Publications

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

NHB's ACTIVITIES

Promotion and Development

Established by the RBI as the apex institution for Housing finance in India in 1988, NHB’s mandate was to ensure progressive development of a steady, supportive, self-sustaining housing finance system with proper spatial balance and equal participation of public and private agencies. The Bank has been entrusted with major promotional tasks besides regulatory and financial responsibilities. Its promotional and developmental role includes providing equity support to HFCs and building material companies (BMCs) and assistance provided for capacity building and expertise development for the sector. The Bank also extends approval status to housing finance companies to make them eligible for availing NHB refinance assistance.

During 2000-01 one HFC, viz., Happy Home Profin Limited, Chennai was deleted from the list of approved HFCs eligible for availing refinance assistance from NHB w.e.f. August 28, 2000. Subsequently, four new housing finance companies have been approved and have become eligible for NHB refinance. These HFCs are ICICI Home Finance Company Limited, Sundaram Home Finance Limited, Birla Home Finance Limited and Tata Home Finance Limited. Accordingly, as on June 30, 2001 there were 31 HFCs [excluding Hometrust Housing Finance Limited which has completed its merger with Housing Development Finance Corporation Limited (HDFC)] in the approved list, which were eligible to avail NHB refinance.

The Bank also revised its guidelines pertaining to refinance assistance to HFCs which enable HFCs to levy prepayment charges in case of prepayment of loans by the borrowers, provided the policy with regard to the same is duly approved by the Board of Directors of the concerned company. Besides, threshold limit for paid up capital / net owned fund of an HFC for being eligible to avail NHB refinance has been revised upward to Rs. 10.00 crore from the earlier limit of Rs.5.00 crore. HFCs already in the approved list of NHB, which do not fulfill the criteria, would be required to achieve the revised level of Rs. 10.00 crore by December 2003.

Under the Bank’s guidelines for refinance support, HFCs were required to get their shares listed on recognised stock exchange(s) in India within a maximum period not exceeding four years of business operations. It was decided to delete this clause from the guidelines for refinance support. However, the requirement of listing continues to be in force under the Bank’s guidelines for Equity Support to HFCs.

Guidelines pertaining to eligibility for equity support, however, remained unchanged during 2000-01. The details regarding NHB’s equity participation in HFCs till June 30, 2001 are given below:

NHB’s participation in equity of HFCs
(Rs. in Crore)
Name of the HFC Face Value Investment as on 31.03.2001
1.Andhrabank Housing Finance Ltd. 1.90 4.23
2.BOB Housing Finance Ltd. 4.93 4.94
3.Can Fin Homes Ltd. 0.50 1.75
4.Centbank Home Finance Ltd. 1.60 1.60
5.GRUH Finance Ltd. 0.45 0.85
6. Vysya Bank Housing Finance Ltd. 0.38 0.56
7. Vibank Housing Finance Ltd 1.20 1.20
TOTAL ------- 15.13

During the year, NHB held two meetings with Chief Executive Officers (CEOs) of Housing Finance Companies approved for its refinance assistance, where several macro issues relevant to the healthy growth of housing finance system in the country were discussed. Devastation caused by the earthquake in Gujarat on 26th January 2001 and measures taken by NHB to provide relief to the affected HFCs also formed part of the deliberations in one such meeting.

The National Housing Bank, Canada Mortgage Housing Corporation (CMHC), Crown Corporation of Canada signed an Arrangement of Cooperation on April 25, 2000. Recognising the role of CMHC in the development of the Canadian housing finance system, NHB undertook a number of initiatives under the bilateral cooperation projects between the Government of India and the Canadian Government through the Canadian International Development Agency (CIDA). Critical emerging activities such as mortgage insurance, securitisation, capacity building etc. had been identified as the areas of collaboration. The initiatives progressed during the year.

The International Finance Corporation (IFC), Washington- an arm of the World Bank, had contracted a study to NHB for determining a Supervisory and Regulatory Framework for Housing Finance Institutions in Bangladesh under their Technical Assistance (TA) Programme. The objective of the study was to prepare a Report suggesting measures and recommendations that could lead to development of a supervisory and regulatory framework for promoting a competitive, integrated and market based housing finance system in Bangladesh. The terms of reference included suggesting a Government body to regulate housing finance, supervisory methodology for housing finance institutions, establishment of prudential norms for housing finance, regulations relating to property appraisal and debt recovery, conditions for taking deposits, feasibility of establishing refinancing possibilities and possibilities to expand mortgage insurance and the creation of insurance for mortgages.

The team from NHB which visited Bangladesh held extensive discussions with various organisations dealing in housing finance. The team also had discussions with the Deputy Governor of Bangladesh Bank. The Report was submitted to IFC, Washington in November, 2000.

Regulation of HFCs

During the year 2000-01, two (2) new companies were added and as on June 30, 2001, there are 342 HFCs on the mailing list of NHB.

Supervision of HFCs

During the year under review, one HFC was issued show-cause notice for contravention of various provisions of the Housing Finance Companies (NHB) Directions, 1989 and one HFC was prohibited from acceptance/renewal of public deposits. The total number of HFCs who have been prohibited from accepting/renewal of public deposits stood at 33 as on June 30, 2001.

Thirty-six HFCs were inspected during the year 2000-01 to assess their financial position and verify their compliance with the Directions and Guidelines on Prudential Norms issued by NHB. Many of the HFCs were intimated about the findings and advised to rectify the shortcomings. As a part of its off-site surveillance, the Bank obtained the prescribed statutory returns and other requisite information from a sizeable number of reporting HFCs, which were subsequently analysed to check for ensuring compliance by the HFCs with Directions and Prudential norms.

Registration of HFCs

In terms of Section 29A of the National Housing Bank Act, 1987 (as amended in 2000), HFCs in existence on June 12, 2000 were required to make an application to NHB for obtaining Registration Certificate for carrying on the business of housing finance institution. The existing HFCs were required to apply for registration within a period of six months. Similarly, all HFCs incorporated after June 13, 2000 have to necessarily register with NHB before they commence their business as an HFI. Till the stipulated time period, 149 HFCs had applied for registration with NHB. Further, NHB has also been empowered to issue directions relating to prudential norms applicable to HFCs.

Guidelines for entry of Housing Finance Companies (HFCs) into insurance business

In view of the opening up of the insurance sector for private participation, NHB issued guidelines for entry of HFCs into insurance business in July 2000 to facilitate their foray into the business in various ways. The guidelines primarily aim at ensuring that the business of an HFC associating with insurance business is not affected by the risks that may arise from it. Different sets of eligibility criteria - depending on the extent of the HFC’s likely exposure to the risks of insurance business - have been prescribed and an HFC is required to get prior approval from NHB before entering into insurance business. The guidelines envisage three different ways in which an HFC can enter into insurance business, namely as an agent of insurance companies on fee basis without any risk participation, by setting up a joint venture insurance company and by making investment in an insurance company upto the specified extent.

A housing finance company registered with NHB and having Net Owned Fund (NOF) of not less than Rs.5 crore as per the last audited balance sheet would be eligible to undertake insurance business as an agent of insurance companies on fee basis without any risk participation.

All HFCs registered with NHB and satisfying the following criteria will be eligible to set up a joint venture company for undertaking insurance business with risk participation, subject to safeguards-
* NOF of not less than Rs.500 crore;
* CRAR of not less than 12%;
* Net Non-Performing Assets (NNPA) of not more than 5% of the total outstanding advances;
* Net profit continuously for the last three years;
* Satisfactory track record of subsidiaries of the HFC, if any; and
* Satisfactory regulatory compliance and servicing of public deposits, if held.

No HFC would be eligible to conduct such business departmentally. A subsidiary or a company in the same group of an HFC engaged in the business of housing finance or banking will not normally be allowed to join the insurance company on risk participation basis.

An HFC registered with NHB but not eligible as joint venture participant as per the above criteria, can make investments up to 10 per cent of its NOF or Rs.50 crore, whichever is lower, in the insurance company. Such participation would be treated as an investment and should be without any contingent liability for the HFC. For being eligible to participate as investor in an insurance company, the HFC would be required to have CRAR of not less than 12%, NNPA of not more than 5% of the total outstanding advances and net profit continuously for the last three years.

Natural Calamities - Relaxation in the Guidelines on Prudential Norms

In terms of provisions of the Guidelines on Prudential Norms, an asset where terms of the loan agreement regarding interest and repayment have been re-negotiated or rescheduled after commencement of operations shall be classified as sub-standard or shall continue to remain in the same category in which it was prior to its re-negotiation or reschedulement as a doubtful asset or a loss asset as the case may be for at least one year of satisfactory performance under the re-negotiated or rescheduled terms.

It was decided in February 2001 that where natural calamities impair the repaying capacity of a borrower, an HFC may reschedule the terms of the loan agreement regarding interest and repayment and such rescheduled loans need not be classified as Non-Performing Assets (NPAs). The asset classification of these loans would thereafter be governed by the revised terms and conditions and they would be treated as NPA on the basis of the revised period for which interest and/or installment of principal remains unpaid, as prescribed in the Guidelines on Prudential Norms. Any provisioning made prior to such reschedulement shall neither be written back nor adjusted against any provisioning requirements that may arise in future. The relaxation is likely to have a positive impact on reconstruction efforts in the areas affected by natural calamities.

· Refinance

Policy

Revision of ceiling on loan slab: Taking into consideration the general increase in the cost of inputs, the ceiling on loan slabs with regard to construction/acquisition of new dwelling unit as also up-gradation/major repairs which are eligible for refinance was increased to Rs.15 lakh in respect of loan for construction/acquisition of new dwelling unit and Rs.5 lakh in respect of loan for up-gradation/major repairs. The scheme is available to HFCs, scheduled commercial banks, State Cooperative Banks and Scheduled Primary (Urban) Cooperative Banks. The ceiling on loan slabs is Rs.5 lakh in respect of loan for construction/acquisition of new dwelling unit and Rs.3 lakh in respect of loan for up-gradation/major repairs for ARDBs, ACHFS, Regional Rural Banks (RRB) and under Golden Jubilee Rural Housing Refinance Scheme.

Levy of Prepayment Charge: During the year under review keeping in view the market dynamics operating in the housing finance sector, NHB decided to calculate the prepayment levy on a yearly reducing balance method. However, the prior approval of NHB continued to be required in respect of proposal for sale/assignment of book debts and the prepayment arising there from. Prepayment to be made by HFCs due to any reason (other than repayment of adverse balance i.e. outstanding refinance exceeding the outstanding loans in respect of which refinance has been availed) would be subject to prepayment levy. In case of adverse balance arising in respect of individual housing loans, NHB might stipulate either substitution of book debts (in which situation primary lenders would have to offer fresh book debts of individual loans aggregating the equivalent amount of adverse balance of about the same tenor) or might require the primary lenders to pay back the adverse balance amount.

Security for refinance to ACHFS: Keeping the risk factor associated with lending to cooperative sector institutions in view, it was decided that the refinance to ACHFS might be secured by guarantee of the respective State Government besides charge on the properties and assets of the ACHFS as well as of the primary society created in favour of NHB in a form acceptable to NHB. It was also decided that in cases where the refinance is not secured by guarantee of the State Government, the applicable rate of interest will be 0.50% above the normal interest rate on refinance on all loan slabs.

Interest rate changes

The Indian economy witnessed turbulent changes in the interest rate scenario during the last couple of years. While the interest rates moved up during the third quarter of the year 2000 after RBI hiked the Bank Rate, it declined sharply in the first quarter of the year 2001 after reduction in Bank Rate and CRR by RBI. The interest rate on NHB refinance also underwent changes four times during the year. The last revised interest rate structure effective from April 27, 2001 onwards is given below:

Rates of interest per annum to be charged by NHB to PLI
Size of the housing loan
Rural Urban
For construction or acquisition of new dwelling units
Up to Rs.50,000 9.50 10.50
Rs.50,001 to Rs.2,00,000 11.00 11.50
Rs. 2,00,001 to Rs.15, 00,000 11.50 11.50
For up-gradation/major repairs
Up to Rs. Rs.50,000 10.00 11.00
Rs. 50,001 to Rs.5,00,000 11.50 12.50
PLI: Primary Lending Institution

Refinance Disbursals

The refinance disbursal of NHB crossed the Rs. 1000 crore threshold for the first time since the inception of the Bank and stood at Rs.1003.13 crore for the year 2000-2001 as compared to Rs. 841.68 crore during the previous year. In percentage terms, the year 2000-01 witnessed a higher growth of 19.18 % as compared to 12.67% growth witnessed during the previous year. The cumulative refinance disbursed by NHB stood at Rs. 6221.48 crore as at the end of June,2001. Apart from this an amount of Rs.4.47 crore was provided as refinance at concessional rate to scheduled commercial banks in respect of their lending to individuals in the cyclone affected areas of Orissa and Rs. 0.61 crore to earthquake affected Gujarat. Details of disbursements are as under:

[Rs. in crore]
Institutions Amount disbursed during the previous year(July’99 to June’2000) Amount disbursed during the current year(July’2000 to June’2001) Cumulative disbursements upto June 30, 2001
Scheduled BanksCooperative Sector InstitutionsHousing Finance Companies 2.40187.81651.47 101.19140.57761.37 343.841066.744810.90
TOTAL 841.68 1003.13 6221.48

While the disbursement to Housing Finance Companies (HFC) and Scheduled Banks increased during the year, the same to cooperative sector institutions registered a decline of 25.15%. During the year two new State level Apex Cooperative Housing Finance Societies (ACHFS) viz., Karnataka State Cooperative Housing Federation Ltd. and Pondicherry State Cooperative Housing Federation Ltd. and one Housing Finance Company viz., ICICI Home Finance Ltd. were sanctioned refinance limits for the first time and refinance was disbursed to Pondicherry State Cooperative Housing Federation Ltd. The HFCs continued to be the major beneficiaries of NHB’s refinance assistance, accounting for around 76% of the total refinance released during the year. Refinance to scheduled banks registered a significant increase to Rs. 101.19 crore during 2000-01 as compared to Rs.2.40 crore in the previous year. Out of the banks’ share of NHB refinance during the year, refinance assistance of Rs.79.47 crore was disbursed to the scheduled commercial banks against their lending for housing to the cyclone affected people in the state of Orissa. The co-operative sector institutions availed Rs.140.57 crores as refinance from NHB accounting for 14 % of the total refinance released during the year 2000-01.

Refinance assistance for lending in cyclone hit areas of Orissa: With a view to ameliorating the hardship caused by the devastating super cyclone in Orissa, NHB announced a special dispensation programme to extend refinance assistance to the extent of Rs.100 crore to Scheduled Commercial Banks in respect of their lending for housing to the cyclone affected people in the state of Orissa. Of this sum, an amount of Rs.75 crore was earmarked to be refinanced from under the General Fund whereas the rest Rs.25 crore was allocated under the Special Fund. Under the scheme, an amount of Rs.79.47 crore has been disbursed as refinance to SCBs. This includes an amount of Rs. 75 crore from the General Fund and Rs.4.47 crore from the Special Fund refinanced at a concessional rate of interest.

Financial assistance for lending in the flood affected areas of Andhra Pradesh: Devastating floods struck the state of Andhra Pradesh during the later half of 2000 causing widespread damage to life and property. NHB decided to extend refinance assistance to HFCs in respect of their lending for repairs of houses damaged by the flood in the fifteen flood affected districts of Andhra Pradesh. The refinance was offered at a concessional rate of interest. This facility was available till June 2001.

Refinance Scheme for Housing in the earthquake affected districts of Gujarat: In the wake of the devastating earthquake in Gujarat in January 2001 which caused widespread loss of life and extensive damage to the property, NHB has launched a scheme to extend refinance assistance to HFCs and Scheduled Banks in respect of their lending for housing in the earthquake affected districts in the state. The objective of this Refinance Scheme is to encourage construction of new houses/flats as also extension and upgradation [including major repairs] of the existing housing stock in the earthquake affected districts of Gujarat State. HFCs and Scheduled Banks who have predominant presence in the State of Gujarat by way of their branch network could utilize the Refinance Scheme and assist such persons to have a shelter of their own by extending need-based housing loans to them. NHB refinance is available to the extent of 100 per cent of housing loans sanctioned and disbursed by the HFCs and Scheduled Banks for acquisition/ construction of new housing units and for upgradation / major repairs at a rate of interest of 6.5%. The HFCs/ banks would provide housing loan to individuals under the scheme at a maximum interest rate of 8%. Under the scheme an amount of Rs.61.35 lakh was disbursed during the year. For this purpose, the Reserve Bank of India sanctioned a soft loan of Rs. 1000 crores to NHB for deployment towards the early construction of houses as well as the infrastructure network that suffered extensive damage due to the earthquake. The loans will be repayable over a period of 15 years. NHB will provide these funds to housing finance companies and scheduled banks through its refinance and direct lending schemes.

· Project Finance

Since its inception in 1988, NHB had been extending financial assistance to public agencies through the refinance window. From the year 1992 the Bank was permitted to extend direct financial assistance to public agencies. The Bank also formulated certain guidelines for extending financial assistance to projects covering slum redevelopment and low cost housing for the poor and slum dwellers (EWS and LIG) both in urban and rural areas. A special fund has also been created out of the proceeds of the Voluntary Deposit Scheme, 1991 for this purpose. Public Agencies including local bodies both in urban and rural areas who can borrow from financial institutions are eligible to avail themselves of financial assistance under the scheme. The repayment period for the same is maximum of 15 years from the date of release of first instalment.

Rates of Interest for Project Finance

In keeping with the general interest rate scenario in the country, the interest rates applicable to the different project financing schemes both under refinance and direct lending windows, were revised downwards during the year. The revised rates are as under:

Direct finance: The interest rate for Land Development and Shelter Projects (LDSP) and Housing Infrastructure Projects(HIP) has been fixed at 12.25% for loans secured by Government / Bank guarantees and at 12.50% for other acceptable securities. The interest rates for Slum Redevelopment Projects remained unchanged at 8% for loans upto Rs. 50,000 and at 11% for loans between Rs. 50,001 and Rs. 1 lakh.

Refinance: With effect from July 1, 2000, the interest rates for LDSP for public agencies and HIP for public agencies, professional developers and cooperative housing societies have been revised to 12.50% whereas rates for LDSP for professional developers have been revised to 13.50% and for cooperative societies and rental housing to 13.00%. Interest rates in respect of LDSP and HIP applicable to public agencies were further reduced to 12.00% w.e.f. April 01, 2001.

Project Finance Disbursals

NHB has so far sanctioned 309 projects under its various project finance schemes both direct as well as through the refinance window. These projects have a cost component of Rs. 1494.41 crore and a loan component of Rs. 933.98 crore. Out of these 309 projects, refinance assistance was provided to 218 projects from the General Fund whereas refinance assistance to 10 projects was provided under the Special Fund. During the year 2000-01, however, no refinance assistance was provided under project finance schemes. The Bank provided direct financial assistance to the tune of Rs.69.42 crore during the current year (including the amount lent from the Special Fund). Cumulatively, till the end of June, 2001, NHB has disbursed Rs.402.32 crore under its project financing window (both refinance and direct finance). Brief details of direct financial assistance provided by the Bank under the General Fund and the Special Fund are given below:

A. General Fund

Out of the general fund, NHB disbursed a sum of Rs.42.05 crore directly, to the eligible institutions engaged in Land Development and Shelter Projects and Housing Infrastructure Projects during the year 2000-01. The cumulative disbursal under this head is Rs. 104.69 crore so far in respect of 26 projects spreading over the states of Tamil Nadu, Rajasthan, Himachal Pradesh, West Bengal, Gujarat and Goa. These projects have a total project cost of Rs. 638.43 crore and loan component of Rs. 288.55 crore.

B. Special Fund

So far, 55 projects with an outlay of Rs.160.09 crore and loan component of Rs. 102.91 crore have been approved in the states of Andhra Pradesh, Madhya Pradesh, Rajasthan and Gujarat out of the Special Fund. Cumulatively, Rs. 51.87 crores have been disbursed so far including Rs. 27.37 crores during the current year

· Training

As a part of its promotional role NHB has been conducting training programmes for the personnel of Housing Finance Companies/Public Agencies etc. apart from providing design and faculty support to banks/HFCs for conducting training programmes. NHB’s endeavour has been to design and conduct training programmes for the personnel of primary lending agencies engaged in providing housing finance viz. HFCs, scheduled commercial banks, ARDBs, ACHFS, Development Authorities, Housing Boards etc. During the year, 5 training programmes were designed and conducted by NHB for the various institutions in the housing sector viz., HFCs, State Housing Boards and Development Authorities including one programme on Housing Finance in which officials from leading housing agencies in Bangladesh also participated. The programmes ranged from orientation programmes on housing finance to specialised programmes on Regulation & Supervision, Project Finance etc. Besides, a workshop on Securitisation for the core group of employees of an HFC was also conducted during the year. Besides conducting these programmes, NHB also extended financial and design support to the National Cooperative Housing Federation of India (NCHF) for conducting four training programmes for the personnel of housing cooperatives. Financial support was also provided to National Centre for Management Development in Agriculture and Rural Development Banking (NCMDARDB) for conducting two training programmes for the officials of co-operative institutions and banks operating in the rural areas.

· Golden Jubilee Rural Housing Finance Scheme

In order to tackle the problem of growing housing needs and housing shortage in the rural areas of the country, the Hon’ble Union Finance Minister announced in his Budget speech for the year 1997-98, the formulation of the Golden Jubilee Rural Housing Finance Scheme (GJRHFS) by National Housing Bank. Launched on the occasion of the Fiftieth Anniversary of India’s independence, the Scheme aims to address the problem of housing shortage in the rural areas through improved access to institutional housing finance which would enable an individual to build a modest house or improve or add to his existing dwelling unit in rural areas. The GJRHFS envisages lending in the rural areas with due regard to the commercial viability of the proposals as per the norms followed by the lending institutions. The Scheme is being implemented through Scheduled Public Sector Commercial Banks, Scheduled State Co-operative Banks, Regional Rural Banks (RRBs), dedicated housing finance institutions, viz. the Housing Finance Companies (HFCs) and the Apex Co-operative Housing Finance Societies (ACHFS), as also through the Co-operative Agriculture and Rural Development Banks (ARDBs). Details of the targets and achievements for last 3 years and also the targets for 2001-2002, for the HFCs, Banks and Cooperative Sector Institutions, are as follows:

(number of dwelling units)
1998-99 1999-2000 2000-01 2001-02
Target Achieved Target Achieved Target Achieved Target
HFCs 38900 35266 60000 77389 75000 56392 88800
Banks 50000 25951 50000 37786 65200 84771 83100
Cooperatives 11100 64514 15000 26188 9800 17263 3100
TOTAL 100000 125731 141363 150000 158426 175000
% Achieved ----------- 125.73 ----------- 113.09 ----------- 105.62 -----------

NHB has been reviewing the performance under the Scheme by way of (a) quarterly information being reported by the primary lending institutions and (b) organising a series of zonal level review meetings on a periodic basis. Progress is also monitored at the State Level Bankers’ Committees (SLBCs) which is an useful forum not only for monitoring progress of the Scheme, but also for helping to identify and overcome problems, if any, encountered in the implementation of the Scheme.

The Golden Jubilee Rural Housing Refinance Scheme was launched to provide refinance to eligible primary lending institutions in respect of their lending to individuals for construction/acquisition of new dwelling units and repair / up-gradation of existing dwelling units in rural areas as per the terms and conditions specified by the Refinance Scheme of NHB time to time. Under the scheme, NHB has disbursed Rs.95.40 crore, Rs.229.50 crore, Rs.239.59 crore and Rs.261.50 crore during the years 1997-98, 1998-99, 1999-2000 and 2000-01 respectively.


NHB’s Support to Gujarat Earthquake Victims

A devastating earth quake hit the Kutch region of Gujarat on 26th January, 2001 claiming thousands of lives and destroying wealth amounting to crores of rupees. The entire nation came forward to help rehabilitate the quake-victims. The severity of the quake and the damage caused also drew the attention of the international community. The National Housing Bank announced assistance packages for the quake victims. The Ministry of Finance, Government of India constituted a High Level Committee to assess quake losses. The Sub-Group of the High Level Committee consisting officials from NHB, State Bank of Saurashtra, Dena Bank, Bank of Baroda, Andhra Bank and National Bank for Agriculture and Rural Development (NABARD) visited the affected regions in the districts of Rajkot and Jamnagar during February 5-6, 2001. It was generally felt that the houses in the region were inadequate in terms of building material technology, design and construction. The region as a whole was ill equipped for such disaster. Since the areas were largely dependent on agriculture and rural artisanship, no major industrial damage was reported. However, the consumption needs and repayment capacity of the agrarian borrowers were adversely impaired by the quake. Since, by and large, the affected houses belonged to EWS/LIG category, a significant component of financial assistance for reconstruction was required to be in the form of grant/subsidies, rather than loans, in view of the income potentials of the affected people and the extent of damage. Based on its observations, the Sub-Group also suggested certain recommendations stressing the need for multi-agency approach inclusive of NGOs and corporate/industrial houses for short and long term provision of housing to the quake victims. The role of the State Government was envisaged as that of a facilitator in terms of infrastructure provision, granting approvals, checking of land records and providing necessary certificates and enforcing building by-laws including the requirement relating to the earthquake resistant construction. Keeping in view the cultural affiliation of the affected population, it was proposed that, if possible, the resettlement should take place on the same site. It was also proposed that the building materials, which would go into the production of housing stock, might be exempted from the excise and sales taxes, which was expected to bring down the construction cost by 8-10%. Uniform constructions could be implemented through specialized housing construction agencies at the State/Central level and through Corporate Bodies with proven technical expertise. Subsidies were proposed to be provided in the form of capital or interest subsidies or both and might be raised from the grants/aids received. Besides, a separate programme under “schematic lending facilities” was recommended to be introduced for implementing reconstruction projects in the affected areas to contain high elements of subsidies and restrict the excessive use of funds for consumption purposes.

The Group also opined in favour of reschedulement of repayments without affecting the quality of assets and advocated graduated interest rates. Proposals were also made for free advisory services and setting up of ‘single window’ assistance and setting up of small building centres in remote villages which were envisaged to act as facilitation-cum-provision centres for speedy rehabilitation of quake affected villagers.

NHB announced a scheme for the affected people in Gujarat to facilitate construction of new units and repairs to the damaged houses for early rehabilitation of the families in the earthquake affected areas. The Scheme is being implemented through the housing finance companies, commercial banks and state public agencies.

As was mentioned earlier in this chapter, the Reserve Bank of India sanctioned a soft loan of Rs. 1000 crores to NHB for deployment towards the early construction of houses as well as the infrastructure network that suffered extensive damage due to the earthquake. The loans will be repayable over a period of 15 years. NHB will provide these funds to housing finance companies and scheduled banks through its refinance and direct lending schemes.

Under the refinance scheme of NHB, affected individuals could avail housing loan for acquisition/construction of new unit and/or for up gradation/major repairs up to Rs.5 lakhs in rural and semi-urban areas, and up to Rs.10 lakhs in urban/metropolitan areas from housing finance companies/scheduled banks at 8% per annum. NHB would provide refinance to housing finance companies and scheduled banks at 6.5% per annum.

In view of the large scale destruction of property and infrastructure, NHB will also be providing direct finance to State Government Agencies like State Disaster Management Authority, State Housing Board, State Development Authorities/Municipal Bodies etc. These agencies would be primarily engaged in construction of houses collapsed or damaged during earthquake and in providing for housing related infrastructure such as water supply, sanitation, roads, sewage etc. NHB would provide funds to these public agencies at 7.5% for all such projects undertaken by them.

Mortgage Backed Securitisation (MBS)

A detailed description was made in the June 2000 Report about the efforts of NHB in introducing securitisation of mortgages in the country. As the country’s apex body in housing finance sector, NHB has been playing a lead role in development of an appropriate policy environment and operational mechanism for Mortgage Backed Securitisation. Considering that the secondary mortgage market in India has to be sustainable, NHB coordinated with a number of agencies/ professionals / regulators for evolving suitable securitisation structures based on a viable model for better acceptance.

The assignment of future receivable on mortgages to a special purpose vehicle (SPV) by the HFI helps the latter to enhance its liquidity. It also creates regulatory advantages especially in terms of favourable CAR enabling creation of more assets by HFI.

During 2000-01, NHB successfully launched four issues of MBS comprising of housing loans originated by HDFC Ltd., LIC Housing Finance Ltd. (LICHFL), and Canfin Homes Ltd.(CFHL) involving a housing loan pool of Rs.273.50 crore. All four issues were assigned AAA (So) rating. The issues are being serviced by Servicing & Paying Agents (the concerned HFCs themselves appointed by the NHB SPV Trust) and the details of these issues are as under:

HDFC Pool 1 LICHFL Pool 1 LICHFL Pool 2 CFHL Pool 1
MBS issued in August 2000 August 2000 May 2001 May 2001
Pool Size Rs.88.32 crore Rs.47.54 crore Rs.74.22 crore Rs.63.40 crore
PTC A size Rs.59.70 crore Rs.43.84 crore Rs.46.84 crore Rs.44.84 crore
Coupon rate 11.85% 11.85% 10.25% 10.25%

The investors to these issues comprised of banks, insurance companies and mutual funds amongst others. The yield expectations of the investors from transactions have been met consistently.
It has been NHB’s endeavour to set up a facilitating environment and sustainable institutional infrastructure for the development of MBS markets. NHB is addressing the issues of simultaneous market development and infrastructure establishment on a priority basis.

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