National Housing Bank to seek nod for raising funds thru ECBs

Mr R.V. Verma

SOURCE : BL:K.R. SRIVATS:NEW DELHI, SEPT. 30: 2011

National Housing Bank (NHB) wants to be the housing sector's window for external commercial borrowings (ECBs). It wants to pass on benefits of ECBs, including low cost, to the housing-finance sector without transferring any risks.

Towards this end, NHB will soon approach the Finance Ministry and the Reserve Bank of India (RBI) to allow it to raise ECBs, Mr R.V. Verma, Chairman and Managing Director, NHB, toldBusiness Line in an interview here.

Currently, ECBs are not permitted for the housing sector. NHB, too, cannot raise funds through ECBs, but is allowed foreign-currency borrowing from multilateral bodies after obtaining approvals of the Government and the RBI.

“We are not doing external commercial borrowings now. That is what we should be allowed to do. We should have an option to raise money in the external market. Because…there are certain benefits in the international markets.

We should be allowed to tap the international market and transfer the benefits to the domestic housing-finance system. All the risks will be hedged at our level and rupee funds will be passed on to the housing-finance companies (HFCs),” he said.

Mr Verma made it clear that NHB was only looking to transfer benefits of ECBs and not associated risks. He also said NHB was keen to raise funds through ECBs only for HFCs and not for commercial banks.

The NHB chief saw merit in allowing the local housing-finance system to raise ECBs, especially when 100 per cent foreign equity is allowed in such companies.

FUND RAISING

On fund raising from multilateral institutions, Mr Verma said NHB is talking to the World Bank for $350 million loan assistance from its International Development Association to help low-income households by way of credit to HFCs on the condition that it is used only to build houses. This loan assistance will help NHB improve its asset-liability management, he said.

“Our borrowings in India is mostly not very long. Long-term funds are not available while we are expected to lend long. Low- and moderate-income housing require long-term funding. The funds that we expect from World Bank are long-term and, therefore, we can also do more long-term funding for low- and moderate-income housing,” Mr Verma said.

NHB mulls early refinance to housing finance cos

Source : http://bankfinanceindia.blogspot.com/ Low and lower middle income segments to benefit.

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Normally, housing finance companies can tap NHB for refinance at concessional interest rates in respect of home loans, given by them only after their business stabilises i.e. two to three years after kicking off operations.

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To encourage flow of housing finance to low-income households, the National Housing Bank is examining the possibility of giving concessional refinance to housing finance companies, set up exclusively to fund the home ownership dream of these households, within a year of commencement of operations.

Normally, HFCs can tap NHB for refinance at concessional interest rates in respect of home loans, given by them only after their business stabilises i.e. two to three years after kicking off operations.

The proposal to offer refinance to HFCs, catering solely to the home loan needs of those in the low and lower middle income segments, early on is expected to have a beneficial ripple effect. For one, HFCs, based on refinance backing, will lend more.

 For another, knowing that home loan is available to those in the low income bracket, builders will be encouraged to construct affordable dwelling units.

Low and lower middle income households are those with a monthly income of Rs 3,000-20,000. A low-income housing unit is one whose maximum selling price does not exceed Rs 15 lakh.

Concessional refinance, according Mr R.V.Verma, Chairman and Manging Director, NHB, will galvanise all key players in the housing ecosystem — lenders as well as builders — to do more for low income housing.

“Since low and lower middle income households are not able to get home loans, builders are not creating affordable dwelling units.

 However, this situation is expected to reverse as housing finance companies focused on giving home loans to these households are coming up. Availability of early refinance to these companies will encourage flow of housing finance,” said Mr Verma.

Low and lower middle income households are a good credit bet for lenders, emphasised the NHB chief. Unlike the well-heeled, most of these households, subject to finance being available, will be able to buy a house only once in a lifetime. So, they will do their utmost to diligently service the home loan.

Credit delivery network

NHB regulates HFCs, extends refinance in respect of the home loans extended by primary lending institutions, and promotes housing finance institutions to improve/strengthen the credit delivery network for housing finance in the country.

The provision of affordable housing is one of the most formidable challenges that the country faces, according to the report of the high-level committee on affordable housing for all. Approximately 42.8 million persons or about 15.2 per cent of India's urban population live in slum settlements.

According to the Census of India, 35 per cent of urban households live in single room dwelling units and 68 per cent of such households have four members or more. 

The 11th Five-Year Plan has estimated an urban housing shortage of 24.7 million units with 99 per cent of the shortage pertaining to the economically weaker sections and the lower income groups.