Role of National Housing Bank in Housing Finance Business
Posted in Finance Articles, Total Reads: 21513
, Published on 30 October 2010
The National Housing Bank (NHB) is an apex level financial institution catering to the housing sector in the country. It was established on July 9, 1988. It works as a facilitator in promoting housing finance institutions or providing assistance to other institutions of such type. It is headquartered in Delhi and has offices in all the major cities of India. NHB has 9 departments which are NHB Residex Cell, Regulation and Supervision, Refinancing operations, Direct finance operations, Enabling processes, Information Technology, Resource mobilization and management, Development and risk management, Board and CMD secretariat.
The main objectives of NHB are as follows: • To promote a sound, healthy, viable and cost effective housing finance system to cater to all segments of the population and to integrate the housing finance system with the overall financial system. • To promote a network of dedicated housing finance institutions to adequately serve various regions and different income groups. • To augment resources for the sector and channelize them for housing. • To make housing credit more affordable. • To regulate the activities of housing finance companies based on regulatory and supervisory authority derived under the Act. • To encourage augmentation of supply of buildable land and also building materials for housing and to upgrade the housing stock in the country. • To encourage public agencies to emerge as facilitators and suppliers of serviced land, for housing.
The 3 Main function of NHB in the housing finance business in the country are as follows
1. Promotion and Development Function
The institution had been set up when regional and local level housing finance institution were nearly absent and the banking sector was not willing to do housing finance on any significant level. As a result the sector was grossly capital deficient and the housing shortage in the country was growing at an alarming level. There was a need to set up local and regional level financial institutions for supply of housing credit. NHB is of the opinion that intervention through institutional credit can be made more effective by adoption of different approaches to cater to the needs of different income groups. The households above the average income could be well served by an institution which raises resources through the open market and deliver credit with minimum necessary prudential regulations by the regulator. For households below the poverty line, the institutional credit will have to take into account the employment and poverty alleviation programmes having an element of subsidy. It is the middle group which constitutes nearly half of the total number of households in the country that needs to be taken care of.NHB is encouraging the financial institutions to lend to this segment through its refinance programmes. There has been a sustained effort at creating and supporting new set of specialised institutions to serve as dedicated centres for housing credit.
2. Regulatory Function
The second most important function of NHB is the regulatory role assigned to it. This role assumes more importance as the housing finance system in India enters a secondary phase of development in terms of integration with the debt and capital markets. The case for regulation also emanates from the need for credible and stable housing finance system in the country. Without in any manner against the free market approach, NHB has attempted to put in place an effective system of responsive regulation. The housing finance system as such is still developing in the country and thus there needs to be a great amount of stability in terms of resource development, policy development and institution building. NHB has come up with guidelines for recognising HFCs for its financial assistance, guidelines for financial assistance. Besides it has also issued guidelines for prudential norms for income recognition, asset classification etc.
3. Financial Function
The third important role of NHB is to provide financial assistance to the various banks and housing finance institutions. As an apex refinance institution, the principal focus is to generate large scale involvement of primary lending institutions falling in various categories to serve as dedicated outlets for assistance to the housing sector. It supports housing finance sector by extending refinance to different lenders in respect of eligible housing loans extended by them to individual beneficiaries and for project loans extended by them to various implementing agencies. It also supports by lending directly in respect of projects undertaken by public housing agencies for housing construction and development of housing related infrastructure. It helps by guaranteeing the repayment of principal and payment of interest on bonds issued by housing finance companies. Real Estate and Stock market fluctuations also are monitored. Finally it acts as a special purpose vehicle for securitising the housing loan receivable. So the major things under the financial role that NHB plays are refinance operations, project finance, guarantee and securitisation.
It has been estimated that the housing requirements till 2012 in India is around 74 mn units out of which nearly 90% of the total housing units in both the rural and urban areas are for the poor and low income segment households. Though the growth of housing finance is about 30% in the last few years it has not been able to satisfy the requirements of the poor sections of the society. So the NHB not only needs to develop a new financial architecture but also policy and regulatory framework for affordable housing on sustainable lines for the weaker sections of the society. The recent initiatives taken in this direction include interest subsidy scheme for urban poor, top up loan scheme, emphasis on public private partnership focussing on housing for poor, JNNURM for bringing appropriate policy and legal reforms for providing affordable housing to poor. So for all these to materialize synchronization is needed in the working of Government, RBI and NHB. Also public agencies, financial institutions and builders need to be incentivised so that NHB can achieve the goals that it has embarked on.
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