Housing Finance

and
NHB

Slide 1

Outline

Real Estate and Housing

National Housing Bank
Housing Finance System in India
Housing Shortage
Industry Performance
Housing Finance Trends
Credit Growth to Housing & Real Estate
Housing Finance Interest Rate in India
Policy Profile
Supportive Policy Regime
Fiscal Regime for Housing
Supportive Credit & Regulatory Policy of RBI
About National Housing Bank
Financing Agencies
National Housing and Habitat Policy
Need for Mortgage Backed Securities (MBS)
MBS : Benefits to Banks / FIs
MBS : Institutional Framework
Issues in Indian Context
Opportunities
Slide 2

Real Estate and Housing

Real estate is a legal term that encompasses land along with anything
permanently affixed to the land, such as buildings/houses.

Reserve Bank of India clarifies exposure to,

Residential Mortgages, as lendings fully

secured by mortgages on residential
property that is or will be occupied by the
borrower or that is rented;
Commercial Real Estate, as lendings secured
by mortgages on commercial real estates (office
buildings, retail space, multi-purpose
commercial premises, multi-family residential
buildings, multi-tenanted commercial premises,
industrial or warehouse space, hotels, land
acquisition, development and construction, etc.)
Slide 3

 Real Estate and Housing

In India, about three fourth (3/4) of real estate development is for

residential use and balance one fourth (1/4) is predominantly for
commercial use.
Indian Real Estate and Housing Industry

is growing annually at around 30 per cent.

has significant backward and forward linkages
with over 250 ancillary industries.
is the second largest employment generator,
next to agriculture.
can create a significant impact on our
economic growth, over the medium term.
can play a prominent role in the healthy
development of our Nation.
From every Rupee spent on construction, an estimated 75 80 paise is
added to GDP.
Slide 4

National Housing Bank

(NHB)
Multi-Functional, Development Finance
Institution in Housing Sector, wholly owned by
the Reserve Bank of India
Promotion & Development
Regulation & Supervision
Financing

NHBs Approach

Integrated: Aimed at confidence-building among

Savers, Borrowers, Lenders and Investors.
Multi-pronged: Simultaneous intervention on both
the demand (financial) and supply (real) side of the
housing sector
Multi-Agency: Wide coverage of schemes to
include various actors in the field of housing credit
delivery, spread over a vast geographical area in
order to achieve extensive outreach
Slide 5

Housing Finance System in

India
Households, Corporations, Trusts, Provident Funds

Government
of India

State
Governments

Reserve Bank
of India

External
Sources

Schedu
led
Banks

LIC/
GIC/
UTI
National Housing Bank
State Apex CHFS

HUDCO
Primary CHFS

Public Agencies/
SHGs/MFIs

Housing
Finance
Cos.

Households & Corporations

LIC : Life Insurance Corporation of India
GIC : General Insurance Corporation of India

UTI : Unit Trust of India

CHFS : Co-operative Housing Finance Societies
HUDCO : Housing & Urban Development Corporation

Slide 6

Housing Shortage
( in million )

Slide 7

Industry Performance

Slide 8

Housing Finance Trends

Housing

is a basic necessity, for an individual

supports economic activities, for a family /
community
is a catalyst, for creating multiplier effect in other
sectors
is a labour intensive activity, for increasing the per
capita income
is an engine of growth, for the national economy

Housing Finance

Strengthens the Financial System Leads to

Investment Demand
Increases the Assets Formation Leads to Formation
of Household Physical Assets
Serves the Social Cause Key to Development of
Human Settlement
Slide 9

Housing Finance Trends

Liquidity in the System

Lower Inflation Rate

Softer Interest Rate Regime

Housing Loan has the Lowest Non Performing Assets

(RBI)

(as at the end of March, 2004)

Retail Portfolio of
Banks
Net NPAs
as % of outstanding loans

(NPAs)

Housing
Loan

Consumer
Durables

Credit Card
Receivables

Other
Personal
Loans

TOTAL
Retail
Loans

TOTAL
Loans &
Advances

1.4

4.0

2.4

1.6

1.6

2.8

Fiscal Concessions (Tax Concessions, etc.)

Legal Reforms -Repeal of Urban Land (Ceiling& Regulation)

Act 1976, Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002.
Slide 10

Credit Growth to Housing

& Real Estate
Outstanding Gross Bank Credit
(Rs. crore)

Particulars

(Source: RBI) 23-Mar-01

Gross Bank Credit (GBC)

Housing

22-Mar-02

21-Mar-03

19-Mar-04

18-Mar-05

4,69,153

5,36,727

6,69,534

7,64,383

9,72,587

16,143

22,346

36,587

51,981

75,173

3.44

4.16

5.46

6.80

7.73

1,766

2,596

5,894

5,577

10,612

0.38

0.48

0.88

0.73

1.09

Hsg. as % of GBC
Real Estate Loans (RELs)
RELs as % GBC

Outstanding
Credit2000-01
by HFCs
(Rs. crore)
Particulars
2001-02
2002-03
(Source: NHB)
Housing Loans

41,844

49,238

59,144

* 72,500

8,163

9,666

13,358

15,847

* 16,300

Primary Lending Institutions (PLIs)

2000-01

2001-02

Direct
Housing
Finance Disbursals
1. Commercial
Banks
5,553
8,566
(Source: NHB)

2. Housing Finance Companies

3. Co-operative Institutions
4. TOTAL
5. Annual Growth (in %)

2004-05

33,250

Other Loans

2003-04

2002-03

2003-04

2004-05

(Rs.
crore) 32,816
23,553

* 45,700

12,638

14,614

17,832

20,862

26000

868

678

642

623

---

19,059

23,858

42,027

54,301

71,700

35.07

25.18

76.15

29.21

32.04
* - Estimated

Slide 11

Housing Finance Interest Rate

in India

Source: HDFC, 2004

Slide 12

Policy Development
Changing Profile of Housing Sector
From Social Sector to Economic Sector
Governments growing thrust on Housing
Institutional building and financial deepening of the
housing sector
Growing dependence on the market Major shift in
policies since early 1990s
Deregulated environment but Accessibility and
Affordability continue to be major challenges
Slide 13

Supportive Policy Regime

Housing as a Lead Sector for all-round economic development

Role of all agencies Private, Public, Cooperative Sector, Central
and State Governments duly recognized in the policy framework
Continued fiscal provisions/tax benefits for borrowers, lenders,
corporates engaged in housing finance
Repayment of principal and interest on housing loans are eligible
deductions
Lenders can transfer 40% of their profit to special reserve,
exempted from tax
Supportive fiscal regime has led to sustained increase in demand
for housing loans
Borrowers changing preferences from debt averse to market
savvy Preference for loans
Lower interest rates and higher incomes have reinforced demands
for housing loans
Slide 14

Fiscal Regime for Housing

Individuals:
Interest on capital borrowed for purchase/ construction of a house
property allowable as deduction upto Rs. 1.50 lakh subject to certain
conditions [Section 24(b) of IT Act]
Deduction u/s 80 C of IT Act for repayment of Principal amount of
housing loans available from AY 2006-07 onwards upto Rs. 1 lakh
Tax Rebate u/s 88 of IT Act available upto 2005-06 in respect of
repayment of housing loan upto Rs. 20,000/- discontinued

Corporates:
Deduction available not exceeding 40% of the profits derived from the
business of providing LT finance carried to special reserve account
[Section 36(1)(viii) of IT Act]

Investors:
U/s 54EC of IT Act, Capital gain on transfer of a LT capital asset by an
assessee will not be charged if the same is invested in bonds issued by
NHB, NABARD, NHAI, REC or SIDBI
Slide 15

Supportive Credit & Regulatory

Policy of RBI
Risk weight on housing loans reduced from 100%
to 50% (raised to 75% in September 2004 by RBI
in the mid-term review of credit policy)
Priority Sector lending includes individual housing
loans upto Rs.15 lakh (raised from Rs.10 lakh )
Banks indirect lending to HFCs can also be
covered under priority sector
At least 3% of incremental deposits of the Banks
to be lent for housing direct credit
Low NPA levels in housing sector has encouraged
the lending agencies
Supportive regulatory policy has led to sustained
increase in lending for housing finance
Slide 16

About National Housing

Bank

Established in 1988 by an Act of the Parliament

Preamble of the National Housing Bank Act, 1987

An Act to establish a bank to be known as the National Housing Bank

to operate as a principal agency to promote housing finance institutions
both at local and regional levels and to provide financial and other support
to such institutions and for matters connected therewith or incidental
thereto.

Equity fully held by the Reserve Bank of India

An apex institution for housing finance system in India
Functions

Promotion & Development of Housing

Finance System

Co-ordination with the Government

Participation in the equity of HFCs
Training Programmes /Workshops
Promotion of RMBS Issues( Residentisl Mortgage Backed Security)
Research in Housing & Habitat related areas

Regulation & Supervision

Refinance to Primary Lending
Institutions
Project Finance to Public Agencies /
Self Help Groups / Micro Finance
Institutions
Slide 17

Financing Agencies

Large number of institutions in the market supportive policy

framework
Besides the HFCs, Commercial Banks have emerged as major
players Public Sector Banks, Private Sector Banks as well as
Foreign Banks
Commercial Banks currently accounting for 50% of the market,
which is set to further increase
Housing sector has registered an annual growth rate of nearly
32% over the last decade
Steady growth in number of HFCs 45 registered HFCs with NHB
and 10 HFCs with assets size more than INR 500 crore
Dominated by few major players viz. HDFC, LIC Housing Finance
Ltd., CanFin Homes Ltd., Dewan Housing Finance Corporation Ltd.,
and HUDCO(Housing and Urban development corporation)
Top 5 HFCs account for nearly 80% of all deposits held by HFCs
and 75% of all lendings done by HFCs
State level cooperative sector institution Funding from insurance
company LIC
Slide 18

 Financing Agencies
With the entry of commercial banks in housing finance
sector, competition has intensified
Deposit growth among the HFCs as well as their
borrowings from Commercial Banks indicate high level
of confidence
Deposits have grown from Rs. 860 crore in 1992-93 to
Rs. 13,500 crore in 2003-04
Banks lending to HFCs has grown from
Rs. 2,870 crore in 2000-01 to Rs. 9,850 crore in 2003-04
Slide 19

National Housing & Habitat

Policy
The Policy has encouraged all stake-holders in the housing
sector a strong advocacy document
Has sought to build a broad consensus on the approach and
strategy
Prescribes enabling role for the Governments and Public
Agencies
Places reliance on private sector enterprise and potentials
Envisions strong, efficient and sustainable public-privatepartnership (PPP) in all segments of the housing sector
The Policy has also prescribed a strong collaboration
between the formal/informal sector
Recognizes the potential of MBS(Mortgage Backed Security)
and Secondary Mortgage Markets as an important source of
funds
Slide 20

Need for Mortgage Backed

Securities (MBS)
Capital deficient housing sector: Huge volume of funds
required
Growing disintermediation
Capital market : Permanent source of funds for housing
in a market oriented environment
Need for integration of housing market with capital
market
Need for long term debt market
Housing finance : a long term financing activity
Better asset liability management

Improved balance sheet management by HFIs /Banks

MBS : a vehicle for carrying forward reforms
Slide 21

MBS :Mortgage based

Securities
Benefits to Banks / FIs

Risk Diversification : Precludes concentration

of financial risks within the housing finance
circuit
Risk Transfer : Transfer of 100%
RWAs(Resident Welfare Association) to third
parties substantially enhancing own liquidity
Capital Relief : More loans with no additional
capital
Ability to leverage resources
Continued liquidity and matched funding
Slide 22
based on maturities of assets and liabilities :

MBS : Institutional
Framework
EMI

Loan

Borrowers
Mortgages

Servicing &
Paying Agent

Originator
Custodian

Monthly
pay-outs

H
F
I

Investors
Banks

Unrated Mortgages

Custody Agreement

FIs

Rating Agency Declaration

of trust

Servicing &
Paying Agency
Agreement

Mutual
Funds

Rated Mortgages

SPV

Trustee
Registrar &
Transfer Agent

Payment of
Consideration
by SPV

Insurance
Cos.

Pass- through Certificates

N
H
B

PTCs

Issue Arrangers
Slide 23

MBS : Issues in Indian

Context
Legal

Accounting

Taxation

Capital Market

Diverse Underwriting Standards and Documentation

Slide 24

Opportunities

Deregulation has led to competition

Demand-led growth of the sector

Competition has led to rate war

Innovative products in the market Demand driven products

Increased awareness among borrowers

Greater transparency in the Industry

Low NPA levels

MBS, Credit Guarantee and Credit Information are some of the

emerging Institutional Innovations.
Slide 25

Thank You
Slide 26