NHB
M.F.S.
CHAPTER – 8
M. Y. KHAN
HOUSING FINANCE
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Chapter Objectives:
NHB
 Housing in India: Some Highlights
 National Housing Bank
– An Overview, Focus Areas and Strategies
 NHB: Prudential Norms
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NHB
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Hosing Finance Timeline
NHB
Pre 1970
Centralised directed credit
1971
HUDCO: Public Sector, Wholesale Lending
1977
HDFC: 1st private sector retail housing finance institution
1988
National Housing Bank- REGULATORY & SUPERVISORY BODY
/Refinancing Agency
Late 80’s
Early 90’s
Public sector banks
Housing Finance Companies, Private Sector Co’s also entered
Late
1990’s
Commercial banks get active in direct lending for housing
finance
2000
onwards
Variety of Financial Institutions Entered
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Housing in India
NHB
• Central Government formulates broad policy framework
• Eleventh Five Year Plan (2007-2012):
– Investment Requirements for housing estimated at INR
5.1 trillion (US$ 108 bn)
• Acute housing shortage estimated at over 24.7 million units
– Rural: 14.1 million units
– Urban: 10.6 million units
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Housing Finance in INDIA: Some Highlights
NHB
• Second fastest growing economy in the world after China
• Rapid Urbanization and Rising middle class
• Contribution of Housing in GDP is about 6%
• Services sector accounts for 60% of GDP
• Political stability
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Importance of Housing:
NHB
• Engine of economic growth
• Second largest employment generator after agriculture
• Strong backward and forward linkages with over 250
ancillary industries
• Estimated investment for meeting housing needs up to
2012: US $ 108 Billions.
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Housing Finance: Drivers of Growth
NHB
• High demand growth is driven by:
– Improved Affordability:
• Rising disposable income
• Lower interest rates
• Tax incentives (interest and principal repayments deductible u/s 80 - D)
– Increasing Urbanisation:
• Currently only 28% of the Indian population is urban
– Favorable Demographics:
• 60% of India’s population is below 30 years of age
• Rapid rise in new households
• Increasing number of nuclear families
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Key Players in Mortgage Market:
Banks
Key Players
Reserve Bank of India (RBI)
Regulator
Access to low cost funds
via current / saving
accounts
Advantages
Housing Finance Companies
National Housing Bank
(100% subsidiary of RBI)
Dedicated players,
better customer service
Extensive branch network
Lower operating costs
High operating costs
Higher funding costs
Mandated direct lending,
High liquidity ratio
NHB
Disadvantages Higher capital adequacy ratio
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Marketing and Distribution
NHB
• Earlier marketing scenario:
• Walk-in customers
• Passive marketing, belief that word of mouth from a satisfied
customer was the best form of advertising
• Current marketing scenario:
•
•
•
•
•
With increased competition, buyers’ became more demanding
Customers want door-step service
Use of direct selling agents (third party distribution channels)
Property fairs and exhibitions
Cross selling products and services
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Regulatory Framework For HFCs
•
NHB
Guidelines for HFCs with regard to minimum capital, asset composition,
composition of Board of Directors and appointment of auditors.
• Public Deposit Acceptance Directions
– Tenor of 1 to 7 years
– Cannot exceed 5 times net owned funds
– Credit rating
– Statutory liquidity ratio
– KYC norms
• • Prudential Norms
– Asset classification
– Provisioning requirements (Provisioning on Non-performing Loans and
Standard Non-housing Assets)
– Capital adequacy - Atleast12% CAR
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Why Housing Finance for India?
NHB
 Meets housing demand (Urbanisation, Demographics)
 Prevents Slum proliferation/explosion
 An engine of equitable economic growth – Investments,
Savings, Wealth
 Contributes to poverty reduction (asset building, retirement,
empowerment, community strengthening, better quality of
life)
 Promotes financial stability and economic growth
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HOUSING FINANCE MARKET
NHB
Households, Corporations, Trusts, Provident Funds
Reserve Bank
of India
Government
of India
State
Governments
External
Sources
Scheduled
Banks
LIC/
GIC
NHB
State Apex CHFS
Housing &
Urban Devpt.
Corporation
Primary CHFS
Public, Pvt. Agencies/
SHGs/MFIs
Housing
Finance
Companies
Households & Corporations
LIC : Life Insurance Corporation of India
GIC : General Insurance Corporation of India
CHFS : Co-operative Housing Finance Societies
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Housing Finance : Exponential Growth
Direct Housing Finance Disbursals
Primary Lending Institutions (PLIs)
NHB
(Rs. in crores)
2001-02
1. Commercial Banks
2. Housing Finance Companies (HFCs)
3. Co-operative Institutions
4. TOTAL
2002-03
2003-04
2004-05
8566
23553
32816
45700
14614
17832
20862
26000
678
642
623
--
23858
42027
54301
71700
25
76
29
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5. Annual Growth (in %)
Estimated disbursements during 2005-06 Rs. 85,000 cr.
(Source:NHB)
Outstanding Loan and Advances of Banks
Particulars
Total Loans and Advances (TLA)
Housing
Mar-2004
Mar-2005
764383
1105725
51981
134653
10
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Housing as % of TLA
LOW NPAs - 1.40% compared to 2.80% of Banks’ Total Retail Credit
(Source:RBI)
Outstanding Credit of HFCs
Particulars
Housing Loans
Other Loans
2001-02
2002-03
2003-04
2004-05
41844
49238
59144
72500
9666
13358
15847
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16300
HOUSING FINANCE – Exponential Growth
16000
NHB
16
717
14000
14
12000
12
10000
10
8000
8
6000
6
4000
4
2000
2
537
414
In percentage
Rs. in billion
Rs. in billion
232
182
0
0
2000-01
2001-02
Outstanding Housing Loans (OHL)
2002-03
2003-04
Gross Credit (GC)
2004-05
OHL % to GC
2000-01
2001-02
2002-03
2003-04
2004-05
Housing Loans Disbursals
Data pertained to banks and housing finance companies
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Share of Housing & Consumer Durables in GBC
12000
12%
9726
7644
8000
10%
8%
6695
6000
6%
5367
4692
4000
4%
2000
2%
0
0%
23-Mar-01
22-Mar-02
21-Mar-03
19-Mar-04
% of GBC
10000
Rs. in billion
NHB
18-Mar-05
Source : RBI
Gross Bank Credit (GBC)
Housing as % of GBC
Consumer Durables as % of GBC
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NHB
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National Housing Bank
NHB
• Established in 1988 by an Act of Parliament
• 100% owned by Reserve Bank of India
• Headquarters at Delhi
• OBJECTIVE:
“To operate as a principal agency to promote housing finance
institutions both at local and regional levels and to provide
financial and other support incidental to such institutions and for
matters connected therewith …
… shall act on business principles with due regard to public
interest.”
(National Housing Bank Act, 1987) 18
National Housing Bank – FUNCTIONS
NHB
 Promotion and Development of HFIs
 Regulation and Supervision of HFCs
 Financing
Refinance for Individual Loans - Primary Lending Institutions
Direct Finance for Projects
- Public Agencies / Private &
Joint Sector Corporate/s,
Builders/NGOs/SHGs / MFIs
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BUSINESS OBJECTIVES
NHB
• “To provide affordable housing to common man”
• Develop Market Related Housing Finance System focusing on
Unserved and Underserved segments
• Catalyze Increased Investment through Private Sector
Participation
• Seek to reduce housing shortage say by 30% in next 3 years
• Develope 15 lakh houses in 3 Years : To Divert Rs.75,000
crores institutional credit flow into housing sector
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NHB
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NHB
Extreme Focus : Social and Financial Inclusive Housing
– Rural Housing
– Urban Renewal
– Market Development
– Capacity Building and Technical Assistance
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Public Private Partnership (PPP) Model
NHB
• Salient Features of Public Private Partnerships Model:
• Private Sector:
– Innovation, Use of Technology
– Professional Management
– Quality Assurance
– Efficiency and Speed
– Maintenance Practices and Sustainability
• Public Sector:
– Policy Setting
– National Planning
– Regulation and Governance
– Looking after Public Interest
– Facilitating Economic Growth and Development
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NHB: PRUDENTIAL NORMS
NHB
• INCOME RECOGNISION
- On Cash Basis.
• BASIS OF NPA :
- ASSETS – “THE INTEREST HAS REMAINED PASTDUE FOR 6 MONTHS”
- TERM LOAN
do
- DEMAND/CALL LOAN
do
- BILLS
do
- LOAN AND ADVANCES – 6 MONTHS do
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NHB: PRUDENTIAL NORMS – CONT…
NHB
• INCOME FROM INVESTMENT:
- IN CASE OF DIVIDEND FROM CO’S AND MF – CASH BASIS.
- IN CASE OF BONDS AND DEBENTURES OF CORPORATES
AND GOVT. – ACCURAL BASIS.
• ACCOUNTING STANDARDS:
- ACCOUNTING STANDARDS ISSUED BY “ICAI” MUST BE FOLLOWED.
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NHB: PRUDENTIAL NORMS – CONT…
NHB
• INVESTMENT GUIDELINES:
- HFCs ARE AUTHORISED TO INVEST IN SHORT TERM ASSETS AND
LONG TERM ASSETS LIKEWISE…
- EQUITY SHARE
- PREFERENCE SHARE
- DEBENTURES/BONDS
- GOVERNMENT SECURITIES/ T – BILLS
- UNITS OF MUTUAL FUND
- AND OTHER INSTRUMENTS PRESCRIBED BY RBI
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NHB: PRUDENTIAL NORMS – CONT…
NHB
• ASSET CLASSIFICATION:
1. STANDARD ASSETS:
- “THERE IS NO DEFAULT IN TERMS OF INTEREST OR PRINCIPAL
REPAYMENT AND DOES NOT CONTAIN MORE THAN NORMAL RISK”
2. SUB-STANDARD ASSETS:
- “IT IS THE ONE WHICH HAS BEEN CLASSIFIED AS NPA FOR A
PERIOD NOT EXCEEDING 2 YEARS”
3. DOUBTFUL ASSETS:
- “IT MEANS ANY LOAN/LEASED/HIRE PURCHASE ASSET WHICH
HAS BEEN CLASSIFIED AS NPA FOR A PERIOD EXCEEDING 2
YEARS”
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NHB: PRUDENTIAL NORMS – CONT…
NHB
4. LOSS ASSETS
- “IT IS THE ONE WHERE THE LOSS HAS BEEN INDENTIFIED BY
NBFC OR THE AUDITORS” AND THERE IS A THREAT OF NONRECOVRY DUE TO REDUCTION OF THE VALUE OF THE SECURITY
OR DEFAULT ON THE PART OF THE BORROWER”
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NHB: PRUDENTIAL NORMS – CONT…
NHB
• PROVISIONING REQUIREMENTS:
1. LOSS ASSETS:
100% PROVISIONING
2. DOUBTFUL ASSETS:
PERIOD FOR WHICH THE ASSET PERCENTAGE OF PROVISION
HAS BEEN CONSIDERED
DOUBTFUL
UP TO 1 YEAR
20 %
1 TO 3 YEAR
30%
MORE THAN 3 YEARS
50%
3. SUB STANDARD ASSETS: GENERAL PROVISION OF 10% OF TOTAL
OUTSTANDING AMOUNT…
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NHB: PRUDENTIAL NORMS – CONT…
NHB
• DISCLOSURE IN BALANCE SHEET:
- “EVERY HFC SHALL SEPARATELY DISCLOSE IN THEIR
BALANCE SHEET, THE PROVISIONING IN RESPECT OF NPAs
WITHOUT NETTING (WRITING OFF) THEM FROM THE INCOME
OR VALUE OF THE ASSETS”
- DEPRICIATION PROVISION FOR INVESTMENTS.
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NHB: PRUDENTIAL NORMS – CONT…
NHB
• CAPITAL ADEQUACY REQUIRMENTS:
• EVERY HFC SHALL MAINTAIN MINIMUM (TIRE -1 + TIRE – II) CPAITAL
OF 12 PERCENT OF THEIR DEPOSIT LEVEL.
• TIRE – I CAPITAL: IT INCLUDES “NET OWNED FUNDS”
• TIRE – II CAPITAL:
- TIRE – II CAPITAL MAINLY INCLUDES PREFERENCE SHARE,
REVALUATION RESERVES, GENERAL PROVISIONS AND LOSS
RESERVES, HYBRID DEBT ETC.
- AT ANY POINT OF TIME, THE TIRE – II CAPITAL SHOULD NOT
EXCEED 100% OF TIRE – I CAPITAL.
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NHB: PRUDENTIAL NORMS – CONT…
NHB
• RESTRICTIONS ON INVESTMENT IN LAND, BUILDING AND
UNQUOTED/UNLISTED SHARES
• - MAX. LIMIT 20% OF NOF.
• CONCENTRATION OF CREDIT AND INVESTMENTS:
- MAX. CREDIT TO SINGLE BORROWER – 15% OF “NOF”
- MAX. CREDIT TO GROUP OF BORROWERS – 25% OF “NOF”
• SUBMISSION OF HALF YEARLY REPORTS TO NHB
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NHB
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