Q:Kindly give details of NHB’s activities.
A:NHB has been set up to function as the principal agency to promote housing finance institutions, to provide financial, and other support to housing finance institutions as also to regulate their working, and to co-ordinate with all the agencies connected with housing. The functions of the Bank can be broadly classified under three heads viz

The primary role of the Bank is to promote housing finance institutions and thereby build a strong and healthy housing finance system. Housing finance being a specialised activity, different from other form of lendings, a need was felt to create a separate set of institutions, which could take care of the financial needs of the individuals acquiring a house. At the same time, since an apex institution was formed to create a system for financing a specialised activity, it was felt that this institution should also regulate these specialised housing finance companies (HFCs). Thus, even though the HFCs form a sub-set of the Non-Banking Financial Companies (NBFCs), the regulatory power over these companies, earlier vested with RBI, were transferred to NHB. The regulatory role of the Bank is an integral part of the policy environment. In carrying out its activities, the Bank ensures that there is a good mix of all the three functions.

The housing finance system is still being evolved in the country and in this context it becomes necessary that it exhibits a greater amount of stability in terms of resource raising, policy development and institution building. NHB has issued, over a period of time, directions and guidelines in keeping with the functions it has to carry out. The Directions are aimed at regulating the deposit acceptance activity. The guidelines issued cover such areas as prudential norms for income recognition, asset classification and provisioning, capital adequacy, extending refinance support and participating in the equity of HFCs.

The third important role of the Bank is to provide financial assistance to the various banks and housing finance institutions. The focus of NHB’s programmes is to generate large scale involvement of different types of primary lending institutions e.g. Banks, HFCs, Apex Co-operative Housing Finance Societies, Agriculture and Rural Development Banks etc., for assistance to the housing sector. Accordingly, NHB has formulated schemes to support all these agencies and help them to cater to the housing needs of the community at large.

Q:At present the housing shortage is estimated to be around 23 million units in the country. To build these many houses there is a need of billions of rupees. In this context, how significant would be the contribution of housing finance companies?
A:The housing shortage in 1991 was of the order of 22.90 million units comprising of 14.67 million units in rural areas and 8.23 million units in urban areas. The shortage is estimated to come down to a level of 19.40 million units by the year 2001, of which the rural housing shortage is estimated to be 12.76 million and the shortage in the urban areas is estimated to be 6.64 million. The requirement of funds to clear the backlog as well as to provide housing for the ever-increasing number of households is quite enormous. For instance, the Eighth Five Year Plan had envisaged an investment of Rs. 97,530 crores. The formal sector institutions were expected to contribute Rs.25,000 crores of this amount. 

The 9th Five Year plan envisages an outlay of Rs.l,50,000 crores. The share of formal sector financial institutions is envisaged at Rs. 52,000 crores. Among the formal sector institutions, the share of the housing finance companies was Rs.5,000 crores during the eighth plan and they are expected to contribute Rs.9,500 crores during the 9th plan period. The short point is that the magnitude of funds requirement is immense. Within the format, a major role has been envisaged for the housing finance companies. This is rightly so because they are specialised institutions and their main role is to extend housing finance. Specialisation, we expect will lead to competition and innovation not only in products for lending but also for resource mobilisation. NHB, however, has a much wider role on promoting resource flows from a wide range of institutions.

Q:What policy changes, according to you, are needed to tackle this problem of housing shortage? What are the major problems faced by this sector? Your suggestions to redress the problems.
A:The major problems faced by the housing finance industry mainly emanates from the supply side rather than the demand side. The most important input for housing is the land. The availability of land in adequate quantity at the right place at the right time and at a price affordable by the individuals is more important. Real estate and housing being as they are -constant in supply with competing demand on their usage from different sectors, and, at the same time, highly prone to distortion -have shown a remarkable flat supply curve even in the event of increasing funds into the sector. As a result, the sector has been often bogged down by fears or expectations of escalation in the prices, which generate speculative activities and at the same time discourage housing finance activities as legitimate developmental ventures. The objective of the Urban Land (Ceiling & Regulation) Act, 1976 was to provide for an imposition of a ceiling on vacant land in the urban agglomerations to prevent concentration of land in the hands of a few persons and speculation therein. This measure was also expected to bring an equitable distribution of land. However, based on a review, it is evident that not only its scope has been severely curtailed but also the desired results in increasing the land supply also has not materialised. The Ministry of Urban Affairs and Employment has proposed amendments to this Act in order to expand the supply of land in large cities without diluting it’s social purpose.

An alternate solution to the problem of providing shelter could be rental housing. Here again, unfortunately, the Rent Control Acts in States have acted as a major disincentive for construction of houses to be given on a rental basis. In view of the fact that provisions of these legislations are substantially pro-tenant, individuals who are in a position to construct dwelling units for renting, shy away from construction of such units and those who own vacant dwellings that can be rented out to needy individuals, prefer to keep them vacant. Another offshoot of these legislations is that most of the buildings, which are occupied by tenants, are in a dilapidated state in view of the un-remunerative rent because of which owners are unwilling to carry out repairs. This has a detrimental effect on the housing stock. The National Housing Policy envisages amendment to the State Rent Control Acts. The Central Government has passed a model rent control legislation, which has been circulated, to all States/Union Territories.

Yet another problem that is faced by the housing finance industry is the cumbersome and time-consuming process of enforcing a mortgage in the event of default by borrowers. This has resulted in highly conservative/ cautious lending practices and underwriting norms of agencies extending financial assistance for housing. In order to simplify the foreclosure laws and enable the HFCs to lend to a larger number of populations with relative confidence and ease, NHB has proposed amendments to its own Act. The amendments to the NHB Act would place such lendings in a special category to be treated on priority basis for the purpose of recovery. In essence, the enforcement of mortgage should become much simpler.

I had stated earlier that NHB is in the process of raising resources through mortgage securitisation. I am confident in the years to come; this conduit will prove to be the most vital link between the mortgage market and the capital market. However, though NHB has been planning a pilot issue of mortgaged backed securities for some time, the legal and the stamp duty issues continue to significantly restrict the scope. With the securitisation measure incorporated in both the 9th Five Year Plan and the National Housing Policy documents, we consider the problems as not insurmountable.

Q:What is the general scenario with regard to resource raising in housing sector?
A:There has been a steady growth in the amount of loan disbursed by the HFCs with the result there has been a corresponding growth in the resources raised by them. Traditionally, the HFCs have been depending upon refinance assistance from NHB, term loans from banks and financial institutions, deposits from households and corporate sector and their own equity. The established HFCs, who have an excellent track record, have been in a position to mobilise large deposits as well as term loans from the banks. The insurance companies sponsored HFCs have to a large extent depend on term loans from their parents and they have not ventured to attract deposits from the public. The newly established HFCs, of course will face problems till the time their operations are stabilised and could show positive results. Housing finance being a long-term activity, it would be preferable to raise resources by way of equity contribution from the public. But the primary market being what it is today, they are finding it difficult to raise resources through this route. The promoters, therefore, have to bring in substantial funds initially so that they can win the confidence of the public. NHB, has on its part, has come out with a guideline for equity participation in a limited way.

Q:Please comment on prospects of the housing finance industry in India.
A:Housing finance industry has been poised for rapid growth. There has been a phenomenal demand for housing in the country in recent years both in quantitative and qualitative terms, consequent on the increase in population, expansion of industrial and commercial activities etc. The final take-off, however, has been much delayed since it is not only riddled with the problems peculiar to financial sector but with those of the real sector as well. Any attempt to address these ‘real’ problems will concurrently be reflected in housing finance sector’s growth performance. Since such attempts are already underway, the growth prospects of the housing finance industry are indeed very bright. While the direction and speed of growth can be predicted, the form this industry ultimately assumes will be determined largely by the reform process and the role of NHB, by virtue of it being the Apex body and the resulting policy leverage it can effect in the housing finance sector. The deregulation of on lending rates by NHB, in tune with financial sector developments, has and will continue to generate greater competition among the housing finance companies (HFCs) resulting in greater efficiency, transparency, better management of resources and better customer service. Prudential norms relating to capital adequacy, income recognition and asset classification have resulted in the HFCs becoming more sensitive and alert towards their financial safety and at macro level for the safety and soundness of the entire housing finance system. Housing Finance is a market with infinite growth potential. Credibility of the housing finance institutions is however critical for a sound and sustainable housing finance system and this, NHB will endeavour to establish and protect through its multi-functional role of financer, regulator and promoter.

Q:What is NHB’s vision for the future and how are you planning to achieve it?
A:The Housing and Habitat Policy (1998) has called for housing revolution. If we have to achieve the aims of this policy enormous funds are required. In the existing scenario, it is impossible for the Government to fund the entire requirement. The financial institutions have a greater role to play. The ultiae aim is to increase the flow of funds from the formal sector institutions and to integrate the informal housing finance system with the formal housing finance system and the housing finance system with the general financial system. The integration of the formal housing finance system with the general financial system has been achieved to a greater extent. However, the issue of integrating the informal housing finance system with the formal housing finance system is more complex and it requires a lot of initiatives from the NGOs and the community based financial institutions. NHB will work towards this. For achieving any significant growth n housing activity, it would be necessary to ensure efficient incremental availability of each one of the inputs viz. land, building materials, infrastructure, services, technology and finance. This would depend largely on the policy environment and the supply responses. The elemental complexities of the legal and institutional structures, which impinge upon the housing structure, call for careful review and suitable modification. The attempts in this direction are already underway. NHB will also strive to expand the housing credit delivery network and lay the ground rules for a healthy competition among the various players which will be beneficial to the people aspiring to avail credit in terms of price and service.