NHB M.F.S. CHAPTER – 8 M. Y. KHAN HOUSING FINANCE 1.
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Transcript of NHB M.F.S. CHAPTER – 8 M. Y. KHAN HOUSING FINANCE 1.
NHB
2
Chapter Objectives:
Housing in India: Some Highlights
National Housing Bank – An Overview, Focus Areas and
Strategies
NHB: Prudential Norms
NHB
Hosing Finance Timeline
Pre 1970 Centralised directed credit
1971 HUDCO: Public Sector, Wholesale Lending
1977 HDFC: 1st private sector retail housing finance institution
1988 National Housing Bank- REGULATORY & SUPERVISORY BODY /Refinancing Agency
Late 80’sEarly 90’s
Public sector banksHousing Finance Companies, Private Sector Co’s also entered
Late1990’s
Commercial banks get active in direct lending for housing finance
2000onwards
Variety of Financial Institutions Entered
4
NHB
Housing in India
• Central Government formulates broad policy framework
• Eleventh Five Year Plan (2007-2012):
– Investment Requirements for housing estimated at INR 5.1 trillion (US$ 108 bn)
• Acute housing shortage estimated at over 24.7 million units
– Rural: 14.1 million units
– Urban: 10.6 million units
5
NHB
Housing Finance in INDIA: Some Highlights
• Second fastest growing economy in the world after China
• Rapid Urbanization and Rising middle class
• Contribution of Housing in GDP is about 6%
• Services sector accounts for 60% of GDP
• Political stability
6
NHB
Importance of Housing:
• Engine of economic growth
• Second largest employment generator after agriculture
• Strong backward and forward linkages with over 250 ancillary industries
• Estimated investment for meeting housing needs up to 2012: US $ 108 Billions.
7
NHB
Housing Finance: Drivers of Growth
• High demand growth is driven by:– Improved Affordability:• Rising disposable income• Lower interest rates• Tax incentives (interest and principal repayments deductible u/s 80 - D)
– Increasing Urbanisation:• Currently only 28% of the Indian population is urban
– Favorable Demographics:• 60% of India’s population is below 30 years of age• Rapid rise in new households• Increasing number of nuclear families 8
NHB
Key Players in Mortgage Market:
Banks Key Players Housing Finance Companies
Reserve Bank of India (RBI) Regulator National Housing Bank(100% subsidiary of RBI)
Access to low cost funds via current / saving accounts
Advantages
Dedicated players,better customer service
Extensive branch network Lower operating costs
High operating costs
Disadvantages
Higher funding costs
Mandated direct lending,High liquidity ratio
Higher capital adequacy ratio
9
NHB
Marketing and Distribution
• Earlier marketing scenario:• Walk-in customers
• Passive marketing, belief that word of mouth from a satisfied customer was the best form of advertising
• Current marketing scenario:• With increased competition, buyers’ became more demanding
• Customers want door-step service
• Use of direct selling agents (third party distribution channels)
• Property fairs and exhibitions
• Cross selling products and services
10
NHB
Regulatory Framework For HFCs• Guidelines for HFCs with regard to minimum capital, asset composition,
composition of Board of Directors and appointment of auditors.
• Public Deposit Acceptance Directions
– Tenor of 1 to 7 years
– Cannot exceed 5 times net owned funds
– Credit rating
– Statutory liquidity ratio
– KYC norms
• • Prudential Norms
– Asset classification
– Provisioning requirements (Provisioning on Non-performing Loans and Standard Non-housing Assets)
– Capital adequacy - Atleast12% CAR11
NHB
12
Why Housing Finance for India?
Meets housing demand (Urbanisation, Demographics)
Prevents Slum proliferation/explosion
An engine of equitable economic growth – Investments, Savings, Wealth
Contributes to poverty reduction (asset building, retirement, empowerment, community strengthening, better quality of life)
Promotes financial stability and economic growth
NHB
13
HOUSING FINANCE MARKET
Households, Corporations, Trusts, Provident Funds
Governmentof India
Reserve Bankof India
ExternalSources
N H B
ScheduledBanks
LIC : Life Insurance Corporation of India GIC : General Insurance Corporation of India CHFS : Co-operative Housing Finance Societies
Households & Corporations
Housing Finance
Companies
LIC/GIC
StateGovernments
Housing & Urban Devpt. Corporation
State Apex CHFS
Primary CHFSPublic, Pvt. Agencies/
SHGs/MFIs
NHB
14
Housing Finance : Exponential Growth
Direct Housing Finance Disbursals (Rs. in crores)
Primary Lending Institutions (PLIs) 2001-02 2002-03 2003-04 2004-05
1. Commercial Banks 8566 23553 32816 45700
2. Housing Finance Companies (HFCs) 14614 17832 20862 26000
3. Co-operative Institutions 678 642 623 --
4. TOTAL 23858 42027 54301 71700
5. Annual Growth (in %) 25 76 29 32
Estimated disbursements during 2005-06 Rs. 85,000 cr. (Source:NHB)
Outstanding Loan and Advances of Banks
Particulars Mar-2004 Mar-2005
Total Loans and Advances (TLA) 764383 1105725
Housing 51981 134653
Housing as % of TLA 10 12
LOW NPAs - 1.40% compared to 2.80% of Banks’ Total Retail Credit (Source:RBI)
Outstanding Credit of HFCs
Particulars 2001-02 2002-03 2003-04 2004-05
Housing Loans 41844 49238 59144 72500
Other Loans 9666 13358 15847 16300
NHB
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HOUSING FINANCE – Exponential Growth
0
2000
4000
6000
8000
10000
12000
14000
16000
2000-01 2001-02 2002-03 2003-04 2004-05
Rs.
in
bil
lio
n
0
2
4
6
8
10
12
14
16
In p
erce
nta
ge
Outstanding Housing Loans (OHL) Gross Credit (GC) OHL % to GC
Data pertained to banks and housing finance companies
182
232
414
537
717
2000-01 2001-02 2002-03 2003-04 2004-05
Housing Loans Disbursals
Rs. in billion
NHB
16
Share of Housing & Consumer Durables in GBC
46925367
6695
7644
9726
0
2000
4000
6000
8000
10000
12000
23-Mar-01 22-Mar-02 21-Mar-03 19-Mar-04 18-Mar-05
Rs.
in
bil
lio
n
0%
2%
4%
6%
8%
10%
12%
% o
f G
BC
Gross Bank Credit (GBC) Housing as % of GBC Consumer Durables as % of GBCSource : RBI
NHB
18
National Housing Bank
• Established in 1988 by an Act of Parliament
• 100% owned by Reserve Bank of India
• Headquarters at Delhi
• OBJECTIVE:
“To operate as a principal agency to promote housing finance institutions both at local and regional levels and to provide financial and other support incidental to such institutions and for matters connected therewith …
… shall act on business principles with due regard to public interest.”
(National Housing Bank Act, 1987)
NHB
19
National Housing Bank – FUNCTIONS
Promotion and Development of HFIs
Regulation and Supervision of HFCs
Financing Refinance for Individual Loans - Primary Lending Institutions
Direct Finance for Projects - Public Agencies / Private & Joint Sector
Corporate/s, Builders/NGOs/SHGs /
MFIs
NHB
20
BUSINESS OBJECTIVES
• “To provide affordable housing to common man”
• Develop Market Related Housing Finance System focusing on Unserved and Underserved segments
• Catalyze Increased Investment through Private Sector Participation
• Seek to reduce housing shortage say by 30% in next 3 years
• Develope 15 lakh houses in 3 Years : To Divert Rs.75,000 crores institutional credit flow into housing sector
NHB
22
Extreme Focus : Social and Financial Inclusive Housing
– Rural Housing
– Urban Renewal
– Market Development
– Capacity Building and Technical Assistance
NHB
Public Private Partnership (PPP) Public Private Partnership (PPP) ModelModel
• Salient Features of Public Private Partnerships Model:
• Private Sector:
– Innovation, Use of Technology
– Professional Management
– Quality Assurance
– Efficiency and Speed
– Maintenance Practices and Sustainability
• Public Sector:
– Policy Setting
– National Planning
– Regulation and Governance
– Looking after Public Interest
– Facilitating Economic Growth and Development
3
NHB
NHB: PRUDENTIAL NORMS
• INCOME RECOGNISION
- On Cash Basis.
• BASIS OF NPA:
- ASSETS – “THE INTEREST HAS REMAINED PASTDUE FOR 6 MONTHS”
- TERM LOAN - do
- DEMAND/CALL LOAN - do
- BILLS - do
- LOAN AND ADVANCES – 6 MONTHS - do
24
NHB
NHB: PRUDENTIAL NORMS – CONT…
• INCOME FROM INVESTMENT:
- IN CASE OF DIVIDEND FROM CO’S AND MF – CASH BASIS.
- IN CASE OF BONDS AND DEBENTURES OF CORPORATES AND GOVT. – ACCURAL BASIS.
• ACCOUNTING STANDARDS:- ACCOUNTING STANDARDS ISSUED BY “ICAI” MUST BE FOLLOWED.
25
NHB
NHB: PRUDENTIAL NORMS – CONT…
• INVESTMENT GUIDELINES:
- HFCs ARE AUTHORISED TO INVEST IN SHORT TERM ASSETS AND LONG TERM ASSETS LIKEWISE…
- EQUITY SHARE
- PREFERENCE SHARE
- DEBENTURES/BONDS
- GOVERNMENT SECURITIES/ T – BILLS
- UNITS OF MUTUAL FUND
- AND OTHER INSTRUMENTS PRESCRIBED BY RBI
26
NHB
NHB: PRUDENTIAL NORMS – CONT…
• ASSET CLASSIFICATION:1. STANDARD ASSETS:
- “THERE IS NO DEFAULT IN TERMS OF INTEREST OR PRINCIPAL REPAYMENT AND DOES NOT CONTAIN MORE THAN NORMAL RISK”
2. SUB-STANDARD ASSETS:
- “IT IS THE ONE WHICH HAS BEEN CLASSIFIED AS NPA FOR A PERIOD NOT EXCEEDING 2 YEARS”
3. DOUBTFUL ASSETS:
- “IT MEANS ANY LOAN/LEASED/HIRE PURCHASE ASSET WHICH HAS BEEN CLASSIFIED AS NPA FOR A PERIOD EXCEEDING 2 YEARS”
27
NHB
NHB: PRUDENTIAL NORMS – CONT…
4. LOSS ASSETS
- “IT IS THE ONE WHERE THE LOSS HAS BEEN INDENTIFIED BY
NBFC OR THE AUDITORS” AND THERE IS A THREAT OF NON-
RECOVRY DUE TO REDUCTION OF THE VALUE OF THE SECURITY
OR DEFAULT ON THE PART OF THE BORROWER”
28
NHB
NHB: PRUDENTIAL NORMS – CONT…
• PROVISIONING REQUIREMENTS:
1. LOSS ASSETS: 100% PROVISIONING
2. DOUBTFUL ASSETS:
3. SUB STANDARD ASSETS: GENERAL PROVISION OF 10% OF TOTAL OUTSTANDING AMOUNT…
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PERIOD FOR WHICH THE ASSET HAS BEEN CONSIDERED DOUBTFUL
PERCENTAGE OF PROVISION
UP TO 1 YEAR 20 %
1 TO 3 YEAR 30%
MORE THAN 3 YEARS 50%
NHB
NHB: PRUDENTIAL NORMS – CONT…
• DISCLOSURE IN BALANCE SHEET:
- “EVERY HFC SHALL SEPARATELY DISCLOSE IN THEIR BALANCE SHEET, THE PROVISIONING IN RESPECT OF NPAs WITHOUT NETTING (WRITING OFF) THEM FROM THE INCOME OR VALUE OF THE ASSETS”
- DEPRICIATION PROVISION FOR INVESTMENTS.
30
NHB
NHB: PRUDENTIAL NORMS – CONT…
• CAPITAL ADEQUACY REQUIRMENTS:
• EVERY HFC SHALL MAINTAIN MINIMUM (TIRE -1 + TIRE – II) CPAITAL OF 12 PERCENT OF THEIR DEPOSIT LEVEL.
• TIRE – I CAPITAL: IT INCLUDES “NET OWNED FUNDS”• TIRE – II CAPITAL:
- TIRE – II CAPITAL MAINLY INCLUDES PREFERENCE SHARE, REVALUATION RESERVES, GENERAL PROVISIONS AND LOSS RESERVES, HYBRID DEBT ETC.
- AT ANY POINT OF TIME, THE TIRE – II CAPITAL SHOULD NOT EXCEED 100% OF TIRE – I CAPITAL.
31
NHB
NHB: PRUDENTIAL NORMS – CONT…
• RESTRICTIONS ON INVESTMENT IN LAND, BUILDING AND UNQUOTED/UNLISTED SHARES
• - MAX. LIMIT 20% OF NOF.
• CONCENTRATION OF CREDIT AND INVESTMENTS:
- MAX. CREDIT TO SINGLE BORROWER – 15% OF “NOF”
- MAX. CREDIT TO GROUP OF BORROWERS – 25% OF “NOF”
• SUBMISSION OF HALF YEARLY REPORTS TO NHB
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