectors?’
With appropriate coordination
and assistance from the State governments, the aspirations of
a large number of Government employees to acquire homes
can be fulfilled.
Similarly such a possibility exists in the
organized private sector.
NHB must take this as a priority
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issue.
I would also encourage NHB to device innovative
schemes particularly in the mobilization of households’
savings for housing.
Apart from tapping households’
savings, the scope for revisiting securitization of the housing
loans in the light of Basle framework keeping in view
considerations for the financial stability may also be looked
into by NHB.
The housing sector has potential to contribute greatly to
the long term growth and development of the economy, both
as a stimulant and as an ‘engine of growth’. A responsive and
meaningful regulatory regime and complimentary government
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policies are keys to a sustainable long term growth of the
housing sector. A house as an asset transcends generations
and provides benefits beyond mere financial returns.
It
improves the quality of living and directly or indirectly
contributes to enhancement in earning capacity.
Home
ownership still remains at a low level in India. The goal of
‘Affordable Housing for All’ is what we must seek to achieve.
NHB can play both a catalytic and a direct role in this respect.
I once again congratulate NHB and its staff on this happy
occasion and wish them well in their future endeavours.
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