Housing Finance

Chapter 8 Financial Services M Y Khan

Housing Finance Introduction

Till 1988 provided mostl ! the "ovt# o$ India In 1988 %ational Housing &an' (%H&) set up as ape* institution # + $ull o,ned su!sidiar o$ -&I# .!/ective 0 to operate as a principal agenc to promote housing $inance institutions(HFIs) at !oth local and regional levels# -- also providing $inance $or housing either directl or indirectl # So per$orms a regulator 1 promotional and $inancial role in suppl o$ housing $inance#

Management 2 &usiness

+ll !usiness a$$airs vested ,ith the &oard o$ 3irectors# The have all po,ers to e*ecute all activities on %H&s !ehal$# &usiness 4 5romoting and supporting HFIs 5roviding loans $or housing activities to HFIs1 &an's1 State Cooperatives1 2 other institutions # "uaranteeing $inancial o!ligations o$ HFIs1 and under,riting the issue o$ stoc's6!onds6de!entures o$ HFIs# &u ing o$ loans6advances secured ! mortgage o$ immova!le propert relating to !an's6HFIs#

%H& - &usiness 7

8nderta'ing housing mortgage insurance# 5roviding guidelines to HFIs $or gro,th and providing technical and administrative assistance# Formulating schemes $or purposes o$ mo!ili9ing resources $or e*tending housing credit# 8nderta'ing research and surve s on constructing techni:ues#

%H& - HFC 5rudential %orms

The are guidelines to HFCs ,ith respect to the +cceptance o$ 5u!lic 3eposits1 (pa ment1 Interest -ates on Them1 and .verdue interest etc1)1 5articulars in the +pplication Form1 +dvertisement and Statement in ;ieu o$ +dvertisement1 +ccounting Standards $or income recognition1 e*penses etc1 5rovisioning $or &ad and 3ou!t$ul 3e!ts# +sset Classi$ication1 3irections to +uditors#

"uidelines $or e*tending <:uit support to HFCs

.rgani9ation 2 Main +ctivit 0 The HFC should !e a pu!lic ltd co# - =>? 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<&I guidelines# %H&s e:uit participation 0lo,er o$ -s#1 crore or 1@? o$ paid up capital # For HFCs stoc' listing 1 all a!ove guidelines 5lus rules prescri!ed ! %H&#

"uidelines $or e*tending <:uit support to HFCs7#

Su!mission o$ +pplication 4 Filling o$ $orms and $urnishing o$ in$ormation as re:uired ! %H&# %ame o$ the Compan 2 5romotersA - For %H& e:uit participation the Compan name should not - match ,ith a construction Co# ,ith ,hich promoters o$ HFC are associated# Should not !e su!sidiar o$ construction co# Should not promote a construction co# Its Chairman1 M3 or director should not !e the same $or a construction co#

"uidelines $or e*tending <:uit support to HFCs7#

&oard o$ 3irectors The appointment o$ Chie$ <*ecutive o$ HFC1 in consultation ,ith %H&# In case o$ e:uit participation $rom %H&1 atleast .ne non rotational nominee director on HFCs !oard 1 $rom %H&# Credit -ating4 -Compulsor credit rating ! HFC1 $rom C-ISI;6IC-+6FITCH I%3I+1 C+-<# Minimum rating 0 C+-<B1 C-ISI; C1 IC-+ C re:uired $or e:uit participation $rom %H&# Shareholders +greement HFCs to enter into Shareholders +greement ,ith %H& $or underta'ing ne, !usiness1 amalgamation1 mergers1 ta'eovers1 $loatation o$ su!sidiaries1 appointment o$ nominee directors etc#

"uidelines $or <*tending -e$inance Support to HFCs

Minimum 5aid 8p Capital and ;isting 4 Minimum net o,ned $unds -s# 1@ crore# 5romoters contri!ution in Share Capital as per re:uirement o$ S<&I# Su!mission o$ +pplication 4 as per %H& guidelines#

"uidelines $or <*tending -e$inance Support to HFCs

%ame o$ the Compan and 5romoter4 %ame not similar to an construction co#1 ,ith ,hich the promoters o$ the HFC are associated# HFC should not !e a su!sidiar o$ the Construction co# 3irectors1 M31 etc# should not !e holding same position in an construction co#1 ,ith ,hich the promoters o$ HFC are associated# &oard o$ 3irectors + o$ + should contain provision $or appointment o$ nominee directors ! the %H&# +ppointment o$ C<. o$ the HFC 1 i$ necessar should !e consultation ,ith %H&#

"uidelines $or <*tending -e$inance Support to HFCs##

Compliance ,ith the 5rovisions o$ Housing Finance Companies (%H&) 3irections 1 D@@11 as amended $rom time to time# Su!mission o$ -eturns 4 :uarterl 1 hal$ earl and annual returns as prescri!ed ! %H&# ;oans 4 .!/ective o$ loans 1 to help individuals or home see'ers and groups o$ individuals to have eas access to institutional housing $inance# The motto should !e to render :ualit service to individual households#

"uidelines $or <*tending -e$inance Support to HFCs##

;ending -ates 4 HFCs interest rates on housing loans to !e re$inanced $rom the %H& 1 should !e as prescri!ed ! the %H&# Front <nd Charges4 +ll application6processing6administrative $ee should not e*ceed D? o$ the sanctioned amount# 5repa ment Charges4 5repa ment charges can !e levied1 provided transparent polic adopted 1 dul approved ! the &oard o$ directors#

"uidelines $or <*tending -e$inance Support to HFCs##

+dministrative Cost4 HFCs should aim at 'eeping administrative cost lo,1 not e*ceeding 1#>? o$ the outstanding loans in the long run# 5rudential %orms4 HFC should $ollo, all prudential norms ,ith respect ot income recognition1 accounting standards1 provisioning $or !ad and dou!t$ul de!ts1 capital ade:uac and concentration o$ investments# .thers The re$inance $acilit is at the sole discretion o$ the %H& and cannot !e claimed as a right ! the HFC#

-e$inance schemes $or HFCs

Scope 4 re$inance provided onl $or direct lending to individuals6groups o$ individuals# .verdue loans1 !ought over loans $rom an other HFCs6!an's 1 loans $or purchasing old houses not eligi!le $or re$inance <ligi!ilit Criteria 4 - compliance ,ith %H& -e$inance "uidelines1 .verdue(B mths) housing loans not to e*ceed 1@? o$ total housing demand $or preceding 1D mths# - %5+s not more than >?# Scale o$ -e$inance 4 $or individual housing loans not e*ceeding -s#>@ la'hs# - For upgradation6repairs re$inance restricted to D>? o$ total re$inance o!tained# - -e$inance provided upto 1@@? o$ housing loans sanctioned and dis!ursed ! the HFC#

Housing Finance S stem#

Central and State "overnment %ational Housing &an' H83C. Insurance .rgani9ations6Corporations Commercial &an's Cooperative &an's Speciali9ed Housing Finance Institutions(HFIs)#

Housing Finance S stem#

%H& as ape* since 19881 has $ul$illed the long term need $or having a ,ell set housing Financing Industr in India# +t present BD@ HFCs in India1 out o$ ,hich DC registered ,ith the %H&1 and account $or 98? o$ the total housing loan dis!ursed#

Housing Finance S stem#

Main organi9ations in this s stem

Central and State "overnments Indirectl support the housing !uilding e$$ort1 through various ur!an development schemes1 2 various social housing schemes# Financing through loans and su!sidies to State governments1 and union territories# H83C. set up the Central "ovt# underta'es housing and ur!an development programmes1 development o$ land $or satellite to,ns1 and sets up the !uilding materials industr #

H83C.

5rincipal mandate to $acilitate the housing conditions o$ the lo, income group and economicall ,ea'er sections # Form o$ +ssistance Housing 4 rural housing1 cooperative housing1 ur!an emplo ment through housing and shelter upgradation# In$rastructure4 land ac:uisition1 !asic sanitation1 and environmental improvement o$ slums# Consultanc services 4 &uilding centres $or technolog trans$er1 !uilding materials industries1 and !uilding technolog #

H83C.###

Training 4
provides training in human settlements and technical assistance to all !orro,ing agencies# Financial assistance to govt# !odies li'e state housing !oards1 rural housing !oards1 slum clearance !oards1etc1# 3i$$erential interest rate adopted $or various categories o$ households 1 ,hich provides and incentive to e*ecuting agencies to promoted housing $or less privileged# The loan terms 1@-1> ears# In case o$ <ES sites1 ,here the unit cost is less than -s#=>@@6- H83C. $inances the entire pro/ect cost#

H83C.##

<*tent o$ $inancing o$ the house cost is 9@? $or <ES1 8>? $or ;I"1 =>? $or MI"1 C@? $or HI"# 8r!an In$rastructure +lso $inances the ur!an in$rastructure pro/ects li'e ,ater suppl 1 se,erage1 drainage1 solid ,aste management1 transport terminals1 roads 6!ridges etc#

Housing Finance S stem

Insurance .rgani9ation6Corporations ;IC 2 "IC support housing activit directl and indirectl # The su!scri!e to the !onds o$ the State Housing &oards1 H83C. and grant loans to State govt# $or rural housing programmes# ;IC Home Finance ;td#(1989)1 "IC housing Finance ;td#(199@)# Commercial &an's +s per -&I guidelines1 1#> ? o$ incremental deposits to dis!ursed as housing $inance# .$ this allocation 1 D@? to !e ,a o$ direct housing loans1 B@? $or indirect lending ! ,a o$ term loans to housing $inance institutions 1 HFCs1 and pu!lic housing agencies # &alance >@? 1 is $or su!scription to the H83C. and %H& !onds# Speciali9ed HFIs + ;ead pla er H3FC ltd1 other HFCs ,hich are sponsored ! !an's li'e S&I Home Finance ltd#1 Can$in Homes ;td1 Ind!an'

Housing Finance ;td1 Citihome etc#

Mortgage !ased securitisation

Securitisation is a process1 ,here the loans6$uture reason!ales are converted into tradea!le securities# It involves pac'aging a designated pools o$ loans and receiva!les1 collatarised ! underl ing assets and selling these pac'ages to various investors# 5rocess includes4 Sale o$ speci$ic loans to a trust6Special 5urpose Fehicle(S5F)# In turn the S5F issues securities# (the $orm o$ promissor notes1 participation certi$icates1 de!t instruments)# The securities are rated ! an independent agenc # The seller o$ the loan 1 continues to service them# The e*cess cash $lo,s1 (a$ter deducting Int1 5rinicpal1 Fees) accrue to the seller# Features include1 reliance o$ the investors on the per$ormance o$ the asset1 rather than the credit o$ the originator(seller) or issuer(S5F)#