HOUSING NEWS
DECEMBER 2002 Vol. 3. No. 1
Contents1.Editorial
2.NHB Update
3.Articles
(i) Development
of Securitisation Market-Mortgage Backed Securities by V. Raghu
4. News From the Press / EDITORIAL
Judging by the data received so far from various players in the housing finance system, it is almost certain that the high growth rate witnessed during the previous years would be sustained, if not surpassed during 2002-03. During the quarter July to September 2002, the public sector banks had disbursed an amount of Rs.2343 crore as housing loans as against an amount of Rs.1643 crore disbursed during the corresponding period of the previous year. This is exclusive of the performance of State Bank of India for the period under reference. The public sector banks have witnessed a growth rate of 42.5%. As against this, the housing finance companies had disbursed Rs.4172 crore during July to September 2002 as against Rs.3185 crore during the corresponding period of the previous year, registering a growth rate of 31%. The housing finance sector has been growing at a very healthy trend during the last few years. One of the factors for this significant growth has been the fiscal concessions made available to the house owners by the successive Budget announcements by the Government of India. Recognising the fact that the housing sector can contribute effectively to the overall economic growth, the Government of India has been extending fiscal concessions to this sector. The Government has also undertaken a number of sector specific policy interventions as a part of the National Agenda for Governance
It is in this background, the recommendations of the Task Force on Direct Finance assumes importance. The Government of India had appointed a Task Force on Direct Taxes (more popularly known as Kelkar Committee) under the Chairmanship of Dr. Vijay Kelkar. The Task Force has recently submitted its recommendations to the Government. As far as the fiscal concessions relating to housing finance are concerned, the Task Force has recommended to reduce the deduction available under Section 24 of the Income Tax Act in respect of interest payment on loans for self-occupied houses to Rs.50,000 from Rs.1,50,000. It has been further recommended that the reduced amount may be made available till such time, the Government accepts another recommendation of the Task Force to provide interest subsidy of 2% for housing loans up to Rs. 5 lakhs to all borrowers. While the recommendation of the Task Force to provide interest subsidy to low income group is really laudable as otherwise they are deprived of the benefits under the Income tax Act, the concessions available as hitherto should also be continued especially since the Task Force has accepted the view that the housing sector is one of the key sectors of the economy in terms of providing growth and employment. Similarly, it is also hoped that the benefits available under Section 88 of the Income Tax would also be continued.
The housing finance companies are finding it difficult to match the commercial banks specifically in terms of raising cheaper resources. One way for them could be to securitise their loan portfolio conforming to certain standards. This issue contains a write up about securitisation of mortgage loans.
In the increasing urbanisation, the problem of solid waste disposal has assumed significant importance in view of the potential dangers to the environment from the solid wastes. . The ways to deal with this menace is discussed in the article appearing in Hindi.
We do hope you will enjoy reading the news letter.
NHB UPDATE
CAPITAL GAINS BONDS
The Capital Gains bond Issue of the National Housing Bank (NHB) was opened on August 14, 2002 with a coupon rate of 7.15% p.a. . Keeping in tune with the interest rate movement of the economy, the rate was subsequently revised to 6.50% p.a. from 11th November 2002. The Bond Issue under both the coupon rates had received an over whelming support from the investors—individuals and institutions, with their subscription money aggregating about Rs.735.00 crore till the end of December 2002. The Central Board of Direct Taxes have extended the benefit ofSection 193 (ii b) of the Income-tax Act 1961 to the investment in NHB’s Bonds, in terms of which no Income-tax will be deducted at source on the interest.
DEPLOYMENT
Refinance Disbursal
Under its various refinance schemes, the NHB disbursed Rs.227.29 crores of financial assistance to eligible primary lending institutions during October-December, 2002 that facilitated construction of about 11535 dwelling units. The institution category wise details are given below:
(Rs.in crore)
Institution / Refinance Amount / Units ConstructedCooperatives / 42.31 / 4123
Banks / 3.26 / 44
Approved HFCs / 181.72 / 7368
TOTAL / 227.29 / 11535
Direct Finance Disbursal
During the quarter the direct finance disbursal of NHB was as under:
(Rs. in crore)
General Fund / 10.76Special Fund / 0.69
Gujarat Earthquake / 0.27
TOTAL / 11.72
PROMOTION & DEVELOPMENT
Disinvestment in AB HFL
During the quarter NHB disinvested its entire shareholding in Andhrabank Housing Finance Limited (AB HFL) in favour of the parent bank of the HFC, i.e. Andhra Bank.
Faculty Support
Continuing in its endeavor to build a sound human capital base for the housing sector NHB provided expertise in the form of faculty support to several institutions for their training programmes concerning various aspects of housing finance during the quarter. The Human Settlement Management Institute (HSMI), New Delhi was provided faculty support for its programme on “Housing Finance” for senior/middle level executives of banks and HFCs and for the International Training Programme on “Urban Development Management: Perspective and Possibilities”, both in October 2002. PNB Housing Finance, New Delhi was provided faculty support for the training programme for its staffs in November 2002. In December 2002, the Bank extended faculty support to the Bankers’ Institute of Rural Development (BIRD) for its training programme on “Financing Rural Housing” in Lucknow, to HSMI, New Delhi for the programme on “legal Issues concerning Housing and Infrastructure Projects” and to BOB Housing Finance for its programme on “Housing Finance” in Ahmedabad.
REGULATION & SUPERVISION
So far NHB has granted certificate of registration to 37 housing finance companies. Out of these 37 HFCs, 27 have been granted registration with permission to accept public deposits and 10 have been granted registration without permission to accept public deposits. The names of these companies are given below:
HFCs granted Registration with permission to accept public deposits1. Andhra Bank Housing Finance Ltd. Hyderabad
2. Birla Home Finance Ltd. New Delhi
3. BOB Housing Finance Ltd. Jaipur
4. CanFin Homes Ltd. Bangalore
5. Centbank Home Finance Ltd. Bhopal
6. Corpbank Homes Ltd. Bangalore
7. Dewan Housing Finance Corporation Ltd. Mumbai
8. GIC Housing Finance Ltd. Mumbai
9. GLFL Housing Finance Ltd. Ahmedabad
10.Global Housing Finance Corporation Ltd. New Delhi
11. GRUH Finance Ltd. Ahmedabad
12. Housing and Urban Development Corporation Ltd. New Delhi
13. Housing Development Finance Corporation Ltd. Mumbai
14. ICICI Home Finance Company Ltd. Mumbai
15. Ind Bank Housing Ltd. Chennai
16. LIC Housing Finance Ltd. Mumbai
17. Maharishi Housing Development Finance Corporation Ltd. New Delhi
18. National Trust Housing Finance Ltd. Chennai
19. PNB Housing Finance Ltd. New Delhi
20. SBI Home Finance Ltd. Kolkata
21. Sundaram Home Finance Ltd. Chennai
22. TATA Homefinance Ltd. New Delhi
23. Vibank Housing Finance Ltd. Bangalore
24. Vysya Bank Housing Finance Ltd. Bangalore
25. Weizmann Homes Ltd. Mumbai
26. Manipal Housing Finance Syndicate Ltd. Manipal
27. REPCO Home Finance Ltd. Chennai
HFCs granted Registration without permission to accept public deposits
1. Mannil Housing Finance Corporation Ltd. Delhi
2. Saya Housing Finance Corporation Ltd. Ahmedabad
3. SICOM Housing Development Finance Ltd. Mumbai
4. SRG Housing Finance Pvt. Ltd. Udaipur
5. Utkal Housing Finance Ltd. Jagatsinghpur
6. Manoj Housing Finance Company Ltd. Ulhasnagar, Dist. Thane
7. Satya Prakash Housing Finance India Ltd. Jabalpur
8. Vishwakriya Housing Finance Ltd. New Delhi
9. Vaishali Housing Finance Ltd. Jaipur
10. Haware’s Housing Development Finance Corpn. Ltd. Mumbai
The following 37 HFCs have been denied certificate of registration
1. antodaya Housing & Construction Pvt. Ltd. Nagpur
2. Arunodaya Housing Finance & Development Company Ltd. Mumbai
3. Ashray Housing Bank Pvt. Ltd. Raichur
4. Bharat Monetary Services Ltd. Navi Mumbai
5. Bhojpal Housing & Finance Pvt. Ltd. Bhopal
6. Century Homefin Ltd. New Delhi
7. Digvijay Homes Pvt. Ltd. Raichur
8. Dunal Housing Finance Ltd. Nagpur
9. Easy Housing and Finance Ltd. Chennai
10. Furore Housing Finance & Investment (India) Ltd. Howrah
11. Garden City Residences Finance Ltd. Bangalore
12. Gujral (Kota) Housing Finance Ltd. Kota
13. Indra Housing Finance Corporation Ltd. Dandinasivara P.O. Tumkur Dist.
14. Kaushal Housing Finance & Investment Ltd. Bhopal
15. Lucky View Home Finance Ltd. Chennai
16. Madras Housing Finance Ltd. Chennai
17. Manraj Housing Finance Ltd. Jalgaon
18. Mudit Housing Finance Pvt. Ltd. Udaipur
19. Phenomenal Housing Finance India Ltd. Mumbai
20. Prajwal Housing & General Finance & Investment (I) Ltd. Nagpur
21. Thanthradi Leasing & Housing (P) Ltd. Bangalore
22. Transcorp Housing Finance Ltd. Jaipur
23. Udayatara Housing Finance Ltd. Vijayawada
24. Charbhuja Finvest Pvt. Ltd. Chitorgarh
25. MR Finlease Pvt. Ltd. Chandigarh.
26. Vivek Finlease Ltd. Jaipur
27. Jai Vishal Capital Services (P) New Delhi
28. Jaytee Finlease Pvt. Ltd. Jabalpur
29. Manipal Home Finance Ltd. Manipal
30. Manipur Housing Finance Company Pvt. Ltd. Bishnupur
31. PSB Housing Finance Ltd. New Delhi
32. Shantidoot Housing Finance Company Ltd. Post Karad, Dist. Satara
33. Shivpriya Trading and Finance Company Pvt. Ltd. New Delhi
34. SREI Home Finance Ltd. Kolkata
35. Varshraj Realtors Pvt. Ltd. Mumbai
36. Welltime Housing and Finance Ltd. New Delhi
37. Travancore Pravassy Housing Finance Ltd. Cochin.
So far 38 HFCs have been issued prohibitory order by the NHB for violating various regulatory requirements. The names of these HFCs are given below:
1. Anubhav Home Finance Ltd. Hyderabad
2. Ashadeep Housing Credit (P) Ltd. Kolkata
3. Ekta Housing Finance and Investments (I) Ltd. Nagpur
4. Golden Fin Stock and Housing Dev. Ltd. Vadodara
5. Gulmohar Housing Fin & Leasing Co. Ltd. Lucknow
6. Guru Kripa Bright Housing Co. Ltd. Silchar
7. Henna Avas Vitta Ltd. Bareilly
8. India Housing Finance & Development Ltd. Chennai
9. International Housing Dev. Corpn. Ltd. Panchkula
10. J.V.G. Housing Finance Ltd. New Delhi
11. Liberty Housing Finance Ltd. Bareilly
12. Lions Housing Finance Ltd. Lucknow
13. Madras Housing Finance Ltd. Chennai
14. Merryland Hsg. Dev Finance Co. Ltd. Kolkata
15. N.A.V. Housing Dev. & Finance Ltd. New Delhi
16. Navodaya Housing & Industrial Invest. (I) Ltd. Chennai
17. Phenomenal Housing Finance (I) Ltd. Mumbai
18. Poojan Housing Finance Ltd. Deoria
19. Precursor Hsg. Finance Co. Ltd. Hoogly
20. Rapti Housing Finance Ltd. Gorakhpur
21. Samrat Housing Finance Co. Ltd. Jodhpur
22. Sarvodaya Housing Finance Ltd. Delhi
23. Shri Gujrat Housing Finance Ltd. New Delhi
24. Sarovar Housing Leasing & Finance Co. Ltd. Shahjahanpur
25. Seth Dhanraj Housing Finance Ltd. Noida, U.P.
26. Tapoban Housing Finance Ltd. New Delhi
27. The National Dwellings of India Ltd. Pondicherry
28. Times Housing Finance Ltd. Jaipur
29. Trikone Housing Finance Co. Ltd. Lucknow
30. Unidev Housing Finance Ltd. Howrah
31. United Housing Dev. Finance Co. Ltd. Malda, W.B.
32. Wizard Housing Finance Ltd. Lucknow
33. Manipal Home Finance Ltd. Manipal
34. PSB Housing Finance Ltd. New Delhi
35. Kerala Housing Finance Ltd. Thiruvananthapuram
36. Gruha Kalyan Housing Finance (India) Ltd. Nagpur
37. Shantivan Swapnil Housing Finance (I) Ltd. Nagpur
38. Shantidoot Housing Finance Company Ltd. Karad, Dist. Satara
Guidelines for safe investments in HFCs
- An HFC whose application for certificate of registration has been rejected or whose certificate of registration has been cancelled by the National Housing Bank (NHB) or who is having a certificate of registration – not valid for acceptance of public deposits is not entitled to accept fresh public deposits or renew existing public deposits.
- Registration of an HFC with NHB merely authorizes it to conduct the business of a housing finance institution. It is not a guarantee for repayment of deposits by the HFC. HFCs cannot use the name of NHB in any manner.
- The HFCs cannot –
- offer more than 12.5% per annum interest on public deposits
- offer any gifts/incentives
- accept public deposits for less than 12 months or for more than 84 months
- The HFCs must issue proper receipt for deposits.
- The HFC should be complying with all the prudential norms stipulated by NHB and should have a minimum credit rating at ‘A’.
- The depositor should read carefully the financial and other statements made by the company in the application form soliciting public deposits. The depositor should verify from the application form that the HFC is eligible to accept public deposits.
GOLDEN JUBILEE RURAL HOUSING FINANCE SCHEME
The performance of various primary-implementing agencies under the Golden Jubilee Rural Housing Finance Scheme (GJRHFS) during the half year April-September 2002 is given below:
(no. of dwelling units)
Target / April-September, 20022002-03 / Target / Achievement / % Achieved
HFCs / 102400 / 45054 / 37526 / 83.29
Banks / 106300 / 43582 / 31754 / 72.86
Others / 16300 / 7172 / 1068 / 14.89
TOTAL / 225000 / 95808 / 70348 / 73.43
A meeting was convened by NHB to review the half-yearly performance of public sector banks on December 9, 2002 at New Delhi which was followed by another meeting with the CEOs of approved HFCs. In the meeting with the bankers, Shri V. Sridar, Chairman & managing Director of NHB commended the bankers for their keen interest in housing finance. At the same time, he advised them to be more vigilant as the banks were still at the initial stage of the learning curve in housing finance. He desired that sound appraisal norms be evolved by the Banks.
Representatives of most of the Banks assured that the targets allocated to them under GJRHFS would be achieved due to the increased thrust by banks towards the lending activity during the third and fourth quarter.
During the course of the discussion some bankers raised certain issues of concern such as, i) Non availability of clear title deeds ( e.g. in Lal Dora areas); ii) High stamp duty and registration charges and iii) Mortgage of agricultural land not permitted for other than agricultural purposes. Addressing these issues, Shri R.V. Verma, Executive Director, NHB said that the issues were already engaging the attention of NHB. He also stated that in few States, some of the above issues had been sorted out and the efforts would be continued in respect of other states.
In the meeting with the CEOs of approved HFCs it was opined by CMD of NHB that the positioning of HFCs in the present day market was an area of concern. He observed that the banks have entered into the housing finance market in a big way in the last couple of years and by the present available trends, it would be quite possible that by the end of year 2002-03 the banks might replace HFCs as major players in the housing finance market. He observed that the banks had been able to corner the major share of this market because of their abilities to raise funds at a comparatively lower rate and with the help of well organised branch network at the grass root level. He was, however, of the opinion that keeping in view the ALM constraints, after 2-3 years it would be possible for the banks to dominate the housing finance market only if a sound securitisation market was in place by that time.
During the course of the meeting, HFC-wise performance and targets under GJRHFS were reviewed. Representatives of the HFCs assured that the targets allocated to them would be achieved.
Certain other issues, such as Timely submission of Returns, Reduction in Rate of Interest on NHB refinance and prepayment policy, Appointment of recovery officers under Foreclosure provisions of the NHB(Amendment) Act, 2000, Debenture Redemption Reserve, Risk Weights on Housing Loans , Ceiling on Borrowing Limits, ALM Guidelines for HFCs, Taking over of Housing Loans and Impact of Kelkar Committee Recommendations were also discussed in depth in the meeting.
Refinance Scheme as applicable toScheduled Banks and Housing Finance Companies, 2003
The provision of providing adequate housing has been a major concern all over the world. Continuos efforts have been made to meet the ever increasing demand of each generation. In developing countries, housing and community development still present the most serious problem and require an urgent action because only through housing can a nation acquire higher productivity and an improved quality of life. Further, the housing sector in any country has also been looked upon as an engine of growth in terms of its forward and backward linkages with the rest of the economy.
The housing sector continued to record spectacular growth which is evident from the fact that during 2001-02 as the housing finance companies ‘approved’ by NHB for refinance assistance disbursed close to Rs. 15,000 crores. Also, in recent years, commercial banks have been playing an important role in providing credit to the housing sector by crossing the Rs. 10,000 crore mark.
It is felt that NHB should play a lead role in the substantial growth being achieved by the Banks and HFCs, without compromising on the health of the housing finance sector. Being the Apex level financial institution for the housing sector in the country, NHB’s endeavour has been to support this process through carefully designed, albeit flexible, schemes announced from time to time. The developments in the financial sector, have brought in their wake, a host of market driven parameters. To be responsive to the changes, NHB has also modified its approach, strategy and programme from time to time.
The competition in the housing finance sector has produced certain features with reference to the takeover of loans and the resultant re-pricing which was not envisaged earlier. Many Banks and HFCs require their problems to be addressed in the form of shorter term loans, a choice of fixed and floating interest rate and finance being available against prospective loans based on their growth projections. In view of this “felt need”, NHB has decided to adopt an integrated product which has an inherent risk perception mechanism and on which rests many other issues like exposure norm, security and interest rate.
It is keeping with the above in mind NHB has now introduced a Liberalised Refinance Scheme (LRS) applicable to Scheduled Banks and Housing Finance Companies, 2003. The objective of the liberalised refinance scheme is to encourage addition of new housing stock and maintenance of the existing housing stock of the country and provide necessary refinance support therefor to the retail lending institutions.
Under the LRS, refinance will be available to Banks and HFCs in respect of their direct lending to individuals for loan size upto Rs.1 crore. Refinance will be available in respect of their prospective as well as loans already been disbursed conforming to refinance norms. Term loans of Scheduled Commercial Banks which have already been disbursed to HFCs will also be covered under refinance from NHB. NHB has reduced its fixed rate interest by about 200 bps across the slabs and introduced the concept of re-fixing of interest rate on completion of every 3 years in respect of its outstanding loans with the flexible option leaving with HFC. NHB has also introduced floating rates of interest besides its fixed rates depending on varying maturities which will help the Banks and HFCs to select the product line as per their requirement.
The rates of interest for 6-Star HFCs and Scheduled Commercial Banks (in respect of direct loans) with immediate effect are given below: