REPORT ON TREND AND PROGRESS OF HOUSING IN INDIA - JUNE, 2001

Institutional Framework for Housing Finance : Banks

Encouraged by the spurt in housing finance business by the commercial banks the Reserve Bank of India (RBI) continued with its policy of earmarking 3% of the incremental deposits of banks as minimum yearly housing finance allocation with the stipulation that Banks may deploy their funds under the housing finance allocation in any of the three categories i.e., direct finance, Indirect finance, or Investment in bonds of NHB/HUDCO, or combination thereof. The Working Group appointed by RBI to examine the role of banking system in providing finance for housing schemes, also classified construction activities under three board heads, viz., construction activities eligible for bank credit and inclusion in the yearly allocation, construction activities eligible for bank credit but not to be included in the ‘housing finance’ allocation, and construction activities not eligible for bank credit.

Bank Credit Eligible for inclusion under yearly “housing finance allocation” includes
- direct housing finance up to Rs. 5 lakh provided per dwelling in semi-urban/rural areas and up to Rs. 10 lakh provided in urban/metropolitan areas,
- finance provided for construction of residential houses to be constructed by public housing agencies Housing Boards, local bodies, individuals, co-operative societies, employers, with priority being accorded for financing construction of houses meant for economically weaker sections, low income group and middle income group,
- finance for construction of shopping complexes, markets, educational, health, social, cultural or other institutions/centres, necessary for the development settlements or townships and forming part of a housing project,
- direct and indirect financial assistance for construction for slum improvement, finance for repairs/additions of existing houses/ flats against appropriate security.

Besides, housing finance provided by banks for which refinance is availed of from National Housing Bank (NHB) and the investment in the guaranteed/non-guaranteed bonds and debentures of NHB/HUDCO in the primary market are also eligible for inclusion under the yearly allocation.

However, housing finance granted by banks to their own employees, or to non-resident Indians (NRIs) directly or through Housing Finance Institutions, direct housing loans in excess of Rs.5 lakh and Rs.10 lakh provided in semi-urban/rural areas and Urban/Metropolitan centres, respectively, housing loans taken over by banks from other banks, loans to industries manufacturing building material for construction, financial assistance for construction of warehouses, buildings which do not form a part of housing project like hospitals, clinics, schools, colleges, markets, shopping centres and cinema houses and for construction of hotels and accommodation for tourist and commercial offices, hostels are not to be reckoned under the yearly housing finance allocation-achievement.

At the same time, banks are prohibited from granting financial assistance for construction of buildings meant purely for Government/Semi Government offices, including Municipal and Panchayat offices and for projects undertaken by public sector entities which are not corporate bodies. Even in respect of projects undertaken by corporate bodies, which are not run on commercial lines, bank financing is not allowed as it would tantamount to substitution of budgetary resources envisaged for such projects. The loan could, however, supplement budgetary resources if such supplementing was contemplated in the project design. Thus, in the case of a housing project, where the project is run on commercial lines, and the Government is interested in promoting the project either for the benefit of the weaker sections of the society or otherwise, and a part of the project cost is met by the Government through subsidies made available and/or contributions to the capital of the institutions taking up the project, the bank finance should be restricted to an amount arrived at after reducing from the total project cost the amount of subsidy/capital contribution receivable from the Government and any other resources proposed to be made available by the Government. However, banks may grant loans for activities, which will be refinanced by institutions like NABARD.

The performance of commercial banks in the housing finance sector during the last five years can be summarised as below:

Housing Finance by Commercial Banks
(Rs. in crore)
1996-97 1997-98 1998-99 1999-00 2000-01
Allocation 1071.45 1295.19 1480.83 3051.52 3409.95
%age increase 15.58 20.88 14.33 106.07 11.73
Disbursal 1805.62 1454.77 3951.99 9911.35 9787.24
%age increase 114.44 (-19.43) 82.79 150.79 (-1.25)
%age achieved 168.52 112.32 158.49 324.80 287.06

Hence, it can be observed from the above table that every time in the past 5 years the commercial banks surpassed the target allocated to them.
The bank group-wise statistics of housing finance allocation - achievement by commercials banks during the year 2000-01 are given below:

Bank Group-wise Housing Finance Allocation-achievement: 2000-01
(Rs. in crore)
Bank -Group Allocation for the year Disbursement Direct HF Indirect HF Investment in NHB/HUDCO Bonds
State Bank & Associates 1070.32(725.29) 2087.83(1383.47) 1950.09(1205.06) 91.20(128.78) 46.54(49.63)
Nationalized Banks 1533.04(1668.10) 5282.46(5981.05) 2800.90(1710.10) 1815.77(2975.97) 665.79(1294.98)
Indian Private Sector Banks 631.26(468.10) 2061.47(2209.3) 645.06(522.30) 859.87(805.96) 556.54(881.04)
Foreign Banks 175.33(190.03) 355.48(337.53) 157.06(159.94) 105.01(135.73) 93.41(41.86)
TOTAL 3409.95(3051.52) 9787.24(9911.35) 5553.11(3597.40) 2871.85(4046.44) 1362.28(2267.51)
Source : IECD, RBI
Figures in parentheses indicate corresponding figures of 1999-2000
Indirect HF implies term loans to housing finance institutions, housing boards, other public housing agencies, etc., primarily for augmenting the supply of serviced land and constructed units.

Hence, it can be seen from the above table that during 2000-01, while the direct finance disbursal by commercial banks increased by more than 54% as compared to 1999-2000, their indirect housing finance disbursal and investment in NHB/HUDCO bonds declined by 29% and 40%. This can also be interpreted as the sign of growing involvement of commercial banks in retail housing finance business. The RBI also advised the banks that they should ensure that their indirect housing finance is channelled by way of term loans to housing finance institutions, housing boards, other public housing agencies, etc., primarily for augmenting the supply of serviced land and constructed units.

The details of region-wise classification, size-wise classification and population & bank group wise classification of outstanding housing loans of scheduled commercial banks are given below:

Region-wise classification of Outstanding Housing Loans of
Scheduled Commercial Banks as on March 31
(Rs. in crore)
1999 2000 2001
Region / State/UT No. of A/c s Amount No. of A/c s Amount No. of A/c s Amount
Northern Region
Haryana 29757 277.14 55819 451.01 55668 585.48
Himachal Pradesh 8621 72.27 18314 137.00 21885 199.58
Jammu & Kashmir 9599 93.41 16958 116.26 18737 168.13
Punjab 50354 446.57 92151 635.99 98732 868.14
Rajasthan 53354 550.48 92965 795.02 105365 1095.39
Chandigarh 4520 70.29 7829 84.15 9380 135.69
Delhi 35670 530.94 54749 1151.45 54524 1468.33
Region Total 191875 2041.10 338785 3370.88 364291 4520.74
North-Eastern Region
Arunachal Pradesh 148 1.63 153 1.75 145 2.95
Assam 13408 148.74 26043 188.05 22307 242.67
Manipur 758 7.01 1482 9.38 1441 12.14
Meghalaya 812 11.74 1541 11.62 1235 15.28
Mizoram 429 7.20 1646 10.66 2203 21.91
Nagaland 408 3.89 729 4.03 484 5.24
Tripura 2803 10.15 4124 15.63 2848 20.23
Region Total 18766 190.36 35718 241.12 30663 320.42
Eastern Region
Bihar 52481 408.59 86500 509.29 58222 493.07
Jharkhand ----- ------ ------- -------- 24534 202.24
Orissa 24961 265.53 50438 359.47 67628 539.74
Sikkim 178 2.48 1025 4.85 1494 14.56
West Bengal 107012 948.14 170664 1094.05 171963 1352.29
Andaman & Nicobar Islands 129 1.14 392 4.58 323 4.67
Region Total 184761 1625.88 309019 1972.24 324164 2606.57
Central Region
Chhatisgarh ----- ------ ------- -------- 24323 176.99
Madhya Pradesh 61907 480.09 115143 790.93 118825 994.67
Uttar Pradesh 115739 886.40 189154 1323.14 194461 1383.04
Uttaranchal ----- ------ ------- -------- 22822 178.28
Region Total 177646 1366.49 304297 2114.07 360431 2732.98
Western Region
Goa 5585 54.16 9948 81.69 9548 105.13
Gujarat 91020 693.85 136991 972.67 157055 1225.62
Maharashtra 152705 1567.04 273926 2725.73 323287 4299.68
Dadra & Nagar Haveli 64 0.50 61 0.52 83 0.91
Daman & Diu 169 1.65 343 1.75 283 1.95
Region Total 249543 2317.2 421269 3782.36 490256 5633.29
Southern Region
Andhra Pradesh 131337 1323.24 216264 1736.22 228431 2194.03
Karnataka 94849 1192.79 193582 1788.32 196310 2425.59
Kerala 109747 1036.56 212651 1481.80 269673 1948.01
Tamil Nadu 114708 1247.09 217586 2008.26 214050 2995.12
Lakshadweep 15 0.15 19 0.13 17 0.17
Pondicherry 1902 35.86 4200 29.48 4511 35.5
Region Total 452558 4835.69 844302 7044.21 912992 9598.42
Total All India 1275149 12376.72 2253390 18524.88 2482797 25412.42
Source: Basic Statistical Returns, RBI

The housing finance assistance from commercial banks mainly concentrated in southern and western part of the country with almost 60% of outstanding housing loan portfolio whereas the north-eastern region continued to lag behind despite 33% increase in the outstanding housing loans in 2000-01 vis-à-vis 1999-2000. All the regions, except the central region, however, registered more than 30% growth in outstanding housing loan on a year-on-year basis with western region having the highest growth rate of around 49%. Overall the outstanding housing loan of the banking sector increased by 37.18% to reach Rs.25412.42 crore at the end of March, 2001.

Size-wise classification of Outstanding Housing Loans of
Scheduled Commercial Banks as on March 31
(Rs. in crore)
Loan Slab 1999 2000 2001
No. of A/cs Amount No. of A/cs Amount No. of A/cs Amount
Rs.25,000 and Below 444593 466.12 417271 454.36 536572 552.09
Above Rs.25,000 and Upto Rs.2 Lakh 702483 6526.71 1627721 8919.06 1620279 9543.99
Above Rs.2 Lakh and Upto Rs.5Lakh 115608 3268.61 185519 5497.72 285328 9232.89
Above Rs.5 Lakh and Upto Rs.10 Lakh 9272 571.58 17735 1140.31 30933 1996.41
Above Rs. 10 Lakh and Upto Rs.25 Lakh 2162 277.97 3873 496.60 7639 1053.29
Above Rs. 25 Lakh and Upto Rs.50 Lakh 529 141.44 712 183.62 1278 322.53
Above Rs. 50 Lakh and Upto Rs.1Crore 258 141.54 280 141.52 380 208.27
Above Rs. 1 Crore and Upto Rs. 4 Crore 163 296.38 171 298.29 252 432.40
Above Rs. 4 Crore and Upto Rs. 6 Crore 34 142.42 49 192.92 49 198.42
Above Rs. 6 Crore and Upto Rs.10 Crore 30 207.59 25 192.12 25 183.60
Above Rs. 10 Crore and Upto Rs. 25 Crore 14 206.45 19 335.95 41 642.79
Above Rs. 25 Crore 3 129.91 15 672.41 21 1045.74
Total 1275149 12376.72 2253390 18524.88 2482797 25412.42
Source: Basic Statistical Returns, RBI

The above table indicates that there has been a significant increase (around 68%) in the concentration of borrowers around the slab above Rs. 2 lakhs and up to Rs. 5 lakhs in the year 2000-01, thereby signifying an increase in the average loan size.

Population-group and Bank-group wise classification of Outstanding Housing Loans of Scheduled Commercial Banks as on March 31
(Rs. in crore)
1999 2000 2001
No. of A/cs Amount No. of A/cs Amount No. of A/cs Amount
RURAL
- SBI & Associates 34431 311.01 71286 431.22 87817 681.09
-Nationalised Banks 115234 816.44 220578 1125.83 193457 1405.43
-Foreign Banks 6 0.20 13 3.03 7 0.26
-RRBs 36475 132.84 64549 198.45 70941 274.24
-Other SCBs 9114 99.90 18761 148.41 20152 172.81
TOTAL 195260 1360.39 375187 1906.94 372374 2533.83
SEMI-URBAN ------------- ---------- ----------- ----------- ------------ ------------
- SBI & Associates 105665 1163.83 241312 1728.17 266044 2298.08
-Nationalised Banks 147059 1220.16 276716 1771.59 266158 2289.99
-Foreign Banks 1 0.08 0 0 0 0
-RRBs 41400 130.89 39174 184.90 64334 279.54
-Other SCBs 33009 355.09 66465 461.12 102965 638.56
TOTAL 327134 2870.05 623667 4145.78 699501 5506.17
URBAN ------------- ---------- ----------- ----------- ----------- -----------
- SBI & Associates 125487 1560.02 238862 2233.81 298573 3000.58
-Nationalised Banks 232907 2063.17 395436 2857.76 390640 3738.76
-Foreign Banks 57 3.19 43 2.53 576 32.01
-RRBs 39159 151.46 35240 189.09 58126 257.50
-Other SCBs 21577 243.13 37693 298.50 47014 397.01
TOTAL 419187 4020.97 707274 5581.69 794929 7425.86
METROPOLITAN ------------- ---------- ----------- ----------- ----------- -----------
- SBI & Associates 84148 1047.24 121686 1434.70 155555 1999.05
-Nationalised Banks 225531 2431.22 337978 3601.09 386982 5250.45
-Foreign Banks 9280 347.57 57753 1244.63 34793 1979.67
-RRBs 342 5.01 904 12.04 795 13.45
-Other SCBs 14267 294.28 28941 597.97 37868 703.94
TOTAL 333568 4125.32 547262 6890.43 615993 9946.56
All-INDIA ------------- ---------- ----------- ----------- ----------- -----------
- SBI & Associates 349731 4082.09 673146 5827.89 807989 7978.80
-Nationalised Banks 720731 6531.00 1230708 9356.27 1237237 12684.63
-Foreign Banks 9344 351.04 57809 1250.22 35376 2011.94
-RRBs 117376 420.20 139867 584.48 194196 824.73
-Other SCBs 77967 992.39 151860 1506.02 207999 1912.32
TOTAL 1275149 12376.72 2253390 18524.88 2482797 25412.42
Source: Basic Statistical Returns, RBI

The above analysis indicates that while in the semi-urban centres SBI and its associate banks have almost the equal share of housing finance business as the nationalised banks, the latter continued to consolidate their stronghold in metropolitan areas. The foreign banks also continued to concentrate in metropolitan India with 98% of their outstanding housing loan portfolio falling in that segment. As at the end of the financial year 2000-01, the outstanding housing loans of scheduled commercial banks was 4.83% of their total loans and advances, which was a marginal improvement from 4.17% as at the end of the previous fiscal.

As the housing finance business is a relatively new avenue for commercial banks, RBI has stipulated restricted spread of specialised housing finance branches. As of now, banks are allowed to open such branches only in semi-urban/ urban areas depending on the size and spread of the bank. Such branches will be allowed to operate in rural areas provided there is a clear need and assured viability. Specialised branches will be allowed to operate in districts where the concerned bank has a lead responsibility or large presence and in areas which are not served by a large number of specialised HFCs. In order to economise on the expenditure side, the proposed branches are to be accommodated by the existing expertise to the extent possible.