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Slide 1

Housing FinanceandNHB

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Slide 2

 Outline

• Real Estate and Housing• National Housing Bank• Housing Finance System in India• Housing – Shortage• Industry Performance• Housing Finance – Trends• redit !ro"th to Housing # Real Estate• Housing Finance Interest Rate in India• Policy Pro$le• Su%%orti&e Policy Regime• Fiscal Regime for Housing• Su%%orti&e redit # Regulatory Policy of RBI• '(out National Housing Bank• Financing 'gencies

• National Housing and Ha(itat Policy• Need for )ortgage Backed Securities *)BS+• )BS , Bene$ts to Banks - FIs• )BS , Institutional Frame"ork• Issues in Indian onte.t• O%%ortunities

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Slide 3

Real Estate and Housing /

• Real estate is a legal term that encom%asses land along "ith anything%ermanently a0.ed to the land1 such as (uildings-houses2

• Reser&e Bank of India clari$es e.%osure to1

 – Residential Mortgages1 as lendings fully

secured (y mortgages on residentialproperty that is or "ill (e occu%ied (y the(orro"er or that is rented3

 – Commercial Real Estate1 as lendings secured(y mortgages on commercial real estates *o0ce(uildings1 retail s%ace1 multi4%ur%osecommercial %remises1 multi4family residential(uildings1 multi4tenanted commercial %remises1industrial or "arehouse s%ace1 hotels1 landac5uisition1 de&elo%ment and construction1 etc2+

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Slide 4

/ Real Estate and Housing

• In India1 a(out three fourth *6-7+ of real estate de&elo%ment is forresidential use and (alance one fourth *8-7+ is %redominantly forcommercial use2

• Indian Real Estate and Housing Industry

 – is gro"ing annually at around 69 %er cent2

 – has signi$cant (ack"ard and for"ard linkages"ith o&er :;9 ancillary industries2 – is the second largest em%loyment generator1

ne.t to agriculture2 – can create a signi$cant im%act on our

economic gro"th1 o&er the medium term2 – can %lay a %rominent role in the healthy

de&elo%ment of our Nation2• From e&ery Ru%ee s%ent on construction1 an estimated P2

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Slide 5

National Housing Bank*NHB+

• )ulti4Functional1 >e&elo%ment FinanceInstitution in Housing Sector1 "holly o"ned (ythe Reser&e Bank of India – Promotion # >e&elo%ment – Regulation # Su%er&ision – Financing

• NHB?s '%%roach – Integrated: 'imed at con$dence4(uilding among

Savers, Borrowers, Lenders and Investors2 – Multi-pronged: Simultaneous inter&ention on (oth

the demand *$nancial+ and su%%ly *real+ side of thehousing sector – Multi-Agency: @ide co&erage of schemes to

include &arious actors in the $eld of housing creditdeli&ery1 s%read o&er a &ast geogra%hical area inorder to achie&e Ae.tensi&e outreach

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Slide 6

Housing Finance System inIndia

 

ouse!olds, Corporations, "rusts, #rovident $unds

!o&ernmentof India

Reser&e Bankof India

E.ternalSources

National Housing Bank

Scheduled

Banks

LIC : Life Insurance Corporation of India

GIC : General Insurance Corporation of India

UTI : Unit Trust of India

HUDCO : Housing & Urban Developent Corporation

CH!" : Co#operative Housing !inance "ocieties

ouse!olds % Corporations

HousingFinance

os2

CI-!I-DTI

State!o&ernments

HD>O

State '%e. HFS

Primary HFS

Pu(lic 'gencies-SH!s-)FIs

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Slide 7

Housing Shortage( in million )

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Slide 8

Industry Performance

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Slide 9

Housing Finance – Trends /

• Housing

 – is a &asic necessity, for an indi&idual – supports economic activities, for a family -

community – is a catalyst, for creating multi%lier eect in other

sectors – is a la&our intensive activity, for increasing the %er

ca%ita income – is an engine o' growt!, for the national economy

• Housing Finance

 – Strengt!ens t!e $inancial System – Ceads to

In&estment >emand – Increases t!e Assets $ormation – Ceads to Formation

of Household Physical 'ssets – Serves t!e Social Cause – ey to >e&elo%ment of

Human Settlement

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Slide 10

/ Housing Finance 4 Trends

• Ci5uidity in the System

• Co"er InGation Rate

• Softer Interest Rate Regime

• Housing Coan has the Co"est Non Performing 'ssets *NP's+ *as at the end of )arch1 :997+ *RBI+

• Fiscal oncessions *Ta. oncessions1 etc2+

• Cegal Reforms 4Re%eal of Dr(an Cand *eiling# Regulation+'ct 8

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Slide 11

redit !ro"th to Housing# Real Estate

• Outstanding !ross Bank redit *Rs2 crore+  (Source: RBI)

• Outstanding redit (y HFs *Rs2 crore+(Source: NHB)

• >irect Housing Finance >is(ursals *Rs2 crore+(Source: NHB)

Particulars %()*ar)$! %%)*ar)$% %!)*ar)$( !+)*ar)$# !')*ar)$,

-ross Bank Credit .-BC/ #0+0!,( ,0(01%1 0+0,(# 10#0('( +01%0,'1

Housing !0!#( %%0(# (0,'1 ,!0+'! 1,0!1(

Hsg" as 2 of -BC ("## #"! ,"# "'$ 1"1(

Real 3state Loans .R3Ls/ !01 %0,+ ,0'+# ,0,11 !$0!%

R3Ls as 2 -BC $"(' $"#' $"'' $"1( !"$+

Primar4 Lending 5nstitutions .PL5s/ %$$$)$! %$$!)$% %$$%)$( %$$()$# %$$#)$,!" Commercial Banks ,0,,( '0, %(0,,( (%0'! 6 #,01$$

%" Housing 7inance Com8anies !%0(' !#0!# !10'(% %$0'% %$$$

(" Co)o8erative 5nstitutions '' 1' #% %( )))

#" TOTAL !+0$,+ %(0',' #%0$%1 ,#0($! 1!01$$

," Annual -ro9th .in 2/ (,"$1 %,"!' 1"!, %+"%! (%"$#

Particulars %$$$)$! %$$!)$% %$$%)$( %$$()$# %$$#)$,

Housing Loans ((0%,$ #!0'## #+0%(' ,+0!## 6 1%0,$$

Other Loans '0!( +0 !(0(,' !,0'#1 6 !0($$

* - Estimated 

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Slide 12

Housing Finance Interest Ratein India

Source:  HDFC, 2004

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Slide 13

Policy >e&elo%ment

• hanging Pro$le of Housing Sector

• From ASocial Sector to AEconomic Sector

• !o&ernment?s gro"ing thrust on Housing

• Institutional (uilding and $nancial dee%ening of thehousing sector

• !ro"ing de%endence on the market – )aJor shift in%olicies since early 89s

• >eregulated en&ironment – (ut A'ccessi(ility andA'orda(ility continue to (e maJor challenges

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Slide 14

Su%%orti&e Policy Regime

• Housing as a ACead Sector for all4round economic de&elo%ment

• Role of all agencies – Pri&ate1 Pu(lic1 oo%erati&e Sector1 entraland State !o&ernments – duly recogniKed in the %olicy frame"ork

• ontinued $scal %ro&isions-ta. (ene$ts for (orro"ers1 lenders1cor%orates engaged in housing $nance

• Re%ayment of %rinci%al and interest on housing loans are eligi(ledeductions

• Cenders can transfer 79L of their %ro$t to s%ecial reser&e1e.em%ted from ta.

• Su%%orti&e $scal regime has led to sustained increase in demandfor housing loans

• Borro"ers? changing %references – from de(t a&erse to marketsa&&y – Preference for loans

• Co"er interest rates and higher incomes ha&e reinforced demandsfor housing loans

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Slide 15

Fiscal Regime for Housing

• Individuals:

 – Interest on ca%ital (orro"ed for %urchase- construction of a house%ro%erty allo"a(le as deduction u%to Rs2 82;9 lakh su(Ject to certainconditions MSection :7*(+ of IT 'ct

 – >eduction u-s =9 of IT 'ct for re%ayment of Princi%al amount of

housing loans a&aila(le 'rom A( )**+-* on"ards u%to Rs2 8 lakh –  Ta. Re(ate u-s == of IT 'ct a&aila(le upto )**-*+  in res%ect of

re%ayment of housing loan u%to Rs2 :91999-4 discontinued

• Corporates:

 – >eduction a&aila(le not e.ceeding 79L of the %ro$ts deri&ed from the(usiness of %ro&iding CT $nance carried to s%ecial reser&e account

MSection 6*8+*&iii+ of IT 'ct• Investors:

 – D-s ;7E of IT 'ct1 a%ital gain on transfer of a CT ca%ital asset (y anassessee "ill not (e charged if the same is in&ested in (onds issued (yNHB1 N'B'R>1 NH'I1 RE or SI>BI

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Slide 16

Su%%orti&e redit # RegulatoryPolicy of RBI

• Risk "eight on housing loans reduced from 899Lto ;9L *raised to

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Slide 17

'(out National HousingBank

• Esta&lis!ed in ./00 &y an Act o' t!e #arliament• #ream&le o' t!e 1ational ousing Ban2 Act, ./0

3An Act to esta&lis! a &an2 to &e 2nown as t!e 1ational ousing Ban2to operate as a principal agency to promote !ousing 4nance institutions&ot! at local and regional levels and to provide 4nancial and ot!er supportto suc! institutions and 'or matters connected t!erewit! or incidentalt!ereto56

• E7uity 'ully !eld &y t!e Reserve Ban2 o' India• An ape8 institution 'or !ousing 4nance system in India• $unctions

 – #romotion % 9evelopment o' ousing$inance System• Co-ordination wit! t!e overnment• #articipation in t!e e7uity o' $Cs• "raining #rogrammes ;

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Slide 18

Financing 'gencies /

• Carge num(er of institutions in the market – su%%orti&e %olicyframe"ork

• Besides the HFs1 ommercial Banks ha&e emerged as maJor%layers – Pu(lic Sector Banks1 Pri&ate Sector Banks as "ell asForeign Banks

• ommercial Banks currently accounting for ;9L of the market1

"hich is set to further increase• Housing sector has registered an annual gro"th rate of nearly

6:L o&er the last decade• Steady gro"th in num(er of HFs – 7; registered HFs "ith NHB

and 89 HFs "ith assets siKe more than INR ;99 crore• >ominated (y fe" maJor %layers &iK2 H>F1 CI Housing Finance

Ctd21 anFin Homes Ctd21 >e"an Housing Finance or%oration Ctd21and HD>O*Housing and Dr(an de&elo%ment cor%oration+•  To% ; HFs account for nearly =9L of all de%osits held (y HFs

and

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Slide 19

/ Financing 'gencies

• @ith the entry of commercial (anks in housing $nancesector1 com%etition has intensi$ed

• >e%osit gro"th among the HFs as "ell as their

(orro"ings from ommercial Banks indicate high le&elof con$dence

• >e%osits ha&e gro"n from Rs2 =9 crore in 8:46 to

Rs2 861;99 crore in :996497

• Banks? lending to HFs has gro"n fromRs2 :1=

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Slide 20

National Housing # Ha(itatPolicy

•  The Policy has encouraged all stake4holders in the housingsector – a strong ad&ocacy document

• Has sought to (uild a (road consensus on the a%%roach andstrategy

• Prescri(es ena(ling role for the !o&ernments and Pu(lic'gencies

• Places reliance on %ri&ate sector enter%rise and %otentials

• En&isions strong1 e0cient and sustaina(le %u(lic4%ri&ate4%artnershi% *PPP+ in all segments of the housing sector

•  The Policy has also %rescri(ed a strong colla(oration

(et"een the formal-informal sector• RecogniKes the %otential of )BS*)ortgage Backed Security+

and Secondary )ortgage )arkets as an im%ortant source offunds

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Slide 21

Need for )ortgage BackedSecurities *)BS+

• a%ital de$cient housing sector, Huge &olume of fundsre5uired

• !ro"ing disintermediation

• a%ital market , Permanent source of funds for housing

in a market oriented en&ironment• Need for integration of housing market "ith ca%ital

market

• Need for long term de(t market

 – Housing $nance , a long term $nancing acti&ity – Better asset lia(ility management

• Im%ro&ed (alance sheet management (y HFIs -Banks

• )BS , a &ehicle for carrying for"ard reforms

ortgage ase

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Slide 22

 , ortgage aseSecurities

 Bene$ts to Banks - FIs Risk >i&ersi$cation , Precludes concentrationof $nancial risks "ithin the housing $nancecircuit

  Risk Transfer , Transfer of 899LR@'s*Resident @elfare 'ssociation+ to third%arties su(stantially enhancing o"n li5uidity

  a%ital Relief , )ore loans "ith no additionaca%ital

• '(ility to le&erage resources

•ontinued li5uidity and matched funding(ased on maturities of assets and lia(ilities ,

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Slide 23

)BS , InstitutionalFrame"ork

BorrowersBorrowers Originator 

Custodian

 Seri!ing "

#a$ing %gent

S#& 'rusteeegistrar "

'ranser %gent

Ban*s

+nestors+nestors

,+s

  +nsuran!e

Cos-

.utual

,unds

+ssue %rrangers+ssue %rrangers

ating %gen!$ating %gen!$

//

,,

++

  //

BB

EMI

Loan

.ortgages

 Unrated Mortgages

Rated Mortgages

 e!laration

o trust

Custody Agreement

Servicing &

Paying Agency

Agreement

Pass- through Certificates 

PTCs

Monthy

 !ay-outs

Payment of 

Consideration

"y SP#

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Slide 24

)BS , Issues in Indianonte.t

• Cegal

• 'ccounting

•  Ta.ation

• a%ital )arket

• >i&erse Dnder"riting Standards and >ocumentation

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Slide 25

O%%ortunities

• >eregulation has led to com%etition

• >emand4led gro"th of the sector

• om%etition has led to rate "ar

• Inno&ati&e %roducts in the market – >emand dri&en %roducts

• Increased a"areness among (orro"ers

• !reater trans%arency in the Industry

• Co" NP' le&els

• )BS1 redit !uarantee and redit Information are some of theemerging Institutional Inno&ations2

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Slide 26

 

Thank You