General Activities of the Bank during 2003-04

Policy Review

Refinance

Keeping in view the relaxation of ceiling up to Rs.15 lakh under Priority Sector lending as introduced by the RBI in its mid-term review of Monetary and Credit Policy in October 2004, the Bank enhanced the ceiling of housing loans in rural areas eligible for refinance under Golden Jubilee Rural Housing Refinance Scheme to Rs.15.00 lakh from the earlier ceiling of Rs.10 lakh.

The Bank introduced a scheme to extend refinance assistance to Housing Finance Companies (HFCs) and Scheduled Commercial Banks (SCBs) for both, construction of new houses/flats and major repairs in the Tsunami affected areas, at a concessional rate of 5% per annum.

Modifications in Refinance Scheme:

During the year, the Bank has adopted the following modifications in its Refinance Scheme with effect from July 1, 2005:

Other Major Modifications in Refinance Policy:

Project Finance

Project Finance Loan Manual: The Project Finance Department has adopted a New Project Finance Manual for its operations. The highlights of the manual include provisions for a Rating Model for Projects and also the borrowing institution. Under the existing system only the borrowers were rated for assistance. The new Manual has been developed with assistance from CRISIL.

Risk Management Policy

As per the guidelines issued by Reserve Bank of India, the Risk Management Policy was revised and the Asset Liability Management Policy for the Bank was being formulated. The Asset Liability Management Committee [ALCO] headed by Chairman and Managing Director and comprising of senior executives representing the different operational areas of the Bank continued to review and monitor liquidity position and interest rate gaps at fortnightly intervals.

Guidelines for NHB’s participation in equity of Housing Finance Companies

During the year the Bank amended the guidelines for participation in the equity of HFCs. The major amendments are:

Having considered it necessary in public interest and for the purpose of regulating the housing finance system, the Bank issued / modified its Directions to the housing finance companies on the following aspects, during the year:

Besides the above, the Bank also issued the following guidelines during the year.

The HFCs which have transferred only the statutory minimum in the previous years would be selectively permitted to withdraw from the reserve fund only for the purpose of provisioning for non-performing assets subject to the conditions that there is no debit balance in the profit and loss account, the reason for such withdrawal are stated explicitly in the balance sheet and in such cases, prior permission of NHB is required to be obtained before appropriation.

During the year 2004-05, two new housing finance companies have been granted Certificate of Registration without permission to accept deposits from the public.

Certificate of Registration previously granted to two housing finance companies were cancelled during the year, as these housing finance companies either went out of the housing finance business or due to non-compliance with the conditions subject to which the Certificate of Registration was issued.

As at the end of June 2005 the total number of housing finance companies having Certificate of Registration was 46. Of these, 24 housing finance companies were granted Certificate of Registration with permission to accept deposits from the public.

Measures for Public Awareness

As part of its efforts to create public awareness, the Bank issued a Public Notice in prominent newspapers on an all-India basis, ith a view to educate the public that no housing finance company can undertake the business of a housing finance institution without obtaining a Certificate of Registration issued by NHB under Section 29A of the NHB Act, 1987. The Bank also issued three other Public Notices during the year, informing the public of the cancellation of Certificate of Registration and rejection of application for grant of Certificate of Registration in respect of individual housing finance companies.

Co-ordination with other Regulatory Authorities

During the year, the Bank’s officers participated in 16 State Level Co-ordination Committee meetings convened by the RBI at its various regional offices. These meetings are held with the objective of ensuring active co-ordination among the various regulatory authorities concerned with the functioning of the housing finance companies and NBFCs, where policy as also operational issues of public interest are addressed.

Supervision of HFCs

During the year the Bank undertook the regulatory inspection of 16 housing finance companies under Section 34 of the National Housing Bank Act, 1987. Further, inspection of 4 companies was conducted under Section 29A of the Act, ibid, in the context of applications for grant of Certificate of Registration.

In order to ensure compliance with the provisions of the NHB Act, 1987 and the Directions framed thereunder, it was decided by the Bank to invoke penal provisions in terms of the provisions of Section 52A of the NHB Act, 1987, with effect from October 1, 2004.

 Golden Jubilee Rural Housing Finance Scheme

The Golden Jubilee Rural Housing Finance Scheme was launched in the year 1997-98 with a view to provide improved access to housing finance to people living in rural areas. The Scheme provides for construction of new dwelling unit or upgradtion of the existing one. The Scheme is implemented through various Primary Lending Institutions (PLIs) namely Housing Finance Companies (HFCs), Public Sector Banks(PSBs) and Co-operative sector institutions. The Government of India sets national targets and NHB being the monitoring agency, sub-allocates the target to each Primary Lending Institution.

During the year 2004-05, the performance of the PLIs under the Scheme was commendable with the total units financed by PLIs going up to 2, 58,562 as against the national target of 2.50 lakh dwelling units. This was a record achievement of 103% as against 97.50 % in 2003-04.

Category wise performance of the PLIs under the Scheme is presented in the following table:

For the current financial year 2005-06, a target of financing of 2, 75,000 units have been set by the Government of India.

Equity Participation by NHB

There was no fresh equity participation by the Bank during the year.

Fraud Management Cell

The Bank has set up a ‘Fraud Management Cell’ to collect information from HFCs regarding frauds committed on housing loans. Towards this objective, the Bank issued a detailed circular during the year indicating the causative factors and suggestive remedial action. All HFCs have been advised to take necessary safeguards and exercise adequate controls to avoid occurrence of fraudulent transactions.

Addressing Consumer Grievances

The Bank addresses complaints against HFCs received from individuals. The complaints are usually in respect of deposits accepted by the HFCs and the loans extended by them.

Meeting of CEOs of HFCs

During the year, two meetings with the Chief Executive Officers of Housing Finance Companies were held in August, 2004 at Bangalore and later at New Delhi in May, 2005. Issues like challenges in resource mobilization of the HFCs, securitization of mortgage loans, Golden Jubilee Rural Housing Finance Scheme, standardization of documents in housing finance process, Amendments to HFC (NHB) Directions 2001, geographical distribution of HFCs, Recommendations of the Committee on Standardization of Housing Loans and sharing of information on fraudulent transactions were discussed with the participants.

Training

As a capacity building measure in the housing finance sector, the Bank organises various training programmes on matters related to housing finance for the personnel of the sector. During the year, the Bank organized eight training programmes. More than 250 participants from various institutions attended these programmes. Apart from increasing awareness on issues related to housing finance industry, these programmes also serve as the forum for exchange of ideas and experience among the participants and NHB. One of the programmes viz. Orientation Programme for Housing Finance, also attracted participants from neighbouring Bangladesh.

The Bank has also been providing faculty support to various institutions conducting training programmes on housing finance for their staff. The Bank also provided support in terms of design and content of inhouse training programmes of the institutions. During the year, faculty support was provided to Bankers Institute of Rural Development for its specialized programme targeted for officers of RRBs. Besides this, faculty support was also provided to PNB Housing Finance Ltd., Punjab National Bank, Repco Home Finance Ltd and NABARD.

Residential Mortgage-Backed Securitization

Residential Mortgage Backed Securitisation (RMBS)

There have been thirteen issuances of Residential Mortgage Backed Securities (RMBS) by the Bank aggregating to Rs.763.26 crore brought out till 30 th June, 2005, with the Bank assuming the role of Trustee (to the Special Purpose Vehicle Trusts) in the transactions involving individual home loans of six Housing Finance Companies and one Scheduled Commercial Bank.

New RMBS Issuances

During the year, NHB completed three issues of Residential Mortgage Backed Securities (MBS) involving 2892 housing loans amounting to Rs. 99.33 crore originated by one HFC and fully wrapped with NHB’s guarantee. These are the initial form of RMBS issues in India with Guarantee of NHB conceptualized on the lines of the RMBS issued by institutions such as Fannie Mae and Freddie Mac of USA.

Performance of the Pools of Housing loans Securitized:

NHB has appointed the respective originators as Servicing and Paying Agents (S&P Agents) to ensure that collections in respect of each of the pool of securitized loans are distributed to the respective PTC holders and Service providers. The books of accounts of the NHB SPV Trust(s) have been audited for the year ended March 31, 2005. The average collection efficiency in the securitized pools ranged between 89% to 99% and the yields to Class A PTC holders have been consistent with that indicated at the time of issuances.

Measures for Market Development

In the Union Budget for the year 2005-06, the Hon’ble Finance Minister announced that the definition of eligible securities in the Securities and Contracts (Regulation) Act, 1956 would be amended to cover securitized mortgage debt. This is expected to facilitate listing of RMBS in stock exchanges and improve its tradability.

During the year, NHB entered into an Agreement with the Asian Development Bank (ADB) and Housing Development Finance Corporation Ltd. (HDFC) for undertaking a study for development of a Secondary Mortgage Institution in India along similar lines as the Fannie Mae in USA.

NHB has commissioned Administrative Staff College of India (ASCI) to conduct a study to understand the nature of the credit and prepayment risks endemic to housing finance market in our country, which is in its final stages. In addition to this, NHB had constituted a Working Group with representatives from the housing finance companies to recommend measures for standardization in the primary residential mortgage finance sector.

Mortgage Credit Guarantee Corporation 

15.1 With the objective of promoting the lending abilities of banks and housing finance institutions, the Bank had initiated the process of setting up of a Mortgage Credit Guarantee Company in collaboration with Canada Mortgage and Housing Corporation (CMHC), United Guarantee (UG), International Finance Corporation (IFC) and Asian Development Bank (ADB). The Term Sheet for the Project has been finalised and accepted by all the Partners after detailed discussions and negotiations. Presently the issues relating to regulatory framework for the proposed company and the risk norms to be made applicable for guaranteed housing loans for the primary lending agencies are being examined by the Reserve Bank of India.

Change in incumbency

Section 6(1)(b)

Dr. Errol D'Souza, Professor, Economics Area, Indian Institute of Management , Ahmedabad with effect from August 9, 2005.

Shri Vidyadhar K. Phatak, Retired Principal Chief, Town and Country Planning Division, Mumbai Metropolitan Region Development Authority with effect from August 12, 2005 in place of Shri Ashok Kumar, IAS (Retd.).

Section 6(1)(c)

Shri R.N. Bhardwaj, Chairman, LIC Housing Finance Ltd. with effect from December 22, 2004 in place of Shri S.B. Mathur.

Shri A.K. Shukla, Chairman, LIC Housing Finance Ltd. with effect from June 26, 2005 in place of Shri R.N. Bhardwaj.

Shri R.V. Shastri, Ex-Chairman & Managing Director, Canara Bank with effect from August 10, 2005 in place of Dr. P.S. Rana, Chairman and Managing Director, HUDCO.

Ms. Jayshree Ashwinkumar Vyas, Managing Director Shri Mahila Sewa Sahakari Bank Ltd. with effect from August 12, 2005 in place of Shri A.K. Shukla, Chairman, LIC.

 Section 6(1)(d)

Shri V. Leeladhar, Deputy Governor, Reserve Bank of India with effect from September 30, 2004 in place of Dr. Rakesh Mohan.

Section 6(1)(e)

Ms. Chitra Chopra, Secretary, Ministry of Urban Employment & Poverty Alleviation with effect from August 12, 2004 in place of Shri A.N. Tiwari.

Dr. Amar Singh, Joint Secretary, Ministry of Rural Development with effect from January 28, 2005 in place of Shri Wilfred Lakra.

Ms. Nilam Sawhney, Joint Secretary, Ministry of Rural Development with effect from September 7, 2005 in place of Dr. Amar Singh.

Section 6(1)(f)

Shri N.C. Vasudevan, Commissioner cum Secretary (Housing), Government of Orissa with effect from September 20, 2004 in place of Smt. Rajalakshmi.

Shri J.S. Mishra, Secretary (Housing), Government of Uttar Pradesh with effect from April 4, 2005 in place of Shri N.C. Vasudevan, Commissioner cum Secretary (Housing), Government of Orissa, whose term expired on November 15, 2004.

Shri N. Ramesh Kumar, Secretary (Housing), Government of Andhra Pradesh with effect from April 21, 2005 in place of Shri J.N. Singh, Secretary (Housing), Government of Gujarat, whose term expired on November 15, 2004.

Shri Avinash Kumar Srivastava, Secretary (Housing), Government of Uttar Pradesh with effect from July 11, 2005 in place of Shri J.S. Mishra.

Corporate Governance

The Bank is committed to the best practices in the area of corporate governance and maintains its affairs to institutionalize corporate governance practices by ensuring that:

The Board of Directors has been constituted in accordance with the provisions of the National Housing Bank Act, 1987. The general superintendence, direction and management of the affairs and business of the Bank are vested in the Board of Directors. The Board is headed by the Chairman and Managing Director of the Bank and is assisted by 10 non-executive directors of the Bank.

Board meetings

The meetings of the Board of Directors are held at regular intervals and at least once in a quarter. The notice of each meeting is given in writing to the Directors ordinarily a fortnight in advance, as provided in the NHB General Regulations, 1988. During the year, the Board met six times, all at the Head Office of the Bank at New Delhi.

Committees of the Board

 The Board has constituted two committees viz. a) Executive Committee of Directors [ECD] and b) Audit Committee of the Board [ACB] to enable better and more focused attention on the affairs of the Bank and has delegated certain powers to these Committees. The functions of ECD and delegation of power to ECD by Board are well defined. The minutes of the ECD and ACB are placed before the Board for information. During the year there were five meetings of the ECD and six meetings of the ACB.

 The Executive Committee of Directors consists of the CMD and five Directors of the Board. The power to constitute Executive Committee (EC) in terms of Section 12(1) of the National Housing Bank Act, 1987 vests with the Board of Directors of National Housing Bank.

 Risk Management Advisory Committee

 The Board of Directors has constituted the Risk Management Advisory Committee (RMAC) which includes external professionals also as its members. The Committee oversees the Risk Management functions of the Bank with focus on the three risks identified by Basel II, i.e. Market Risk, Credit Risk and Operational Risk. The role of the committee is as under:

The ACB provides directions and oversees the operations of the total audit functions in the Bank. The total audit function implies the organization, operationalisation and quality control of internal audit and inspection within the Bank and follow-up and compliance in respect of statutory audit of the Bank and inspection by RBI. The ACB reviews the effectiveness of the systems of internal control, and major areas of house keeping and accounting policies; the accuracy and fairness of the financial statements and compliance with the regulatory guidelines. The ACB also monitors the working of inspection wing of Department of Regulation and Supervision (DRS) and major irregularities observed in the working of HFCs during DRS inspections. The ACB acts as an interface between the management, statutory auditors and internal auditors. It is the prerogative of the ACB to invite senior executives, statutory auditors and internal auditors whom it considers appropriate to be present at the meetings.

The statutory auditors are appointed by RBI. The Annual Accounts of the Bank together with the report of the Statutory Auditors are placed before the Board for adoption and the Statutory Auditors are invited to the Board meeting where the Annual Accounts are adopted to express their views and observations on the Accounts.  

Staff Strength

The total staff strength of the Bank, as on 30 th June, 2005, stood at 80 as against 84 at the close of previous year. To upgrade the skills and enhance the proficiency of its human capital, the Bank deputed its officers for various training and management development programmes during the year, besides organizing in-house programmes for this purpose.

The Calendar Year 2004 ended with changes in the post of the Chairman & Managing Director of the Bank. Shri V. Sridar, on his appointment as full time CMD of UCO Bank, handed over charge to Shri P. K. Gupta on December 16, 2004. Shri Gupta was the Executive Director, Corporation Bank before taking up the post of Chairman & Managing Director of NHB .

During the year, the Bank completed the Competency Mapping Exercise for its officers. The exercise was carried out by experts from XLRI, Jamshedpur. The results are being used by the Bank in addressing the training requirements and capacity building for the staff.

Compliance with Reservation Policy

The Reservation Policy of the Government of India is being adhered to by the Bank. A Liaison Officer is functioning in the Bank. Post based rosters are being maintained by the Bank as per the guidelines of the Government of India in this regard.

Rajbhasha

The Bank has been successfully implementing the Official Language Policy since its inception. Several measures for promoting and encouraging use of Hindi in the Bank have been taken to enhance the usage of Hindi in the Bank’s working. The Bank is continuously making efforts to bring about further improvement in this area. A large number of Hindi books were also purchased for Bank’s library for the benefit of the officers.

‘Awas Bharati’, the quarterly Hindi magazine published by the Bank has got an enriched coverage both in terms of content and readers. Besides, the Bank organized the ‘Hindi Chetna Mas’ during 16 th August to 14 th September 2004. During this period various competitions were held and awards were given to the prize winners in the competitions.

The Bank also complied with the various statutory provisions stipulated by the Government in the Official Language Policy (OLP). Accordingly, letters received in Hindi are replied in the same language, documents under clause 3(3) of the OLP, reports and other publications, stationery items are all in bilingual form. The Bank has also been conducting Hindi workshops. The Rajbhasha Implementation Committee of the Bank meets regularly to review the progress in usage of Hindi in the Head Office and the Regional Office at Mumbai and adopt suitable means to improve the usage.

New Initiatives

Process integration through Enterprise Resource Planning

The Bank has implemented the SAP Enterprise Resource Planning package integrating the General Ledger, Cash Management, HR Functions, Payroll, Resource Mobilization and Servicing processes of the Bank. The Bank has adopted the integrated operations from April 1, 2005.

The project has facilitated the operations of the concerned Departments by facilitating prompt preparation of financial statements, reconciliation, MIS, payroll etc.

Human Resource Policy

 In order to have a well co-ordinated approach towards recruitment, training and development, performance management, promotion and career development of the manpower in the Bank, efforts have been initiated to formulate a comprehensive Human Resource Policy. Xavier Labour Relations Institute (XLRI), Jamshedpur is extending professional help to the Bank in this regard.

Competency Mapping of the officers of the Bank

To have a holistic approach in development of human capital in the Bank, a competency mapping exercise for various officers vis-à-vis the job requirement for the different functions at different levels was conducted. The exercise was conducted under professional guidance from XLRI. The study helped identifying the training need of the officers.

Strengthening of the Treasury Setup

Based on recommendations of Investment and Credit Rating Agency Ltd. on the risk management functions of the Bank, the different sections of treasury activities (Front, Mid and Back offices) have been segregated. While the Front office forms a part of the Resources Mobilisation and Management Department, the Mid and Back offices report to the Risk Management Department and Accounts Department respectively.

Rural Housing

The Bank published “Handbook on Rural Housing and Infrastructure” in collaboration with Central Building Research Institute, Roorkee, for providing a comprehensive information on various aspects relating to rural housing such as planning, construction, use of local materials and typical designs along with specifications and cost estimates.

Real Estate Price Indices for the residential housing segment

There has been a long felt need to monitor the movement of value of the real estate in an economy where the industry has been on steady growth path. Reliable, unbiased information about the long-term performance of residential property specifically in terms of its pricing and their movements over time is needed not only for academic interests but also to make strategic decisions by the industry players. Realising the need for reliable and unbiased information about the long-term performance of residential property specifically in terms of its pricing and their movements over time, the Government of India have advised NHB to develop a Real Estate Price Index and NHB initiated the necessary steps in this regard . Accordingly, a project for the ‘Preparation of the Real Estate Price Indices for the residential housing segment [NHB RESIDEX]’ has been launched by the Bank in close co-ordination with the Government of India, Ministry of Finance, Reserve Bank of India and other prominent players in the industry.

Task Force on National Urban Housing & Habitat Policy (NUHHP)

The Government of India has set up a task force to review and suitably amend the National Housing & Habitat Policy, 1998 under the Chairpersonship of Secretary Urban Employment & Poverty Alleviation (UEPA). For the purpose of detailed examination of various issues (technical/legal/financial etc) of the existing NHHP and to get considered inputs, the Task Force constituted five sub-committees on Social Housing, Housing Finance, Legal & Regulatory Issues, Urban Infrastructure and Technology Alternatives. The Sub-committee for Housing Finance is headed by Shri P K Gupta, CMD, NHB and had representatives from HUDCO, NHB, HDFC, SPAARC, PNBHFL, DHFL Vysya and other experts in the field. The report of the Sub-committee has since been submitted to the Government.

Measures for Standardization in Housing Finance Processes

With the objective of introducing a standardised process of origination and documentation of the housing loan market, the National Housing Bank (NHB) had constituted a Working Group for suggesting Promotional Measures for Standardization of Housing Loan Origination and Documentation. The Working Group comprised of representatives from NHB and the industry. The Group has since submitted its Report to NHB and the recommendations are being examined for adoption in consultation with the various housing finance companies.

Miscellaneous

The Bank’s bilingual official website “www.nhb.org.in” has been continuously upgraded and enriched in terms of its content.

The Bank has established connectivity between its Mumbai Regional Office and the Head Office, at Delhi through a dedicated leased line facilitating online transaction/communication on real time basis between the two centres.

The Bank has operationalised a centralized data centre for providing the information support to various operational departments.