NATIONAL HOUSING BANK OF INDIA - REINVENTING ITSELF

The National Housing Bank is in the process of reinventing itself to offer new housing finance instruments that will encourage institutional credit to rural housing, the urban poor and middle income group

— the ‘unserved and the underserved’ market segments in the real-estate sector, says Mr S. Sridhar, Chairman and Managing Director, National Housing Bank.

From the primary focus on refinance at the time of NHB’s launch in 1980s, the bank’s role will increasingly be that of an interface between the banks, housing finance institutions, cooperative sector and microfinance institution and the borrowers, to offer new instruments to the weaker segments of the market. The challenge for the financial system now is to ensure flow of institutional credit to the low-income group and the economically weaker sections. NHB would offer viable and bankable options in which it would also participate to reinforce credit support to the poor.

More than refinance NHB, Mr Sridhar says, has to look to being more than a refinance institution for housing loan institutions. At current market rates, it is not a preferred refinance option for the banks. NHB, which borrows from the market, refinances at 8.25-9.75 per cent. It raised Rs 13,200 crore last year against Rs 11,000 crore in the previous year. Its disbursements last year were Rs 9,000 crore.

The total housing loan portfolio of banks and housing finance institutions is about Rs 3 lakh crore of which NHBs outstanding portfolio is about 6.5 per cent, about Rs 23,000 crore.New funding avenues — to launch term deposit NHB’s source of funds till 2006 was through capital gain bonds but following the withdrawal of these instruments by the Government, it is raising funds through market bonds and commercial paper. It soon hopes to launch a term deposit scheme. It is also looking at introducing new products for mortgage guarantee to share bank’s risk in giving housing loans and supporting them through risk mitigation. This will help banks widen their support to the lower income groups and provide higher loan margins. NHB will soon float a credit guarantee company, he says. Mortgage-backed securities also have to be introduced to make available funds at competitive rates. Funds for housing loans cannot just be from banks’ deposits but they need to look at the secondary market, which is possible with mortgage-backed securities.

Bank and housing finance institutions can offer the loans as negotiable instruments to players in the capital market — provident funds, insurance companies and mutual funds. The long tenure of life insurance and housing loans make for a good asset liability matching, Mr Sridhar says.

Market study

To enable a wider reach of the institutional credit, the NHB is studying the market to assess the sections that have been left out of credit support.

It is looking at various options to promote rural housing — through self-help groups, involving NGOs, micro finance institutions and Trusts — and housing for the urban poor.

It has mapped the poor segment, ranging from families with an income of Rs 10,000 a month that can support a loan of about Rs 3 lakh, to middle-income group families that can borrow up to Rs 30 lakh. These are the segments where the demand volumes are huge but supply is low.Urban Housing Government statistics show that there is a shortage of over 24.7 million in housing in the urban areas and by 2012 the gap would increase to about 26.5 million. This is despite the growth in the housing sector and housing finance and the shortage is predominantly in the lower-income group.

Mr Sridhar says the bank is looking at supporting housing loans of up to Rs 30-35 lakh and is in discussions with banks and builders’ associations.

To be fair to the builders, Mr Sridhar says, it has to be acknowledged that land values have increased to levels that make it unviable for projects at this level. Government support is needed to make prices affordable. If a township is located further away from the city, then an efficient public transport system has to be in place. Industrial and commercial centres outside cities need to be developed with adequate housing.

Government can play an important role by making land available to the private sector but ensuring that a portion of the project is earmarked for housing for low-cost and middle-income people. Or it can make available cheap land to the developers but ensure that the entire project is devoted to the middle and low-income group.

Rural Housing In rural housing, where the estimated shortage is a conservative 7 million, the NHB will encourage finance companies to extend their markets to rural housing.

It will take an equity share of up to 25 per cent in such rural housing finance companies to support them. NHB is also developing a housing loan product that will operate through SHGs. It has one programme in Andhra Pradesh and will soon be launching another in Tamil Nadu where NHB will support rural housing through SHGs.

In Rangareddy District in Andhra Pradesh, it hopes to construct over 1,500 houses with community participation. In Tamil Nadu, a similar scheme is to be launched soon in Sivagangai District at a cost of Rs 15 crore, to build 1,100 houses.