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Housing Finance

Chapter 8

Financial ServicesM Y Khan

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Housing Finance -

IntroductionTill 1988 provided mostl ! the "ovt# o$ IndiaIn 1988 %ational Housing &an' (%H&) set upas ape* institution # + $ull o,ned su!sidiar

o$ &I#.!/ective 0 to operate as a principal agencto promote housing $inance institutions(HFIs)at !oth local and regional levels# -- also providing $inance $or housingeither directl or indirectl #So per$orms a regulator promotional and$inancial role in suppl o$ housing $inance#

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Management 2 &usiness +ll !usiness a$$airs vested ,ith the &oard o$3irectors# The have all po,ers to e*ecute allactivities on %H&s !ehal$#

&usiness 45romoting and supporting HFIs5roviding loans $or housing activities to HFIs &an'sState Cooperatives 2 other institutions #"uaranteeing $inancial o!ligations o$ HFIs andunder,riting the issue o$ stoc's6!onds6de!entures o$HFIs#&u ing o$ loans6advances secured ! mortgage o$immova!le propert relating to !an's6HFIs#

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%H& - &usiness 7nderta'ing housing mortgage insurance#

5roviding guidelines to HFIs $or gro,th and

providing technical and administrativeassistance#Formulating schemes $or purposes o$mo!ili ing resources $or e*tending housing

credit#nderta'ing research and surve s on

constructing techni:ues#

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%H& - HFC 5rudential %ormsThe are guidelines to HFCs ,ith respect to the

+cceptance o$ 5u!lic 3eposits (pa ment Interestates on Them

and .verdue interest etc ) 5articulars in the +pplication Form +dvertisement and Statement in;ieu o$ +dvertisement

+ccounting Standards $or income recognitione*penses etc5rovisioning $or &ad and 3ou!t$ul 3e!ts#

+sset Classi$ication 3irections to +uditors#

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"uidelines $or e*tending

? o$ capital emplo ed o$ HFC invested ! ,a o$

long term $inance $or housing#Minimum 5aid up Capital 2 listing 4- HFCs to have minimum paid up capital o$ s#>crore# 5romoters capital as per S

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"uidelines $or e*tending

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"uidelines $or e*tending

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"uidelines $or

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"uidelines $or

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"uidelines $or

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"uidelines $or

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"uidelines $or

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e$inance schemes $or HFCsScope 4 re$inance provided onl $or direct lending toindividuals6groups o$ individuals# .verdue loans !oughtover loans $rom an other HFCs6!an's loans $orpurchasing old houses not eligi!le $or re$inance

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Housing Finance S stem#Central and State "overnment%ational Housing &an'

H 3C.Insurance .rgani ations6CorporationsCommercial &an'sCooperative &an'sSpeciali ed Housing FinanceInstitutions(HFIs)#

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Housing Finance S stem#%H& as ape* since 1988 has $ul$illedthe long term need $or having a ,ell sethousing Financing Industr in India#

+t present BD@ HFCs in India out o$,hich D registered ,ith the %H& and

account $or 98? o$ the total housingloan dis!ursed#

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Housing Finance S stem#Main organi ations in this s stemCentral and State "overnmentsIndirectl support the housing !uilding e$$ort throughvarious ur!an development schemes 2 varioussocial housing schemes# Financing through loans andsu!sidies to State governments and union territories#H 3C. set up the Central "ovt# underta'es housing

and ur!an development programmes developmento$ land $or satellite to,ns and sets up the !uildingmaterials industr #

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H 3C.5rincipal mandate to $acilitate the housing conditionso$ the lo, income group and economicall ,ea'ersections #

Form o$ +ssistanceHousing 4 rural housing cooperative housing ur!anemplo ment through housing and shelterupgradation#

In$rastructure4 land ac:uisition !asic sanitation andenvironmental improvement o$ slums#Consultanc services 4&uilding centres $or technolog trans$er !uilding

materials industries and !uilding technolog #

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H 3C.###Training 4provides training in human settlements and technicalassistance to all !orro,ing agencies#

Financial assistance to govt# !odies li'e state housing !oardsrural housing !oards slum clearance !oards etc #3i$$erential interest rate adopted $or various categories o$households ,hich provides and incentive to e*ecutingagencies to promoted housing $or less privileged# The loanterms 1@-1> ears#In case o$ @@6- H 3C. $inances the entire pro/ect cost#

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H 3C.##

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Housing Finance S stemInsurance .rgani ation6Corporations;IC 2 "IC support housing activit directl and indirectl # Thesu!scri!e to the !onds o$ the State Housing &oards H 3C. andgrant loans to State govt# $or rural housing programmes#;IC Home Finance ;td#(1989) "IC housing Finance ;td#(199@)#Commercial &an's

+s per &I guidelines 1#> ? o$ incremental deposits to dis!ursedas housing $inance# .$ this allocation D@? to !e ,a o$ directhousing loans B@? $or indirect lending ! ,a o$ term loans tohousing $inance institutions HFCs and pu!lic housing agencies #&alance >@? is $or su!scription to the H 3C. and %H& !onds#Speciali ed HFIs

+ ;ead pla er H3FC ltd other HFCs ,hich are sponsored ! !an'sli'e S&I Home Finance ltd# Can$in Homes ;td Ind!an'Housing Finance ;td Citihome etc#

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Mortgage !ased securitisationSecuritisation is a process ,here the loans6$uture reason!ales areconverted into tradea!le securities#It involves pac'aging a designated pools o$ loans and receiva!lescollatarised ! underl ing assets and selling these pac'ages to variousinvestors#5rocess includes 4Sale o$ speci$ic loans to a trust6Special 5urpose ehicle(S5 )#In turn the S5 issues securities# (the $orm o$ promissor notesparticipation certi$icates de!t instruments)# The securities are rated !an independent agenc #The seller o$ the loan continues to service them#The e*cess cash $lo,s (a$ter deducting Int 5rinicpal Fees) accrue tothe seller#Features include reliance o$ the investors on the per$ormance o$ theasset rather than the credit o$ the originator(seller) or issuer(S5 )#