Chapter 2 NATIONAL HOUSING BANK

Transcription

1 Chapter 2 NATIONAL HOUSING BANK 35

2 Introduction Housing is the basic need of every human being. Population of India has been growing at a phenomenal rate after independence but during the last few decades housing sector has lagged much behind. Housing scenario depicts a very dismal condition in our country. Millions and millions of people are without shelter and they are unable to afford it at their own. Own shelter is a pipe dream for many a million amongst them who are less fortunate and are at the lowest rung of the poverty ladder. A significant size of population is rotting in sub human conditions all over the country in slums where manhood is unquestionably brutalized, womanhood is dishonored and childhood is poisoned at a very nascent stage. One finds thousands of slums around Kanpur, Ahmadabad, Mumbai, Kolkata, Ghaziabad, Delhi and other industrial and metro cities of the country. There is no hope of applying the soothing balm on the wounds of crying humanity living in utmost wretchedness and extreme poverty. The condition is hopeless and there is no plausible answer and easy solution in sight before the gubernatorial class at the Centre and States. Ever increasing population and migration of populations to the urban centers in search of livelihood have made the matter worst. In fact, the housing conditions of the labour force and industrial 36

3 workers of our country are extremely worse. In times of summer these are the hottest, in times of winter the coolest and in times of rain submerged and drenched in water. The sacred hands that build the nation are deprived of their basic right to clean & safe drinking water and hygienic living environment and a shelter that can save them from the vagaries of nature. Here not only the productivity of our nation, aspiring to be a th largest economy, is at stake but also the national pride is put to shame when Westerns call India is a country of slums. India who proudly claims to be one of the most happening economies of the world and devoted to all inclusive development programs aspiring to be a world power is put to shame when a large chunk of its population is crying for help. Profile Of The National Housing Bank The Government of India identified that non-availability of long term finance to individual household and the housing institutions on a significant scale as a major lacuna impeding progress of housing sector in our country. Therefore a Sub-Group on Housing Finance was constituted for the Seventh Five Year Plan ( ) to study the aspect and submit its recommendation. This 37

4 Sub-Group recommended the setting up of national level institution. The Committee of Secretaries considered the recommendations of the sub group and set up the High Level Group under the Chairmanship of Dr. C. Rangarajan, the then Deputy Governor, Reserve Bank of India to examine the proposal. The group recommended the setting up of National Housing Bank as an autonomous housing finance institution. In turn, the recommendations of the High Level Group were accepted by the Government of India. The National Housing Policy, 1988 was framed by Government of India. This policy as well proposed the setting up of an apex level presenting the Union Budget for on February 28, 1987 announced the decision to establish the National Housing Bank (NHB) as an apex level institution for housing finance. The National Housing Bank Bill was presented in Parliament for providing legislative framework for the establishment of National Housing Bank. It was passed by Parliament in the winter session of 1987 and 1987, became an Act of Parliament. Thus, in pursuance of the above, National Housing Bank was set up on July 9, 1988 under the National Housing Bank Act, 1987.The Bank was set up as a wholly owned subsidiary of the Reserve Bank of India. It began its operations with a total 38

5 capital of Rs. 170 crore (Rs. 100 crore as share capital, Rs.50 crore as longterm loan from the RBI, and Rs.20 crore through the sale of bonds). In September 1989, its share capital was raised to Rs.150 crore. During , it issued its second series of bonds to which the total subscription amounted to Rs.60 crores. These bonds were guaranteed by the Central Government. The RBI had sanctioned in , a long term loan of Rs.25 crore to it. Further, it can borrow in the U.S. capital market $50 million under the USAID Government Guarantee program. In , the paid up and authorized capital of NHB was raised to Rs.300 crore with an additional capital contribution of Rs.50 crore by the RBI. Thus, the resources base of the NHB has been made quite strong. Objectives National Housing Bank has been established for the obvious reason of dismal performance of the housing sector and poor institutional housing finance system in our country as at the end of 6 th Plan period and for the avowed objective of facilitating fast development of Housing Finance Institutions and an accelerated development of Housing Sector. 39

6 The NHB has been established 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. NHB has also been assigned the responsibility of promoting a network of dedicated housing fiancé institutions to adequately serve various regions and different income groups. It is also responsible to augment resources for the sector and channelize them for housing. The NHB is expected to make housing credit more affordable and accessible to common man. The NHB has been established with the task of regulating the activities of housing finance companies based on regulatory and supervisory authority derived under the NHB Act, Yet another objective of the bank is to encourage augmentation of supply of buildable land and also building materials for housing and to upgrade the housing stock in the country. The bank has been assigned the responsibility to encourage public agencies to emerge as facilitators and suppliers of serviced land for housing. 40

7 Functions Promoting, establishing, supporting/aiding in the promotion/ establishment / support of housing financing institutions (HFIs). Making of loans and advances or rendering any other form of financial assistance, whatsoever, for housing activities to HFIs, banks, state cooperative, agricultural and rural development banks or any other institution/class of institutions notified by the Government. It can subscribe or purchase stocks, shares, bonds, debentures and securities of every other description floated by housing finance companies with a view to enhance the financial resources of these institutions. NHB can also extend guarantee to the financial obligations of Housing Finance Institutions (HFIs) and underwrite the issue of stocks/shares/bonds/debentures/other securities of HFIs. This activity is a part of its promotional effort so that the housing finance institutions do not suffer for want of funds. It can draw, accept, discount/ rediscount, buy/sell and deal in bills of exchange, promissory notes, bonds, debentures, hundies, coupons or other instruments of housing finance companies or instruments related to housing finance. The 41

8 aim behind these activities is to develop a sound capital market for the financial instruments floated by the HFCs. It can also deal in buying or selling, or otherwise dealing in loans & advances secured by mortgage/charge of immoveable property relating to banks or HFIs. It can also deal in creating trust(s) and transferring loans or advances together with or without securities there from to HFIs for a consideration. It can undertake setting up of mutual funds of undertaking housing finance activities. It can also participate in housing mortgage insurance. NHB is responsible for undertaking research and surveys on construction techniques and other studies relating to or connected with shelter/housing and human settlement. Organizing training program/seminars/symposia on matters relating to housing is another function of NHB. NHB is also responsible for formulating schemes for purpose of mobilization of resources and extension of credit for housing sector in India. The Bank is also responsible for formulating schemes for the economically weaker sections of society, which may be subsidized by the Government or any other source. 42

9 The Bank has a mandate to provide guidelines to HFIs to ensure their growth on sound lines. Since it is an apex organization in India in the field of housing finance, it is also responsible to act as agent of the Central/State Government/the RBI or of any ' authority as may be authorized by the RBI. Further it can do any other kind of business which the Government may, on the recommendations of the RBI, authorize. It represents India at international bodies and plate forums on the matters of housing finance and housing sector. The NHB has been authorized to borrow and accept deposits to augment its resources so that it can lend to HFCs on a large scale. It borrows from the capital market and accepts deposits from the public both for short period as well as long period. Resource Mobilization National Housing Bank mobilizes both short term and long term resources. Short term resources are mobilized through issuance of Commercial Papers (CPs) and Short Term Loans from banks. Long Term borrowings includes issuance of Zero-coupon Bonds (ZCB), Coupon Bonds, Term Loans from banks, Deposits from banks under 43

10 Rural Housing Fund (RHF), Deposits from Housing Finance Companies (HFCs) and Deposits from public under Sunidhi and Suvriddhi term deposit schemes. The gross borrowing during the year was Rs. 35,503 crore and Rs crore in The by at least two of the rating agencies approved by SEBI viz. CARE ratings, CRISIL, Fitch ratings and Brickwork ratings and are listed on Bombay Stock Exchange / National Stock Exchange. Commercial Papers issued by degree of certainty regarding timely payment of financial obligation on the instruments. The total borrowing outstanding as on 30 th June 2011 is Rs. 21,776 crore. NHB has been authorised by Ministry of Finance to issue capital gains bonds. These are issued for three years and these are the main source of resource mobilisation. NHB mobilises the funds at a very competitive rates through the capital gain bonds. At present the NHB offers six per cent rate of interest on these bonds. Rural Housing Fund (RHF) The Central Government has created a Rural Housing Fund to enhance NHB's refinance operations in the rural housing sector by 44

11 tapping the resources Scheduled Commercial Banks to the extent of shortfall in their priority sector lending. The allocation for the year was Rs.2000 crore. In the year and a further sum of Rs crore each was allocated to the Bank from the Fund. Term Deposit Schemes - is open for individuals/ HUFs/ Partnerships/ Societies & Trusts / Association of Persons. Minimum tenor is one year and the term deposit scheme open only for individuals and HUFs and the tenor is five years. 0C of Income Tax Act, 1961.Amount outstanding as on under both the schemes is 223 crore out of which 48 crore was mobilised during the year. Refinance Facility From Reserve Bank of India Reserve bank of India is the promoter of National Housing Bank. It extends special refinance facility to NHB when the later requires the fund for short term liquidity. A facility of Rs crore was given to NHB which was to be utilized by March NHB 45

12 fully utilized this facility and has also repaid the amount to the RBI. Activities Of National Housing Bank In consonance with the National Housing Bank Act, 1987 a number of roles have been cast on National Housing Bank. Broadly the role of the Bank can be classified into the following three categories: - 1. Promotion of Housing Finance Companies 2. Regulation of Housing Finance Companies 3. Providing Finance for Housing Promotion & Development Of Housing Finance Companies The explicit and primary aim of the NHB is to promote housing finance institutions at local and regional levels in the private and joint sectors by providing financial and other support to such institutions. It extends financial support to State Level Development Banks (SLDBs) in respect of their housing loans through subscription of Special Rural Housing Debentures floated by them. One hundred per cent refinance is given by it in respect of direct loans up to Rs. 1 lac. Its objective is to limit the floor space of dwellings to a reasonable 46

13 size. Its refinance is available for 15 to 20 years. There were 22 HFCs which were approved by the NHB for the purpose of receiving refinance. The NHB has taken steps to augment real resources also for housing by extending term loans at market rates of interest for land development projects to be completed within a specified time limit, viz., two years or so. It also supports industries that augment supplies of building materials so as to lower the construction cost. The National Housing Bank Act, 1987 has laid down the responsibility on NHB of promoting, establishing and supporting housing finance institutions in the country. For that, it provide loans and advances or renders any other form of financial assistance for housing activities to HFCs, Banks, State Co-operatives, Agriculture and Rural Development Bank or any other institutions engaged in housing activities. It also subscribes to stocks, shares, bonds, debentures and other securities issued by HFIs. For the sound financial health of the Primary lending institutions, the NHB also provides financial help indirectly like: guaranteeing the financial obligation of HFIs and underwriting the issue of stocks, shares, bonds, debentures and other security and by drawing, accepting, discounting, re-discounting and buying & selling of bill of exchange, 47

14 promissory notes and bonds & debentures. Further to widen, the housing finance market it can undertake or participate in the housing mortgage insurance and can setup mutual funds for undertaking housing finance activities. NHB is a national organisation and it is responsible for organising training programmes, seminars and conferences on matters relating to housing and undertaking research and surveys on construction techniques and other studies related to housing and human settlement. It guides and advices HFCs to ensure there growth on sound line. It provides them technical and administrative assistance. To provide loans directly to individuals for enabling them to own houses is, of course, one of its main activities. For this purpose, it has started a flexible, convenient, special loan-linked saving plan known as Home Loan Account Scheme (HLAS). The basic idea behind this scheme is that prospective house owners should save in advance of the decision to acquire a house. All-India scheduled commercial banks, scheduled State Co-operative banks, and scheduled urban co-operative banks are participating in the implementation of the scheme. The ceiling of Rs.3 lacs on the housing loan under the scheme imposed earlier has now been removed, but loans above Rs.2 lacs will be limited to 1.5 times the accumulated 48

15 savings. Regulation Of Housing Finance Companies Companies, desirous of commencing the business of housing finance in India, are required to obtain a certificate of registration from the National Housing Bank. The certificate is granted to applicant company if the Bank is satisfied that all the conditions are fulfilled for grant of such certificate as prescribed under the Nation Housing Bank Act, Further, the continuance of the registration depends on the continued compliance of the condition by the HFCs subject to which certificate is granted. The Housing Finance Companies are regulated and supervised by the National Housing Bank under the provisions of the National Housing Bank Act, 1987 and the directions and guidelines issued there-under from time to time. The measures of regulation include stipulation of prudential norms, rules regarding acceptance of public deposits, transparent and standardized accounting and disclosure policies, fair practice code, asset liability management and other risk management practices etc. Due to complexities and uncertainties, the housing finance market may see troublesome time. NHB objective is to avoid incidence of fraud, misappropriation of funds and any 49

16 untoward incidence in housing finance market so that it grows smoothly and meets the expectation of the nation. These measures have helped to ensure the development of the sector on healthy and sustainable lines. At present there are 52 companies working in the field of HFC which have got the Certificate of Registration from NHB. Out of these 20 companies are authorized to accept deposits from the public and other 32 companies are such which are not authorized to accept deposits from the public. These 52 companies working in the housing finance market belong to private sector, public sector as well as cooperative sector. Further, some of the companies have been promoted by insurance companies. Besides these Housing Finance Companies, the Banking sector also comprises the housing finance market because they also provide loan for housing. To regulate and supervise the housing finance market, the NHB has framed directions and guidelines which are to be followed by the housing finance companies. These Housing Finance Companies (NHB) Directions, lay down certain conditions, obligation and rules which must be followed by the housing finance companies. The Housing Finance Companies (NHB) Directions, have been amended from time to time and the latest amendment were carried out in June, 50

17 2010. Hence on the basis of the directions for Housing Finance Companies (NHB) June, 2010 the following are conditions and obligation on housing finance companies. The Investment Grade Rating HFCs which have been authorised to accept deposits from public can do so provided these have obtained minimum investment grade rating for its fixed deposits from any one of the approved rating agencies. The approved rating agencies are Credit Rating Information Services of India Ltd. (CRISIL), ICRA Ltd, Credit Analysis and Research Ltd (CARA) and FITCH Rating India Pvt. Ltd. The minimum investment grade rating is required at least one a year and a copy of that is to be sent to NHB. Besides that, the HFC is also required to follow all the prudential norms as laid down in the Housing Finance Companies (NHB) Directions, Maximum Limit Of Accepting Deposits The NHB has also laid down the limits on the size of accepting deposits. The amount of deposits along with other loans and assistance from NHB cannot be more than sixteen times of Net Owned Fund (NOF). If a HFC has accepted deposit more than this 51

18 limit before the commencement of these Directions, than either it should not accept fresh deposit or reduce excess deposit at the time of maturity. Period Of Deposit Housing Finance Companies (NHB) Directions, 2010 also lays down conditions regarding period of deposit. A HFC cannot accept any deposit which is payable on demand. Further, the minimum period of deposit should be twelve month and maximum period could be eighty four months. Repayment Of Deposit Further, deposit once accepted, cannot be repaid within first three months of its acceptance. Hence minimum lock in period is three months. No interest is payable if a deposit is repaid after three months but before six months. If any depositor withdraws deposit after six months but before the maturity period than interest is payable but it should be two per cent lower than the interest rate applicable to a public deposit for the period for which the deposit has run. Further, the Directions lay down that it is obligatory on the part of Housing Finance Company to intimate the details of maturity at 52

19 least two months before the date of maturity. As per the norms laid down in the Direction 2010, the depositor can get loan up to seventy five per cent of the deposit after the expiry of three months from the date of public deposit at a rate of interest two per cent more above the interest rate applicable on his / her deposit. Safe Custody Of Approved Securities Every HFC is required to entrust to one of its Scheduled Commercial Bank, the unencumbered approved securities in pursuance of Section 28 of the National Housing Bank Act, These securities can also be entrusted to Stock Holding Corporation of India Ltd with permission from NHB. These securities can be withdrawn by the HFC in proportion to the reduction of its deposits if it is duly certified by its auditors. If the HFC intends to substitute such securities, it may do so by entrusting substitute securities of equal value to the designated bank before such withdrawal. Problem HFCs And Normally Run HFCs. Housing finance companies are classified into two categories 53

20 viz. a problem housing finance company and a normally run housing finance company. A housing finance company, which is normally run housing finance company, can permit premature repayment of a public deposit after the lock-in period at its sole discretion only and premature closure cannot be claimed as a matter of right by the depositors. The problem housing finance companies have been prohibited from making premature repayment of any public deposit or granting any loan against public deposit except in the case of death of the depositor or in the case of tiny deposit up to Rs.10,000/- in entirety or to enable the depositor to meet expenses of an emergent nature up to an amount not exceeding Rs.10,000/-. A problem housing finance company is one which has refused or failed to meet within five working days any lawful 1) demand for repayment of the matured public deposits; or 2) intimates the Company Law Board under section 58AA of the Companies Act, 1956, about its default to a small depositor in repayment of any public deposit or part thereof or any interest thereupon; or 3) approaches the Bank for withdrawal of the liquid asset securities to meet its deposit obligations; or 54

21 4) approaches the National Housing Bank for any relief or relaxation or exemption from the provisions of Housing Finance Companies Directions NHB for avoiding default in meeting public deposit or other obligations; or has been identified by the National Housing Bank to be a problem housing finance company either suo moto or based on the complaints from the depositors about non-repayment of public deposits or on complaints from the com lenders about non-payment of dues. Advertisement And Statement In Lieu Of Advertisement Every HFC soliciting public deposit shall specify in every advertisement the actual rate of interest, maturity period of deposits, interest payable on a specified deposit and the rate of interest which will be payable to depositor in case the depositor withdraws the deposit prematurely. A copy of such statement in lieu of advertisement should be submitted NHB in prescribed manner. Creation Of Floating Charge In Favour Of The Depositors All Housing Finance Companies accepting/holding public deposits shall create floating charge on the assets invested by them in 55

22 favour of their depositors. All these above provisions have been inserted in The Housing Finance Companies (NHB) Directions, 2010 to safeguard the interest of depositors who park their fund with HFCs. If at a certain date, due to some reasons any housing finance company, which is eligible to accept deposit, is denied to accept deposit by NHB, then NHB in order to bring this fact into the knowledge of the public will insert advertisement in the leading newspapers so that people come to know of the status of the company and do not park their funds with it. Employee Security Deposit A housing finance company receiving any amount, in the ordinary course of its business, as security deposit from any of its employees for due performance of his duties shall keep such amount in an account with a scheduled commercial bank or in a post office in the joint names of the employee. The HFC shall not withdraw the amount without the consent of the employee in writing and the amount shall be repayable to the employee along with interest payable on such deposit account unless such amount or any part thereof is liable to be appropriated by the housing finance company for the failure on the part of the employee for due performance of his duties. 56

23 Prudential Norms Certain norms have been laid down in Housing Finance hich are based on generally accepted principle of accounting in order to ensuring uniformity, clarity and transparency in the books of accounts so that all the stakeholders of the company like, depositors, borrowers, NHB, RBI,ROC etc. get clear and concise information on timely basis. These norms are as below: Income Recognition 1) 2) 3) 57

24 4) 1) 2) 3) 58

25 1) i. ii. iii. 2) 3) 59

26 4) 5) 6) 7) Investments in unquoted Government securities or Government guaranteed bonds shall be valued at carrying cost. 8) Unquoted investments in the units of mutual funds in the nature of current investments shall be valued at the net 60

27 asset value declared by the mutual fund in respect of each particular scheme. 9) Commercial papers shall be valued at carrying cost. Doubtful assets; and Loss assets. Provisioning Requirement 61

28 Loans, Advances and Other Credit facilities Including Bills Purchased and Discounted 62

29 Disclosure in balance sheet. 1. a. b

30 4. i

31 ii. 65

32 2) For engagement of brokers to deal in investment transactions, the housing finance companies should observe the following: a) Transactions should not be put through the brokers' accounts. The brokerage on the deal payable to the broker, if any (if the deal was put through with the help of a broker), b) c) d) 66

33 e) f) 67

34 g) 68

35 1. a. lend to i. ii. b. c. lend and invest(loans/investments together) exceeding 69

36 Directions To Auditors Auditor's report to contain specified matters. Matters to be included in the auditor's report 70

37 71

38 a) b) c) d) 72

39 e) the Board of Directors has passed a resolution for non-acceptance of any public deposits; Obligation Of Auditor To Report To The National Housing Bank 73

40 Conclusion Elaborate discussion has been in this chapter regarding the justification of creating National Housing Bank as an apex organisation in the field of housing finance in India. The provisions of National Housing Bank Act, 1987 reveal that a vast and challenging mandate has been set before NHB. It is responsible for developing, controlling and supervising the housing finance market in India. It has been made responsible to promote a network of dedicated Housing Finance Institutions (HFIs) so that different segments of population and different regions of the country are served adequately. It has been entrusted various duties like promotion of housing finance companies, regulation and supervision 74

41 of these companies and making available long term finance to these primary lending institutions so that the ever growing demand for the housing loan is satisfied. The NHB extends financial support to these primary lending institutions by way of project financing and refinance facility. Besides, indirect help by way of equity participation and extending guarantee on the loan raised by HFCs from elsewhere is also extended. An elaborate control and supervision mechanism has been developed by National Housing Bank in the form of Housing Finance Companies (NHB) Directions which was first drafted in 1989 and later on amendments have been made from time to time. All the housing finance companies have to seek a certificate of registration form NHB for carrying business of housing finance in India. The Housing Finance Companies Directions (NHB) 2010 is an exhaustive document which lays down conditions and obligations and rules which must be followed by the HFCs in India. Different provisions have been inserted in these Directions which are applicable to HFCs which are authorised to accept deposit from the public. These provisions relate to investment grade rating, maximum limit of accepting deposit, period of deposit and repayment of deposits etc. Similarly, Prudential Norms have been laid down which are to be followed by HFCs while preparing the Profit and Loss Account and Balance Sheet etc. Most of the norms are based on the Accounting Principles framed and accepted by the 75

42 Institute of Chartered Accountants of India. In nut shell, it can be concluded that NHB has been able to develop; a sound regulatory framework in order to ensure the growth of housing finance market in India on sound lines. 76