Housing News September 2002

Vol.2 No. 4

Contents
Editorial
NHB Capital Gain Bond
Change In Exposure Norms
Some Regulatory Issues
NHB Training Initiatives
Articles:
Asset-Liability Management - V. Raghu
[MDaonaoiSayaa maoM samaudaya AaQaairt AavaasaIya kaya-k`ma - rMjana kumaar
News from the Press / EDITORIAL
While announcing the Monetary Policy for the year 2002-03, RBI had estimated that the real GDP growth to be in the region of 6.0-6.5%, the rate of inflation slightly lower than 4.0%, aggregate deposit growth of scheduled commercial banks at 14% and non-food credit growth to grow by 15.0 to 15.5%. Based on these assumptions, the RBI in its Annual Report has stated that the Reserve Bank will continue to maintain the current interest rate environment with a bias towards softer interest rate regime in the medium term. The good news is that the Indian economy is reported to have grown by 6% during the first quarter as against a growth rate of 3.5% witnessed during the corresponding period of the last year. It has been further reported that the recovery has not been confined to agriculture and services but witnessed in almost all the sectors of the economy. The construction sector posted a growth of 6.3% in the first quarter of the current fiscal as against a negative growth of 0.2% witnessed during the corresponding period of the last year. The growth in the economy can be gauged also by the growth in credit (non-food) disbursed by the banking system. The non-food credit disbursed by all scheduled commercial banks during the current year so far (April to the first week of September 2002) has increased by as much as Rs.66,317 crores as against a growth of only Rs.6,275 crores during the corresponding period of the last year. Year to year basis, the non-food credit has expanded by Rs.1,24,344 crores as compared with the growth of Rs.46,704 crores during the last year. All these indicate the revival of the economy, which is a good sign when most of the countries in the world talk about recession in their economy.
The first Monday of October every year is celebrated as the World Habitat Day. The United Nations Human Settlements Programme (UN-Habitat) formerly known as the United Nations Centre for Human Settlement (UNCHS) has declared City-to-City Cooperation (C2C) as the theme for this year. Since 1913 when the first international association of local
authorities was founded, cities and local authorities have been fostering international cooperation. Starting from the earliest concept of ‘Town twining’, the scope and acceptability of “city to city cooperation” has widened considerably in recent years with the process of democratization and decentralization dominating the world’s political horizon in the last two decades of the twentieth century. The cities of this intertwined world are joining hands to improve their management capacities in a more cost-effective manner by way of sharing and exchanging experiences. The interdependence among cities also strengthens their commitment to share the limited natural resources. This cooperation is expected to contribute to the future economic and social well being of the cities.
Major areas of activities and thrust differ in many important ways between cities reflecting the tremendous diversity of interests, purposes, institutions, resources and situations. The main areas where city-to-city cooperation can make significant breakthroughs include urban management, functioning of local authorities, geographical scope, social/cultural aspects etc. The external agencies like the non-governmental organisations, community based organisations, bilateral and multi aid agencies can also be of enormous assistance in this city-building process.
The interim report of the World Urban Forum has opined that city to city cooperation can have far reaching impact on social, economic and environmental sustainability leading to sustainable urbanization. This cooperation may also lead to a more cohesive and efficient external support mechanism for local capacity building. This process would enable better understanding and evaluation of cities’ needs, better identification of overlaps, gaps and complementarities, and effective linkage with available support programmes.
The housing sector also occupies a place of prominence in the process of urbanization. The process and rationale of urbanization remains incomplete without satisfactory housing. It is imperative that city-to-city cooperation process will have a significant bearing on housing. It would widen the scope for learning for the players engaged in housing sector, enable efficient utilisation of cost-effective technologies and knowledge of town planning leading to enhanced accessibility and affordability.
Keeping with the tradition and the theme for this year’s World Habitat Day, NHB is organizing an Essay Competition to commemorate the event. The details are published inside.

Housing News takes pleasure in wishing all its readers all the very best in this festive season.

Shri V. Sridar has taken charge as the Chairman and Managing Director of the Bank with effect from November 11, 2002. Prior to this appointment, he was the Executive Director of the UCO Bank based at Kolkata. Shri Sridar carries with himself a rich experience of over 27 years in the banking industry. He started his career with the Union Bank of India.

NHB CAPITAL GAIN BONDS HIT THE MARKET

In conformity with the Budget announcement, NHB entered the market on August 14, 2002 with an on tap issue of Capital Gains Bonds on private placement basis. Investment in these Bonds are eligible for exemption from long term capital gains under section 54 EC of the Income Tax Act, 1961. The instrument is in the form of an unsecured, non-convertible, redeemable, taxable bonds having tenor of 7 years with put and call option available at the end of the 3rd year. The rate of interest payable on the bonds is 7.15% per annum. Interest will be paid annually on 1st April. The deemed date of allotment will be the last day of the month during which the subscription has been realised by the NHB. Minimum application can be made for one Bond of Rs.10,000 and in multiples of one bond thereafter. The Bonds are available both in the physical as well as dematerialised form at the option of the investors.

Investments in the Bonds by scheduled banks are eligible for inclusion in the priority sector advances. It also qualifies for housing finance allocation (upto 3% of incremental deposits). The Bonds qualify for 20 per cent risk weight for the purpose of the Capital Adequacy Ratio.

NHB has appointed a team of ten merchant bankers for marketing of the Scheme and procurement of subscription. Five banks namely, Canara Bank, Corporation Bank, ICICI Bank, Punjab National Bank and State Bank of Hyderabad have been appointed as collecting banks for the Scheme. MCS Limited, New Delhi has been appointed as the Registrar and Manger to the Issue.

The bonds are being issued by NHB in order to extend refinance assistance to eligible institutions, which are involved in granting housing loans to individuals for the acquisition of dwelling as well as direct finance to public housing agencies for construction of housing projects. The scheme is expected to enable NHB to raise low cost resources for the housing sector that in turn will benefit the individuals by making financial assistance for acquisition of dwelling units more affordable. This will help NHB in its efforts to make “Shelter for All” a reality. As at the end of September 2002, the aggregate collection was Rs.427.71 crores.

CHANGE IN EXPOSURE NORMS FOR REFINANCE

In terms of the refinance schemes of the National Housing Bank, the aggregate refinance to a scheduled commercial bank (SCB)/ approved housing finance companies (HFC)/ State Co-operative Bank (SCOB)/ Scheduled Primary Urban Co-operative Bank (SUCB)/ apex cooperative housing federations (ACHFS) / agriculture and rural development bank (ARDB) / regional rural bank (RRB) is restricted by exposure norms relating to number of times of net owned fund (NOF) of the primary lending institution, a fixed percentage of NHB's NOF and a fixed percentage of outstanding housing loans of the primary lending institution as per the criteria laid out under the provisions of the respective refinance schemes.

Based on the feedback received and taking into consideration the various relevant aspects such as financial health, underlying security and risk profile of individual category of institutions, it has been decided to modify the exposure norms as applicable to various categories of primary lending institutions. Accordingly, in terms of the revised norms, refinance outstanding to different categories of PLIs at any point of time will not exceed any of the following:

For SCB
In relation to the NOF of the SCB / 5 times
In relation to NHB's NOF / 40%

In relation to outstanding housing loans of SCB

/ 100%
In addition to the above, 5% of NHB's NOF will be extended to the SCBs for their lending in respect of loans disbursed under Golden Jubilee Rural Housing Finance Scheme. Refinance disbursed under "Refinance Scheme for Housing in the earthquake affected districts of Gujarat as applicable to Scheduled Banks, 2001"will not be taken into account while determining the exposure norms.
For HFC
In relation to the NOF of the HFC / 5 times
In relation to NOF of NHB / (i)40% in case of HFCs sponsored by scheduled banks, by public financial institutions (PFIs) notified under Section 4A of the Companies Act and by Central / State Government.
(ii)20% in case of all other HFCs.
In relation to outstanding housing loans / (i)75% of the housing loan outstanding in case of HFCs sponsored by scheduled banks, by PFIs under Section 4A of the Companies Act and by Central / State Government.
(ii)60% in case of all other HFCs
In addition to the above, 5% of NHB's NOF will be extended to the HFCs for their lending in respect of loans disbursed under Golden Jubilee Rural Housing Finance Scheme. Refinance disbursed under "Refinance Scheme for Housing in the earthquake affected districts of Gujarat as applicable to Housing Finance Companies, 2001"will not be taken into account while determining the exposure norms.
For RRB
In relation to the NOF of RRB / 5 times
In relation to NOF of RRB / 20%
In relation to housing loans outstanding of RRB / 50%
In addition to the above, 5% of NHB's NOF will be extended to the RRBs for their lending in respect of loans disbursed under Golden Jubilee Rural Housing Finance Scheme. Refinances disbursed under "Refinance Scheme for Housing in the earthquake affected districts of Gujarat as applicable to Scheduled Banks, 2001"will not be taken into account while determining the exposure norms.
For SCOB
In relation to NOF of the SCOB / 5 times
In relation to NOF of NHB / 20%
In relation to outstanding housing loans of SCOB / 100%
In addition to the above, 5% of NHB's NOF will be extended to the SCOBs for their lending in respect of loans disbursed under Golden Jubilee Rural Housing Finance Scheme. Refinances disbursed under "Refinance Scheme for Housing in the earthquake affected districts of Gujarat as applicable to Scheduled Banks, 2001"will not be taken into account while determining the exposure norms.
For SUCB
In relation to the NOF of SUCB / 5 times
In relation to NOF of NHB / 20%
In relation to outstanding housing loans of SUCB / 100%
In addition to the above, 5% of NHB's NOF will be extended to the SUCB s for their lending in respect of loans disbursed under Golden Jubilee Rural Housing Finance Scheme. Refinances disbursed under "Refinance Scheme for Housing in the earthquake affected districts of Gujarat as applicable to Scheduled Banks, 2001"will not be taken into account while determining the exposure norms.
For ACHFS
In relation to the NOF of ACHFS / 5 times
In relation to NOF of NHB / 20% of NHB's NOF. However, in case refinance assistance is backed by Govt. guarantee, 40% of NHB's NOF subject to the condition that disbursement will not exceed 20% of NHB’s NOF.
In relation to housing loans outstanding / 50% of the housing loan outstanding
In addition to the above, 5% of NHB's NOF will be extended to the ACHFS for their lending in respect of loans disbursed under Golden Jubilee Rural Housing Finance Scheme.

For ARDB

In relation to the NOF of ARDB / 5 times
In relation to NOF of NHB / 40%
In relation to housing loans outstanding of ARDB / 100%
In addition to the above, 5% of NHB's NOF will be extended to the ARDB for their lending in respect of loans disbursed under Golden Jubilee Rural Housing Finance Scheme.

Frauds by deposit of fake title deeds of property

Certain cases have come to light where certain unscrupulous persons have defrauded banks/HFCs by obtaining multiple finance against the same property or through submission of fake documents. The modus operandi adopted in some of the cases of frauds in banks has been circulated recently by the Reserve Bank of India and is reproduced below:

a) Well dressed/well educated persons with mobile phones, costly cars with impressive business background and high fly living style approached the banks/FIs for housing finance.
a)They had produced all required personal/building papers with the application forms. They had also opened S.B.A/c with the bank and immediately deposited sizeable amounts to meet bank service charges, insurance cost, stamp fee, advocate fee, margin money, etc.
b)In connivance with the builders/scheme organizers or any of its members, they prepared a number of original sets of documents and submitted to various banks. They might be well aware of and acquainted with the housing loan appraisal system and had accordingly, prepared the application and paper work to meet with banks’ requirements.
c)Title clearance report (TCR) was obtained from bank’s approved panel advocate with a detailed legal appraisal report stating that advocate had taken a search in revenue/government records for last 30 years regarding the title of the land/property. They had certified that title of the particular flat was clear, marketable and applicant was a real and bonafied allottee and hence feasibility of the creation of equitable mortgage was possible by depositing various title deeds/papers. The said TCRs were obtained from various panel of advocates of various banks and they were paid for the same and no advocate had pointed out anything adverse.
d)Generally common chartered accountants’ services were utilised who might have provided/fabricated some income tax returns and other methodology.
e)All borrowers had given post-dated cheque for repayment.
f)Whenever pre/post visits were undertaken by banks, the colluding organizers/builders/applicants had shown the same flat to the visiting officials. Almost all flats were found vacant during such visits.
g)In all accounts, registration of lien and creation of equitable mortgage was properly carried out with payment of appropriate stamp duty.

Frauds of such nature might take place on account of laxity on the part of the company officials to follow the laid down procedures for verifying genuineness of the documents submitted by the borrowers independently through their own advocates/solicitors. For effective prevention of frauds, it is desirable to have adequate systems and controls in place in respect of various aspects of the operations. In particular, HFCs need to lay down internal procedures and guidelines for processing of loan applications and proper verification of the documents.

HFCs are advised to take necessary precautions while accepting documents in respect of housing loans. Besides, they may also consider forwarding the names of Chartered Accountants and Advocates, if any, found helping the fraudsters in preparation of fraudulent/fake documents (as happened in the cases described above), to the Institute of Chartered Accountants of India and to the Bar Council respectively, for necessary action.

The Housing Finance Companies (NHB) Directions, 2001: Relaxation for Gujarat Riot Victims

In terms of provisions of the Housing Finance Companies (NHB) Directions, 2001, an asset where terms of the loan agreement regarding interest and/or principal have been re-negotiated or rescheduled is a sub-standard asset until the expiry of one year of satisfactory performance under the re-negotiated or rescheduled terms. In the wake of the recent riots in the state of Gujarat, NHB has decided to give exemption from the Directions in the following manner and subject to the following conditions:

a)Where the repaying capacity of the borrower has been affected due to the aforesaid riots, the housing finance company may reschedule the terms of the loan agreement regarding interest and repayment and such rescheduled loans need not be classified as sub-standard assets.

b)The asset classification of such loans would thereafter be governed by the revised terms and conditions and they would be treated as sub-standard on the basis of the revised period for which interest and/or instalment of principal remains unpaid, as stipulated in the Directions.

c)Any provisioning made prior to such reschedulement shall neither be written back nor adjusted against any provisioning requirements that may arise in future.

The exemption came into force with effect from July 02, 2002 and shall be valid only for the financial year 2002-03.