1. Introduction

The objective of the scheme is to provide refinance assistance to Housing Finance Companies (HFCs) in respect of their direct lending up to Rs.1 crore to individuals for purchase/construction/repair & upgradation of housing unit. The financial assistance can be drawn by the HFCs in respect of loans already advanced by them as also towards their prospective disbursements. It may be noted that the rules and policies mentioned in this brochure apply only to refinance released under this scheme and not to refinance availed by HFCs earlier under any old refinance schemes which are governed by the respective rules.


2. Eligibility Criteria

HFCs fulfilling the following criteria will be eligible to draw refinance from NHB:

2.1 The HFC should be registered with NHB to carry out housing finance activity in the country.

2.2 The HFC should provide long-term finance for construction/purchase/repair/ upgradation of dwelling units by home-seekers.

2.3 The HFC should invest at least 75% of capital employed by way of long term finance for housing.

Explanation : For the above, “capital employed” means and includes
i) paid up capital of the company and its free reserves less intangibles;
ii) long term borrowings;
iii) deposits with maturity period of five years and above collected from the public and others, excluding the amount required to be kept or maintained in specified asset as stipulated in section 29B of The National Housing Bank Act, 1987.

2.4 The HFC should have Net Owned Fund (NOF) of not less than Rs. 10 crore. NOF will carry the same meaning as per Housing Finance Companies (NHB) Directions, 2001.

2.5 The HFC should comply with the provisions of the National Housing Bank Act, 1987 and Housing Finance Companies (NHB) Directions, 2001, as amended from time to time.

2.6 The Net Non Performing Assets (NNPA) of the HFC should not be more than 5% of the Net Advances. NPA shall carry the same meaning as defined in Housing Finance Companies (NHB) Directions, 2001. NNPA means ‘NPA less provision’. Net Advances shall mean ‘Advances less provision’. 'Advances' shall, apart from housing loans, include mortgage loans, lease transactions, hire purchase assets, bills of exchange, inter-corporate deposits and unquoted debentures.

2.7 The HFC will have to attain the minimum stipulated rating to be eligible for financial assistance from NHB. For this purpose, NHB has developed an internal credit rating model to determine the eligibility for financial assistance for the HFCs.

3. Rate of Interest

Financial assistance under the scheme will be provided either at fixed or floating rates of interest. The HFC would have the option to choose either floating or fixed interest rate depending on their requirement. The interest rate charged to HFC will be as prevailing on the date of disbursement and will depend on the internal credit rating assigned to it by NHB, slab of housing loans and repayment period sought under refinance.

The rate of interest is subject to periodic revision by NHB and this will be informed to HFCs from time to time.

3.2 Conversion of fixed rate loans to floating rate and vice-versa
In the event a HFC wants to convert the outstanding loans from fixed rate structure to floating or vice versa, the following rules will apply:

• There will be a levy of 0.50% of the loan outstanding on conversion from fixed to floating rate of interest. The applicable interest rate will be the then prevailing floating rate of interest for the term equivalent to the residual repayment period of that loan, as applicable.
• HFCs opting to convert loans from floating to fixed rate of interest will have to pay levy as that stipulated in respect of prepayment of floating rate refinance. The applicable interest rate will be the then prevailing fixed rate of interest for the term equivalent to the residual repayment period of that loan.
• Conversions will be done only on July 1 and January 1 of each year. Requests for such conversions should reach NHB one month before the due date for effective conversion.

4. Term of refinance
The refinance will be repayable within a period of not less than 2 years and not exceeding 15 years. The HFCs will have the option to choose the repayment period as per their requirement. Repayment of principal and payment of interest will be on quarterly basis. Repayment of principal will start after one clear calendar quarter from the date of release while payment of interest will start from the immediate quarter. The due dates of payment of interest and principal will be informed to HFCs in the repayment schedule after each release of refinance.


5. Prepayment

The HFC, after availing of refinance from NHB, may repay the whole or any part of the amount earlier than the due date by giving two months’ notice to NHB of its intention to effect such repayment before the due date. NHB will levy a prepayment charge as mentioned below, on such prepayments:

The prepayment levy payable by HFCs to NHB would be independent of the fact as to whether prepayment levy is being charged by HFCs from their borrowers. The HFC will be required to furnish full details about the refinance account against which prepayment is being made. In the absence of such details the prepaid amount will be credited to the refinance released earliest and outstanding on ‘first in first out’ basis. The size of instalment as originally fixed at the time of release will not be altered. Consequently, the last instalment will be reduced and wherever necessary the period of repayment would get reduced.


6. Security

6.1 Security to be obtained from individual beneficiaries: The HFC should generally obtain mortgage of property as security for the loan advanced by them. Where it is not feasible, the HFC may accept at its discretion, security of adequate value in the form of Life Insurance policies, promissory notes, shares and debentures, or such other security, as it may deem appropriate to fully secure the loan, with the charge properly created in its favour.

The loan agreement to be entered into between the HFC and its borrowers shall have a provision to the effect that the borrowers shall have no objection to the HFC creating a charge, mortgage or other interest in that security in favour of NHB.

The credit risk of the primary loan will be fully taken by the HFC and the refinance sought from NHB is repayable irrespective of the primary loan account remaining regular or otherwise.

6.2 Security for refinance: Refinance from NHB may generally be secured by charge on the book debts of the HFC. Additional security such as charge on immovable properties/movable properties, guarantee of promoter etc. may be stipulated at NHB’s discretion. The security will be determined on case-to-case basis. The eligible lending institutions shall furnish to NHB/execute in favour of NHB such documents/undertakings etc. in such form and content as may be prescribed by NHB from time to time.

If at any time NHB is of the opinion that the security provided by the HFC has become inadequate to cover the outstanding refinance, it may advise the HFC to provide and furnish to the satisfaction of NHB, such additional security as may be acceptable to NHB to cover such deficiency.

7. Procedure

7.1 Application for Refinance Limit

The refinance operations of NHB are centralised at New Delhi. Refinance in a particular year is released on the basis of the limit sanctioned to the HFC for the year [July to June]. An HFC desirous of availing refinance will submit to NHB its annual projections for sanction of refinance limit in the prescribed credit review format NHB-ROD[HFC]-01 together with any other information as may be required by NHB from time to time, indicating the expected disbursement of housing loans for the ensuing year i.e. April-March. The annual credit review format duly completed should reach NHB on or before the month of February, every year, i.e. completed format for the year 2003-04 should be submitted on or before February 28, 2003. NHB on the basis of business projections and all other issues relevant to credit exposure will fix the refinance limits.

A HFC applying for refinance for the first time will apart from the above, submit the following information:

a) Brief write-up on the promoter's along with the annual report of previous two years.
b) Annual report containing balance sheet and profit-loss account of the HFC for previous three years.
c) Housing loans and sanctioned and disbursed during the previous three years.

7.2 Legal documentation

On receipt of the sanction letter from NHB, HFCs shall furnish to NHB a resolution, in the prescribed form, duly passed by its Board of Directors. It will also be required to enter into agreement and execute such documents as required by NHB for the purpose at its Office. After completion of all formalities, the HFC can start drawing funds from NHB.

7.3 Submission of refinance application

The HFC desirous of availing refinance shall submit an application in the form NHB-ROD[HFC]-02 to NHB at its New Delhi office. An official authorised for the purpose should sign the refinance applications submitted by HFCs. In this regard HFCs are required to furnish for the period from July to June every year a list of person(s) authorised by the Board of Directors/Chief Executive to sign the forms/statements/letters along with their specimen signatures for NHB’s records. If there is any change in the list of authorised signatories during the year, the same may also be informed to NHB. The amount of refinance released during one month will generally be restricted to a maximum ceiling of 20% of the refinance limit. The HFC will be required to indicate the option of repayment period and fixed/floating rate of interest in the application. Separate applications will need to be submitted for loan amounts having different repayment period and fixed/floating rate options. In other words, each application will indicate only one option for repayment period and one option for either fixed or floating rate of interest. Similarly, separate application would be required to be sent in respect of individual loans upto Rs.10 lakh and loans above Rs.10 lakh.

7.4 Mode of release

The refinance released will be routed through the current account maintained by the HFC in any branch at Mumbai of any bank OR the HFC may open a current account with Canara Bank, Tamarind Lane Branch, Mumbai and leave instructions with them for receiving funds from and remitting funds to NHB. HFCs not maintaining an account in Mumbai may make suitable arrangements through their branches or through their bankers to collect the cheque at Mumbai and transfer the proceeds to their account. The mode of release has to be intimated to NHB in the refinance application NHB-ROD[HFC]-02.

7.5 Mode of Repayment

a) All repayments of principal and payments of interest / additional interest should be made at the Mumbai office of NHB, at 3rd floor, Bombay Life Building, 45, Veer Nariman Road, Fort, Mumbai 400 023.

b) Repayment of principal shall be made by the HFC to NHB as follows:

8. Periodic returns to NHB

A HFC availing refinance from NHB will be required to furnish various statements/information to NHB on a periodic basis. A list of all such statements is at Annexure I. The HFCs should be prompt and regular in submission of these returns.

9. Other Terms and Conditions

9.1 Adverse Balance: HFCs availing refinance from NHB shall furnish a certificate as at September 30 and March 31 every year, duly countersigned by their Statutory Auditors, confirming that the refinance outstanding from NHB does not exceed the total outstanding housing loans, in respect of which refinance has been obtained. In the eventuality of the outstanding refinance due by HFC to NHB exceeding the aggregate of all outstanding housing loans in respect of which refinance has been availed by the HFCs i.e. adverse balance, HFCs would be required to repay refinance to NHB to the extent of adverse balance. This will be based on the above certificate, in the format NHB-ROD[HFC]-07. In case of adverse balance, the HFCs are also required to place the above certificate to their Board of Directors before forwarding the same to NHB.

On receipt of the above certificate, NHB will advise HFCs about the amount of refinance to be repaid. HFCs will be required to pay the amount within one month of the date of such advice. Credit will be given to such payments on the date of credit of the amount to NHB’s Bank Account. HFCs will be required to furnish a list of refinance releases (i.e. loan accounts relating to each drawal of refinance) in which the adverse balance has arisen, along with the aggregate of outstanding housing loan in respect of each refinance loan account. The amount repaid to NHB will be adjusted accordingly.

In this context, HFCs may note the following:

9.2 Borrowings from Institutions other than NHB: In case the HFC borrows funds from banks/financial institutions other than NHB it shall inform NHB about the same giving particulars about the security offered for such borrowings and obtain ‘no objection’ from NHB. Block NOC would be issued once in a year based on projections furnished by the HFC stating the projected disbursement and the various avenues of resources from where funds will be raised. The projections in the form NHB-ROD[HFC]-03 will have to be submitted along with the Annual Refinance Limit application. Any borrowings beyond this limit will require separate sanction. In this context the following may be noted:

9.3 Loans eligible for finance by NHB: All housing loans covered under the scheme should be Standard Assets as per the Housing Finance Companies (NHB) Directions, 2001 and should be unencumbered while HFCs claim refinance from NHB and during the entire term of refinance.

9.4 Flagging of loans financed by NHB: HFC will be required to properly identify all loans for which financial assistance is obtained from NHB and maintain a list of all such loans. All information pertaining to such accounts should be kept up–to–date. Individual housing loans once flagged against NHB’s refinance can never be changed without prior sanction of NHB as long as they are in the books of HFC and they should be distinctly identifiable. List of such book debts would required to be submitted to NHB on demand.

9.5 Inspection: The books of account, registers, and all other relevant records of the HFC can be inspected by or on behalf of NHB.

9.6 Inspection / Audit Compliance: Action on any findings of inspection/audit should be taken promptly.

9.7 Appraisal and Follow-up of Housing Loans: The HFCs should have proper systems and procedures for appraisal and follow-up of housing loans, as also expert, qualified staff for the purpose and adequate arrangements for training them.

9.8 NHB’s Guidelines: Finance provided by the eligible lending institution for housing and covered under the Scheme should conform to Guidelines and Directions issued by NHB from time to time.

9.9 Post-disbursal Discipline: There should be proper post-disbursement supervision and follow-up of housing loans to ensure end-use of funds as also timely and regular repayment of the loans.

9.10 Maintenance of Recovery Performance: Continuance of refinance facility from NHB will be subject to maintenance of satisfactory recovery performance by the eligible HFCs from the beneficiaries under various categories i.e. individuals, builders, CFIs etc. and conditions stipulated by NHB from time time.

9.11 Refinance Assistance at Discretion of NHB: Refinance assistance in terms of this scheme shall be available at the sole discretion of NHB and cannot be claimed as a matter of right.

9.12 Recall of Refinance: 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 eligible lending institution or the happening of any such event, which may, in the opinion of NHB, endanger the repayment of financial assistance.

9.13 NHB’s Right to Modify the Scheme: NHB may, at its sole discretion, alter/modify the Scheme either in respect of all eligible lending institutions or in respect of any one or group of eligible lending institutions as regards the procedure, terms and conditions, norms used while giving eligibility criteria and such other related issues.

CALENDAR OF PERIODIC STATEMENTS TO BE SUBMITTED TO NHB

LIST OF ANNEXURE