Refinance Assistance to Housing Finance Companies for their Lending for Housing, 2003
1. Introduction
The objective of the scheme is to provide refinance assistance to Housing Finance Companies (HFCs) in respect of their direct lending to individuals for purchase / construction / repairs & upgradation of housing units. In addition, refinance assistance is provided towards exposure of HFCs to the micro finance sector. The financial assistance can be drawn by the HFCs in respect of loans already advanced by them as also towards their prospective disbursements. It may be noted that the rules and policies mentioned in this booklet apply only to refinance released under this scheme and not to refinance availed by HFCs earlier under any old refinance schemes which are governed by the respective rules and policies.
2. Eligibility Criteria
HFCs fulfilling the following criteria will be eligible to draw refinance from NHB : (i) The HFC should be registered with NHB to carry out housing finance activity in the country. (ii) The HFC should provide long-term finance for construction / purchase / repair/ upgradation of dwelling units by home-seekers. (iii) The HFC should invest at least 75% of capital employed by way of long term finance for housing. Explanation: For the above, “capital employed” means and includes : (a) paid up capital of the company and its free reserves less intangibles; (b) long term borrowings; (c) deposits with maturity period of five years and above collected from the public and others, excluding the amount required to be kept or maintained in specified asset as stipulated in section 29B of The National Housing Bank Act, 1987.
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(iv) The HFC should have Net Owned Fund (NOF) of not less than Rs. 10 crore. NOF will carry the same meaning as defined in Housing Finance Companies (NHB) Directions, 2001. (v) The HFC should comply with the provisions of the National Housing Bank Act, 1987 and Housing Finance Companies (NHB) Directions, 2001, as amended from time to time. Page 2 of 17 (vi) The Net Non Performing Assets (NNPA) of the HFC should not be more than 2.50% of the Net Advances. NPA shall carry the same meaning as defined in Housing Finance Companies (NHB) Directions, 2001. NNPA means „NPA less provision?. Net Advances shall mean „Advances less provision?. 'Advances' shall, apart from housing loans, include mortgage loans, lease transactions, hire purchase assets, bills of exchange, intercorporate deposits and unquoted debentures. (vii) The HFC should have completed at least 3 years of operations (i.e. the HFC should be able to furnish 3 years? audited financial statements). However, the above requirement of furnishing 3 years? audited financial statements can be waived in the following cases : (a) New rural HFCs (b) Newly established HFCs, subject to the conditions mentioned below (all other terms and conditions except those mentioned below as applicable to housing finance companies availing refinance from NHB continue to be applicable in case of these new HFCs also) : The HFC has been set up by a reputed business group, and is able to furnish either a corporate guarantee or a Letter of Comfort from the parent organization, and The HFC has individual housing finance portfolio (either purchased from the market, or transferred from other group companies) of not less than Rs.100 crore OR At least 50% of the outstanding individual housing loan portfolio of the HFC is in the affordable housing segment (housing loans qualifying for classification as priority sector advances - currently Rs.20 lakhs). (c) Newly established HFCs, subject to the conditions mentioned below (all other terms and conditions except those mentioned below as applicable to housing finance companies availing refinance from NHB continue to be applicable in case of these new HFCs also) :
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At least 50% of the housing loan portfolio of the HFC should be comprised of loans upto Rs.5 lakhs, and The Company?s lending policy should have a clear focus on the informal sector and low income and affordable housing. (viii) The HFC will have to attain the minimum stipulated rating to be eligible for financial assistance from NHB. For this purpose, NHB has developed an internal credit rating model to determine the eligibility for financial assistance for the HFCs.
3. Rate of Interest
3.1 The interest on refinance will be compounded monthly and payable quarterly. 3.2 Financial assistance under the scheme will be provided either at fixed or floating rates of interest. The HFC would have the option to choose either floating or fixed interest rate depending on requirement. The interest rate charged to the HFC will be as prevailing on the date of disbursement and will depend on the internal credit rating assigned to it by NHB, and repayment period sought under refinance. The rate of interest is subject to periodic revision by NHB and this will be informed from time to time. 3.3 Conversion of Fixed Rate Loans to Floating Rate Loans and vice versa In the event an HFC wants to convert the outstanding loans from fixed rate structure to floating or vice versa, the following rules will apply : There will be a levy of 0.50% of the loan outstanding on conversion from fixed to floating rate of interest. The applicable interest rate will be the then prevailing floating rate of interest for the term equivalent to the residual repayment period of that loan, as applicable. HFCs opting to convert loans from floating to fixed rate of interest will have to pay levy as that stipulated in respect of prepayment of floating rate refinance. The applicable interest rate will be the then prevailing fixed rate of interest for the term equivalent to the residual repayment period of that loan. Conversions will be done only on January 1, April 1, July 1 and October 1 of each year. Requests for such conversions should reach NHB one month before the due date for effective conversion.
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3.4 Revision in Interest Rate on Fixed Rate Loans
In case of refinance extended at fixed rates of interest, NHB will have the option to revise the rates on outstanding loans on completion of every 3 years (or such shorter periods as may be agreed to between NHB and the HFC at the time of release of refinance). The revised rate will be effective from the quarter immediately following the quarter in which 3 years (or such shorter period as agreed) get completed. The applicable interest rate will be the then prevailing fixed rate of interest for the term equivalent to the original repayment period of that loan. In the case of upward revision, the HFC will have the option to either continue with the outstanding balance on the revised rates or to prepay the same without any prepayment levy. However, in case of downward revision, if the HFC desires to prepay, the prepayment would be allowed only on payment of applicable prepayment levy.
4. Extent of refinance
Refinance from NHB will be available to the extent of 100 per cent of housing loans sanctioned and disbursed by the HFCs for acquisition / construction of new housing units and for upgradation / major repairs, in accordance with the provisions of the Scheme.
5. Term of refinance
The refinance will be repayable within a period of not less than 1 year and not exceeding 15 years. The HFCs will have the option to choose the repayment period as per their requirements.
6. Repayment of Refinance
Repayment of principal and payment of interest will be on quarterly basis. Repayment of principal will start after one clear calendar quarter from the date of release while payment of interest will start from the immediate quarter. The due dates of payment of interest and principal will be informed to HFCs in the repayment schedule after each release of refinance.
7. Prepayment
The HFC, after availing of refinance from NHB, may repay the whole or any part of the amount earlier than the due date by giving two months? notice to NHB of its intention to effect such repayment before the due date. NHB will levy a prepayment charge as mentioned below, on such prepayments :
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The prepayment levy payable by the HFC to NHB would be independent of whether or not prepayment levy is being charged by the HFC from its borrowers. The HFC will be required to furnish full details about the refinance account against which prepayment is being made. In the absence of such details the prepaid amount will be credited to the refinance released earliest and outstanding on „first in first out? basis. The size of instalment as originally fixed at the time of release will not be altered. Consequently, the last instalment will be reduced and wherever necessary the period of repayment would get reduced.
8. Security 8.1 Security to be Obtained from Individual Beneficiaries
(i) The HFC should generally obtain mortgage of property as security for the loan advanced by them. Where it is not feasible, the HFC may accept at its discretion, security of adequate value in the form of life insurance policies, promissory notes, shares and debentures, or such other security, as it may deem appropriate to fully secure the loan, with the charge properly created in its favour. (ii) The loan agreement to be entered into between the HFC and its borrowers shall have a provision to the effect that the borrowers shall have no objection to the HFC creating a charge, mortgage or other interest in that security in favour of NHB. (iii) The credit risk of the primary loan will be fully borne by the HFC and the refinance sought from NHB would be repayable irrespective of the primary loan account remaining regular or otherwise.
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8.2 Security for refinance
(i) Refinance from NHB may generally be secured by charge on the book debts of the HFC. Additional security such as charge on immovable properties / movable properties, guarantee of promoter, etc. may be stipulated at NHB?s discretion. The security will be determined on case to case basis. The eligible lending institutions shall furnish to NHB / execute in favour of NHB such documents / undertakings etc. in such form and content as may be prescribed by NHB from time to time. (ii) If at any time NHB is of the opinion that the security provided by the HFC has become inadequate to cover the outstanding refinance, it may advise the HFC to provide and furnish, to the satisfaction of NHB, such additional security as may be acceptable to NHB to cover such deficiency.
9. Procedure 9.1 Application for Refinance Limit
The refinance operations of NHB are centralized at New Delhi. Refinance in a particular year is released on the basis of the limit sanctioned to the HFC for the year [July to June]. An HFC desirous of availing refinance will submit to NHB its annual projections for sanction of refinance limit in the prescribed credit review format NHB-ROD[HFC]-01 together with any other information as may be required by NHB from time to time, indicating the expected disbursement of housing loans for the ensuing year i.e. AprilMarch. The annual credit review format duly completed should reach NHB on or before the month of February, every year, e.g. completed format for the year 2011-12 should be submitted on or before February 28, 2011. NHB, on the basis of business projections and all other issues relevant to credit exposure, will fix the refinance limits. An HFC applying for refinance for the first time will be required to submit, in addition to the above, the following information : (a) A brief write-up on the promoters (b) Annual report containing Balance Sheet and Profit & Loss Account for the previous three years (c) Housing loans sanctioned and disbursed during the previous three years.
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9.2 Legal Documentation
On receipt of the sanction letter from NHB, the HFC shall furnish to NHB a resolution, in the prescribed form, duly passed by its Board of Directors. It will also be required to enter into agreement and execute such documents as may be required by NHB for the purpose at its Office. After completion of all formalities, the HFC can start drawing funds from NHB.
9.3 Submission of Refinance Application
The HFC desirous of availing refinance shall submit an application in the form NHB-ROD[HFC]-LT-02 to NHB at its New Delhi office. An official authorized for the purpose should sign the refinance applications submitted by the HFC. In this regard, the HFC would be required to furnish, for the period from July to June every year, a list of person(s) authorized by the Board of Directors / Chief Executive to sign the forms / statements / letters along with their specimen signatures for NHB?s records. If there is any change in the list of authorized signatories during the year, the same shall also be informed to NHB. The amount of refinance released during one month will generally be restricted by NHB based on rating obtained by the HFC and the refinance limit sanctioned to it. The HFC will be required to indicate the option of repayment period and fixed / floating rate of interest in the application. Separate applications will need to be submitted for loan amounts having different repayment period and fixed / floating rate options. In other words, each application will indicate only one option for repayment period and one option for either fixed or floating rate of interest.
9.4 Mode of release
The refinance released will be routed through the current account maintained by the HFC in any NEFT enabled bank branch through RTGS. The mode of release and necessary details of the current account along with bank branch details will have to be intimated to NHB in the refinance application NHB-ROD [HFC]-LT-02.
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9.5 Mode of Repayment
(a) All payments are to be made under advice to NHB, Delhi by way of RTGS favouring National Housing Bank in its account no. 00600350008114 maintained with HDFC Bank Limited, Nanik Motwani Marg Branch, Mumbai, having IFSC Code HDFC 0000060. (b) Repayment of principal shall be made by the HFC to NHB as follows : (i) The amount of refinance availed shall be repaid to NHB in a period not exceeding 15 years by way of 60 equal quarterly instalments or less, as may be specified by NHB. (ii) The due date for the repayments shall be the first day of each calendar quarter (i.e. January 1, April 1, July 1 and October 1 each year). (iii) Repayment of principal shall commence after a gap of one clear calendar quarter following the disbursal of refinance and as may be specified by NHB. For example, if refinance is disbursed on April 4, 2011 the first instalment of principal will fall due for repayment on October 1, 2011, i.e. after a gap of calendar quarter July to September, 2011. (c) Payment of interest by the HFC to NHB shall be made as follows : (i) Interest to be paid to NHB on refinance, will be calculated on daily product basis and charged at monthly rests. (ii) For calculation of interest, a „year? will be taken as 365 days, irrespective of whether the year is a leap year or a normal year. (iii) Payment of interest shall commence from the first day of the calendar quarter immediately succeeding the date of disbursal of refinance. For example, if refinance is disbursed on April 4, 2011 the interest on the refinance will first fall due for payment on July 1, 2011. (iv) The interest on the refinance will begin to accrue in favour of NHB from the date of cheque(s) / authorizations. (d) If the due date for repayment of principal / payment of interest is a holiday for the Mumbai office of NHB, and the credit in respect of the amounts due is received by NHB within the first three working days of the quarter in which the payment is due, additional interest would not be charged. However, the HFC will pay interest on the amount due, at the applicable rates of interest for the additional days upto the day of payment to the Mumbai office of NHB. It may please be noted in this regard, that the Mumbai office of the NHB observes holidays as declared for the State of
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Maharashtra in terms of the Negotiable Instruments Act, 1949. It may be noted, further, that NHB observes a five-day week and that, accordingly, its offices remain closed on Saturdays and Sundays. If the repayment of instalment and payment of interest is made before the due date, credit will be given only on the due date. (e) For any delay beyond the first three working days for the Mumbai office of NHB, the HFC will pay additional interest on the amount in default for the total period of delay, at the rate of two per cent per annum above the applicable rate. (f) The HFC shall make payments to NHB promptly on due dates, irrespective of whether or not the amount is actually recovered by it from the borrowers.
10. Periodic Returns to NHB
An HFC availing refinance from NHB will be required to furnish various statements / information to NHB on periodic basis. The HFCs should be prompt and regular in submission of these returns. The statements to be furnished to NHB are as under :
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11. Other Terms and Conditions 11.1 Prospective Loans
The scheme provides the facility of availing refinance in respect of prospective loans, subject to the condition that such amounts drawn for prospective loans would be fully backed by individual housing loans within a period of three months from the date of release. On availing refinance for prospective loans, the HFC will be required to furnish a certificate of utilization within three months from the date of release of the prospective loan. A penalty on un-utilized portion of refinance availed for prospective disbursements @ 2% above the applicable interest rate of refinance for the entire period of use would be levied in case the HFC fails to fully utilize the refinance amount within the given time period. The said certificate is required to be submitted in format NHB-ROD(HFC)-PL-03 within 14 days of the end of the three month period from the date of release of refinance for prospective loans, confirming that the amount drawn has been fully utilized
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for advancing individual housing loans, furnishing the number of loan accounts and specifying whether it is under regular refinance scheme or Golden Jubilee Rural Housing Refinance Scheme (GJRHRS) or Rural Housing Fund (RHF) and also attesting that such loans have been duly flagged against NHB?s refinance.
11.2 Adverse Balance
HFCs availing refinance from NHB shall furnish a certificate as at 31st March and 30th September every year, duly countersigned by their Statutory Auditors, confirming that the refinance outstanding from NHB does not exceed the total outstanding housing loans, in respect of which refinance has been obtained. In the eventuality of the outstanding refinance due by HFC to NHB exceeding the aggregate of all outstanding housing loans in respect of which refinance has been availed by the HFC i.e. adverse balance, the HFC would be required to repay refinance to NHB to the extent of adverse balance. This will be based on the above certificate, in the format ROD-HFC-HY-02(a) (for 31st March) / ROD-HFC-HY-02(b) (for 30th September). In case of adverse balance, the HFCs are also required to place the above certificate to their Board of Directors before forwarding the same to NHB. On receipt of the above certificate, NHB will advise the HFC about the amount of refinance to be repaid. The HFC will be required to pay the amount within one month of the date of such advice. Credit will be given for such payments on the date of credit of the amount to NHB?s Bank Account. The HFC will be required to furnish a list of refinance releases (i.e. loan accounts relating to each drawal of refinance) in which the adverse balance has arisen, along with the aggregate of outstanding housing loan in respect of each refinance loan account. The amount repaid to NHB will be adjusted accordingly. In this context, HFCs may note the following : (a) Loan accounts pre-closed due to shifting from fixed interest rate structure to variable rate of interest or for any other reasons and opening a new loan account of the same borrower and with the same housing unit financed as a primary security shall continue to be covered under the flagged housing loans against NHB?s refinance, and will not be reckoned for computation of adverse balance. (b) Book debts flagged / covered for the purpose of collateral security / additional margin requirements will not be counted for computing the sum aggregate of all outstanding housing loans in respect of which refinance has been availed as on 31st March / 30th September, i.e. additional margin stipulated over and above the security of book debts created out of refinance will not be reckoned for the computation of adverse balance. This additional margin will be for the purpose of collateral security and has to be maintained on the outstanding refinance.
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(c) Loan accounts for which refinance has been taken from NHB should be distinctly identifiable from the records of the HFC and the list of all such accounts should be available with the HFC and continue to be maintained in the records. (d) In the case of adverse balance arising due to pre-closure of loans in normal operations of lending and accelerated repayments, the same would get automatically included while computing the adverse balance and may be repaid following the required procedure and on the advice of NHB. Such repayments due to adverse balance shall not attract any levy. (e) Funds released towards prospective loans not earlier than 3 months to the half yearly statement will not be included under NHB outstanding while computing the adverse balance in view of the lag time involved in generating housing loans.
11.3 Borrowings from Institutions other than NHB
In case the HFC borrows funds from banks / financial institutions other than NHB, it shall inform NHB about the same giving particulars about the security offered for such borrowings and follow guidelines issued by NHB in circular no. NHB/ROD/HFC/LRS/15/2005 dated February 4, 2005 this regard. In case of borrowings by way of floatation of bonds / debentures whether unsecured or secured, listed or privately placed, HFC shall apply for a No Objection Certificate (NOC). The following documents are required to be submitted with the application for the NOC : (a) Copies of the memorandum / notes placed before the Board of Directors seeking approval for the bond / debenture issue and the resolution passed thereof. (b) Certified copy of the prospectus of the bond / debenture issue. In case the prospectus is not finalised, draft prospectus may be sent. However, the HFC shall submit the final prospectus to NHB at the earliest.
11.4 Loans Eligible for Refinance from NHB
All housing loans covered under the scheme should be Standard Assets as per the Housing Finance Companies (NHB) Directions, 2001 and should be unencumbered while HFCs claim refinance from NHB and during the entire term of refinance.
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ASIAN DEVELOPMENT BANK
I. BACKGROUND A. History
1. The National Housing Bank (NHB) was established in July 1988 as the apex body for the housing finance sector. NHB is wholly owned by the Reserve Bank of India (RBI), the central bank. NHB's three primary responsibilities are to (i) mobilize resources for the housing sector, (ii) promote the development of housing finance companies (HFCs), and (iii) regulate their operations.2. The Housing and Urban Development Corporation Ltd. (HUDCO) was incorporated in April 1970 as a wholly government-owned company to promote housing and urban development, particularly for low-income and economically weaker sectors. HUDCO is registered under the Companies Act as a public limited company and managed by a government-appointed board of directors. HUDCO?s operations are divided between housing and infrastructure finance, mainly through state and local agencies, with some direct assistance to individuals under the HUDCO Niwas scheme besides assistance to some privately sponsored projects. HUDCO is mandated to lend at least 55% of its funds to low-income and economically weak sectors.
B. Scope of Operations
As a housing finance promoter, NHB financially supports HFCs and facilitates access to institutional credit. NHB provides refinancing to 31 HFCs, commercial banks, and cooperative sector housing finance institutions (HFIs). The bulk of NHB?s assistance is in the form of refinance to eligible primary HFIs in the public, private, and cooperative credit sector. As a housing finance regulator, NHB sets prudential norms
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for capital adequacy ratio (CAR), income recognition, asset classification, and provisioning on HFCs? nonperforming assets. In January 1999 the NHB board approved a new refinancing scheme for community-based financial institutions (CFIs) under which any approved institution, mainly HFCs, can avail themselves of refinance for loans made to CFls. To augment sector resources, NHB has issued a number of mortgage-backed securities (MBS). In collaboration with Canada Mortgage Housing Corporation, NHB promoted a mortgage credit guarantee company for which the Asian Development Bank (ADB) has approved equity assistance. HUDCO provides credit for housing and infrastructure development through government and privately sponsored projects; develops and disseminates low-cost and eco-friendly construction technology; builds capacity in the sector through training, research, and consultancy; helps implement housing and urban infrastructure projects secured by state government guarantees; and assists privately sponsored projects. With the emphasis on fiscal reforms in the recent years, the ability of the states to provide guarantees has been constrained, thus limiting state-guaranteed assistance by HUDCO. Its direct lending window to individuals is a recent response to these changes. HDFC has promoted home ownership by providing finance through a wide variety of products. Besides giving direct loans to individuals, which account for most loans (73% by FY2002), HDFC has also added to housing stocks through loans to corporations and state ADB. 1995. PCR for the Karnataka Urban Infrastructure Development Project . ADB. 2002. India Mortgage Guarantee Company for $10 million under the private sector window. 2 agencies. Its associates include property m anagement, credit-rating, consumer finance, infrastructure finance services, asset management, insurance, and commercial banking companies.
C. Relationship with ADB and Other Lenders
The Project was the first loan to HUDCO and NHB. ADB had provided a loan of $20 million to HDFC under the Karnataka Urban Infrastructure Development Project, which targeted lending for low-income housing and slum improvement. ADB has supported technical assistance (TA) for capacity building4. In October 2001 ADB also approved TA to assess the role of MBS5. Other external assistance for the housing finance sector comes from Germany, Japan,Netherlands, United Kingdom (UK), United States, and World Bank. Germany has extendedseveral lines of credit through Kreditanstalt fur Wiederaufbau (KfW) to HUDCO and HDFC for low-income housing and rural building centers throughout the country. HDFC has also received UK funds and assistance from the United States Agency for International Development (USAID) under its Housing Guarantee Program. NHB borrowed $25 million of an authorized $40 million from USAID to expand refinancing operations. USAID, under its financial institutions reforms and expansion (FIRE) program provided
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HUDCO with $125 million. Japan provided NHB $250 million. International funds constitute 6-7% of the total resource needs of HUDCO and HDFC, and about 12-15% of NHB?s. The main sources of NHB and HUDCO funds include domestic bonds/debentures subscribed mainly by local banks/institutional investors, some of which enjoy fiscal/regulatory incentives. By contrast, HDFC relies significantly on public deposits (45% of total funding requirements) and domestic borrowings from banks and financial institutions (about48%).
II. IMPLEMENTATION A. Lending Policies
NHB?s lending policies have evolved over the years in response to the transformation of the Indian financial sector from a regulated to a more market-oriented one. Commercial banks have been increasing their housing finance portfolio recently, and the institutional infrastructure for it has been expanding significantly. Market forces and falling interest rates have compelled NHB to be more nimble in responding to market indicators and altering its terms of refinance. The agency has introduced MBS issues, a market-oriented intervention to raise funds. HUDCO?s housing and urban infrastructure assistance mainly support governmentsponsored and -guaranteed programs, but the agency has recently opened a direct lending window for retail clients. HDFC?s corporate objective is to provide market-based loans for home ownership. The agency continues to be commercially oriented, adopting a customer-centered approach and improving operational efficiency and use of technology.
B. Operational Performance of the Borrowers 1. Organization, Management, and Staffing
NHB is managed by a board of directors comprising nominees from RBI; central Government (ministries of finance, urban development and poverty alleviation, and rural development); and state governments; and other professionals from finance, architecture, and housing sectors. NHB?s staff strength, including professionals equals 80 HUDCO is managed by a board of government nominees and government-appointed professionals . With a staff including executives, HUDCO has its corporate office in Delhi with 33 other offices. HDFC is a joint stock company listed in the stock exchanges and managed by a team of professionals under the supervision of a board of directors. The agency has a network of 118 offices and 1,029 employees, including professionals such as engineers, architects, lawyers, and financial specialist.
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2. Personnel Administration
NHB staff include professionals from diverse disciplines such as economics, finance, law, civil engineering, urban/town planning, architecture, business administration, chartered accountancy, banking, computers, and information technology. NHB conducts human resource development programs regularly to upgrade staff skills to meet market needs. HUDCO develops human resources through regular training programs. During FY2002, 470 employees were nominated for staff development programs in India and abroad. HDFC, a professionally wellmanaged organization with a pool of committed, qualified staff from various disciplines, offers market-related compensation for its staff. HDFC revises its human resource development policies and compensation package periodically to meet market needs and staff aspirations.
3. Lending Operations
NHB regulates, promotes, and financially helps the housing finance industry. NHB?s lending programs include refinance of individual housing loans (in urban and rural areas, through HFIs and HFCs), project loans, rental housing schemes, slum upgrading, and offsite/ on-site infrastructure development. NHB routes its financial assistance through a wide range of intermediary retail institutions such as HFCs, scheduled banks, cooperative banks, regional rural banks, agriculture and rural development banks, apex cooperative housing finance societies, and CFIs. Thirty-one HFCs, with a network of more than 650 branches across the country and accounting for over 95% of HFCs? market share, are approved for refinance by NHB. In its appraisal of HFCs, NHB includes assessment of their conformity to financial parameters, prudential guidelines, track record of repayments,10 etc. As of FY2002 NHB?s cumulative refinance to HFCs, commercial banks, and cooperative finance institutions 10 Maintenance of a minimum CAR of 12%, liquid assets at least at 10%, minimum net owned funds of Rs100 million, and maximum net NPL of 5% are some of the parameters.
C. Borrower’s Financial Performance
NHB, being primarily a refinance institution, has a small loan book. NHB?s disbursements increased from Rs5.3 billion in FY1998 to Rs11 billion in FY2002. Significantly,the pace of growth in NHB?s operations has slackened from an annual growth of 45.3% in FY1999 to 5.4% in FY2002, reflecting the decline of refinance as a support mechanism in an increasingly market-oriented industry. HDFC registered consistent growth in loan approvals and disbursals. With an annual average growth of 29.3%
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over the last 5 years, HDFC?s approvals increased from Rs32.5 billion in FY1998 to Rs90.4 billion in FY2002, resulting in growth of outstanding portfolio to Rs171.7 billion by FY2002. HUDCO?s operations, which registered consistent growth in loan approvals up to FY2000, fell significantly in FY2001 but recovered somewhat during FY2002 with an approval of Rs81 billion. This trend is also reflected in HUDCO?s disbursements, which grew only very modestly over the last three years. HUDCO?s loan book composition has changed recently, with the share of housing falling from 60% to 39%, and the share of urban infrastructure increasing. While HDFC has consistently had a high proportion of disbursement to approval (around 84% over the last five years), this ratio has been low for HUDCO and has fluctuated considerably year by year.
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doc_939826879.docx
1. Introduction
The objective of the scheme is to provide refinance assistance to Housing Finance Companies (HFCs) in respect of their direct lending to individuals for purchase / construction / repairs & upgradation of housing units. In addition, refinance assistance is provided towards exposure of HFCs to the micro finance sector. The financial assistance can be drawn by the HFCs in respect of loans already advanced by them as also towards their prospective disbursements. It may be noted that the rules and policies mentioned in this booklet apply only to refinance released under this scheme and not to refinance availed by HFCs earlier under any old refinance schemes which are governed by the respective rules and policies.
2. Eligibility Criteria
HFCs fulfilling the following criteria will be eligible to draw refinance from NHB : (i) The HFC should be registered with NHB to carry out housing finance activity in the country. (ii) The HFC should provide long-term finance for construction / purchase / repair/ upgradation of dwelling units by home-seekers. (iii) The HFC should invest at least 75% of capital employed by way of long term finance for housing. Explanation: For the above, “capital employed” means and includes : (a) paid up capital of the company and its free reserves less intangibles; (b) long term borrowings; (c) deposits with maturity period of five years and above collected from the public and others, excluding the amount required to be kept or maintained in specified asset as stipulated in section 29B of The National Housing Bank Act, 1987.
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(iv) The HFC should have Net Owned Fund (NOF) of not less than Rs. 10 crore. NOF will carry the same meaning as defined in Housing Finance Companies (NHB) Directions, 2001. (v) The HFC should comply with the provisions of the National Housing Bank Act, 1987 and Housing Finance Companies (NHB) Directions, 2001, as amended from time to time. Page 2 of 17 (vi) The Net Non Performing Assets (NNPA) of the HFC should not be more than 2.50% of the Net Advances. NPA shall carry the same meaning as defined in Housing Finance Companies (NHB) Directions, 2001. NNPA means „NPA less provision?. Net Advances shall mean „Advances less provision?. 'Advances' shall, apart from housing loans, include mortgage loans, lease transactions, hire purchase assets, bills of exchange, intercorporate deposits and unquoted debentures. (vii) The HFC should have completed at least 3 years of operations (i.e. the HFC should be able to furnish 3 years? audited financial statements). However, the above requirement of furnishing 3 years? audited financial statements can be waived in the following cases : (a) New rural HFCs (b) Newly established HFCs, subject to the conditions mentioned below (all other terms and conditions except those mentioned below as applicable to housing finance companies availing refinance from NHB continue to be applicable in case of these new HFCs also) : The HFC has been set up by a reputed business group, and is able to furnish either a corporate guarantee or a Letter of Comfort from the parent organization, and The HFC has individual housing finance portfolio (either purchased from the market, or transferred from other group companies) of not less than Rs.100 crore OR At least 50% of the outstanding individual housing loan portfolio of the HFC is in the affordable housing segment (housing loans qualifying for classification as priority sector advances - currently Rs.20 lakhs). (c) Newly established HFCs, subject to the conditions mentioned below (all other terms and conditions except those mentioned below as applicable to housing finance companies availing refinance from NHB continue to be applicable in case of these new HFCs also) :
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At least 50% of the housing loan portfolio of the HFC should be comprised of loans upto Rs.5 lakhs, and The Company?s lending policy should have a clear focus on the informal sector and low income and affordable housing. (viii) The HFC will have to attain the minimum stipulated rating to be eligible for financial assistance from NHB. For this purpose, NHB has developed an internal credit rating model to determine the eligibility for financial assistance for the HFCs.
3. Rate of Interest
3.1 The interest on refinance will be compounded monthly and payable quarterly. 3.2 Financial assistance under the scheme will be provided either at fixed or floating rates of interest. The HFC would have the option to choose either floating or fixed interest rate depending on requirement. The interest rate charged to the HFC will be as prevailing on the date of disbursement and will depend on the internal credit rating assigned to it by NHB, and repayment period sought under refinance. The rate of interest is subject to periodic revision by NHB and this will be informed from time to time. 3.3 Conversion of Fixed Rate Loans to Floating Rate Loans and vice versa In the event an HFC wants to convert the outstanding loans from fixed rate structure to floating or vice versa, the following rules will apply : There will be a levy of 0.50% of the loan outstanding on conversion from fixed to floating rate of interest. The applicable interest rate will be the then prevailing floating rate of interest for the term equivalent to the residual repayment period of that loan, as applicable. HFCs opting to convert loans from floating to fixed rate of interest will have to pay levy as that stipulated in respect of prepayment of floating rate refinance. The applicable interest rate will be the then prevailing fixed rate of interest for the term equivalent to the residual repayment period of that loan. Conversions will be done only on January 1, April 1, July 1 and October 1 of each year. Requests for such conversions should reach NHB one month before the due date for effective conversion.
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3.4 Revision in Interest Rate on Fixed Rate Loans
In case of refinance extended at fixed rates of interest, NHB will have the option to revise the rates on outstanding loans on completion of every 3 years (or such shorter periods as may be agreed to between NHB and the HFC at the time of release of refinance). The revised rate will be effective from the quarter immediately following the quarter in which 3 years (or such shorter period as agreed) get completed. The applicable interest rate will be the then prevailing fixed rate of interest for the term equivalent to the original repayment period of that loan. In the case of upward revision, the HFC will have the option to either continue with the outstanding balance on the revised rates or to prepay the same without any prepayment levy. However, in case of downward revision, if the HFC desires to prepay, the prepayment would be allowed only on payment of applicable prepayment levy.
4. Extent of refinance
Refinance from NHB will be available to the extent of 100 per cent of housing loans sanctioned and disbursed by the HFCs for acquisition / construction of new housing units and for upgradation / major repairs, in accordance with the provisions of the Scheme.
5. Term of refinance
The refinance will be repayable within a period of not less than 1 year and not exceeding 15 years. The HFCs will have the option to choose the repayment period as per their requirements.
6. Repayment of Refinance
Repayment of principal and payment of interest will be on quarterly basis. Repayment of principal will start after one clear calendar quarter from the date of release while payment of interest will start from the immediate quarter. The due dates of payment of interest and principal will be informed to HFCs in the repayment schedule after each release of refinance.
7. Prepayment
The HFC, after availing of refinance from NHB, may repay the whole or any part of the amount earlier than the due date by giving two months? notice to NHB of its intention to effect such repayment before the due date. NHB will levy a prepayment charge as mentioned below, on such prepayments :
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The prepayment levy payable by the HFC to NHB would be independent of whether or not prepayment levy is being charged by the HFC from its borrowers. The HFC will be required to furnish full details about the refinance account against which prepayment is being made. In the absence of such details the prepaid amount will be credited to the refinance released earliest and outstanding on „first in first out? basis. The size of instalment as originally fixed at the time of release will not be altered. Consequently, the last instalment will be reduced and wherever necessary the period of repayment would get reduced.
8. Security 8.1 Security to be Obtained from Individual Beneficiaries
(i) The HFC should generally obtain mortgage of property as security for the loan advanced by them. Where it is not feasible, the HFC may accept at its discretion, security of adequate value in the form of life insurance policies, promissory notes, shares and debentures, or such other security, as it may deem appropriate to fully secure the loan, with the charge properly created in its favour. (ii) The loan agreement to be entered into between the HFC and its borrowers shall have a provision to the effect that the borrowers shall have no objection to the HFC creating a charge, mortgage or other interest in that security in favour of NHB. (iii) The credit risk of the primary loan will be fully borne by the HFC and the refinance sought from NHB would be repayable irrespective of the primary loan account remaining regular or otherwise.
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8.2 Security for refinance
(i) Refinance from NHB may generally be secured by charge on the book debts of the HFC. Additional security such as charge on immovable properties / movable properties, guarantee of promoter, etc. may be stipulated at NHB?s discretion. The security will be determined on case to case basis. The eligible lending institutions shall furnish to NHB / execute in favour of NHB such documents / undertakings etc. in such form and content as may be prescribed by NHB from time to time. (ii) If at any time NHB is of the opinion that the security provided by the HFC has become inadequate to cover the outstanding refinance, it may advise the HFC to provide and furnish, to the satisfaction of NHB, such additional security as may be acceptable to NHB to cover such deficiency.
9. Procedure 9.1 Application for Refinance Limit
The refinance operations of NHB are centralized at New Delhi. Refinance in a particular year is released on the basis of the limit sanctioned to the HFC for the year [July to June]. An HFC desirous of availing refinance will submit to NHB its annual projections for sanction of refinance limit in the prescribed credit review format NHB-ROD[HFC]-01 together with any other information as may be required by NHB from time to time, indicating the expected disbursement of housing loans for the ensuing year i.e. AprilMarch. The annual credit review format duly completed should reach NHB on or before the month of February, every year, e.g. completed format for the year 2011-12 should be submitted on or before February 28, 2011. NHB, on the basis of business projections and all other issues relevant to credit exposure, will fix the refinance limits. An HFC applying for refinance for the first time will be required to submit, in addition to the above, the following information : (a) A brief write-up on the promoters (b) Annual report containing Balance Sheet and Profit & Loss Account for the previous three years (c) Housing loans sanctioned and disbursed during the previous three years.
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9.2 Legal Documentation
On receipt of the sanction letter from NHB, the HFC shall furnish to NHB a resolution, in the prescribed form, duly passed by its Board of Directors. It will also be required to enter into agreement and execute such documents as may be required by NHB for the purpose at its Office. After completion of all formalities, the HFC can start drawing funds from NHB.
9.3 Submission of Refinance Application
The HFC desirous of availing refinance shall submit an application in the form NHB-ROD[HFC]-LT-02 to NHB at its New Delhi office. An official authorized for the purpose should sign the refinance applications submitted by the HFC. In this regard, the HFC would be required to furnish, for the period from July to June every year, a list of person(s) authorized by the Board of Directors / Chief Executive to sign the forms / statements / letters along with their specimen signatures for NHB?s records. If there is any change in the list of authorized signatories during the year, the same shall also be informed to NHB. The amount of refinance released during one month will generally be restricted by NHB based on rating obtained by the HFC and the refinance limit sanctioned to it. The HFC will be required to indicate the option of repayment period and fixed / floating rate of interest in the application. Separate applications will need to be submitted for loan amounts having different repayment period and fixed / floating rate options. In other words, each application will indicate only one option for repayment period and one option for either fixed or floating rate of interest.
9.4 Mode of release
The refinance released will be routed through the current account maintained by the HFC in any NEFT enabled bank branch through RTGS. The mode of release and necessary details of the current account along with bank branch details will have to be intimated to NHB in the refinance application NHB-ROD [HFC]-LT-02.
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9.5 Mode of Repayment
(a) All payments are to be made under advice to NHB, Delhi by way of RTGS favouring National Housing Bank in its account no. 00600350008114 maintained with HDFC Bank Limited, Nanik Motwani Marg Branch, Mumbai, having IFSC Code HDFC 0000060. (b) Repayment of principal shall be made by the HFC to NHB as follows : (i) The amount of refinance availed shall be repaid to NHB in a period not exceeding 15 years by way of 60 equal quarterly instalments or less, as may be specified by NHB. (ii) The due date for the repayments shall be the first day of each calendar quarter (i.e. January 1, April 1, July 1 and October 1 each year). (iii) Repayment of principal shall commence after a gap of one clear calendar quarter following the disbursal of refinance and as may be specified by NHB. For example, if refinance is disbursed on April 4, 2011 the first instalment of principal will fall due for repayment on October 1, 2011, i.e. after a gap of calendar quarter July to September, 2011. (c) Payment of interest by the HFC to NHB shall be made as follows : (i) Interest to be paid to NHB on refinance, will be calculated on daily product basis and charged at monthly rests. (ii) For calculation of interest, a „year? will be taken as 365 days, irrespective of whether the year is a leap year or a normal year. (iii) Payment of interest shall commence from the first day of the calendar quarter immediately succeeding the date of disbursal of refinance. For example, if refinance is disbursed on April 4, 2011 the interest on the refinance will first fall due for payment on July 1, 2011. (iv) The interest on the refinance will begin to accrue in favour of NHB from the date of cheque(s) / authorizations. (d) If the due date for repayment of principal / payment of interest is a holiday for the Mumbai office of NHB, and the credit in respect of the amounts due is received by NHB within the first three working days of the quarter in which the payment is due, additional interest would not be charged. However, the HFC will pay interest on the amount due, at the applicable rates of interest for the additional days upto the day of payment to the Mumbai office of NHB. It may please be noted in this regard, that the Mumbai office of the NHB observes holidays as declared for the State of
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Maharashtra in terms of the Negotiable Instruments Act, 1949. It may be noted, further, that NHB observes a five-day week and that, accordingly, its offices remain closed on Saturdays and Sundays. If the repayment of instalment and payment of interest is made before the due date, credit will be given only on the due date. (e) For any delay beyond the first three working days for the Mumbai office of NHB, the HFC will pay additional interest on the amount in default for the total period of delay, at the rate of two per cent per annum above the applicable rate. (f) The HFC shall make payments to NHB promptly on due dates, irrespective of whether or not the amount is actually recovered by it from the borrowers.
10. Periodic Returns to NHB
An HFC availing refinance from NHB will be required to furnish various statements / information to NHB on periodic basis. The HFCs should be prompt and regular in submission of these returns. The statements to be furnished to NHB are as under :
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11. Other Terms and Conditions 11.1 Prospective Loans
The scheme provides the facility of availing refinance in respect of prospective loans, subject to the condition that such amounts drawn for prospective loans would be fully backed by individual housing loans within a period of three months from the date of release. On availing refinance for prospective loans, the HFC will be required to furnish a certificate of utilization within three months from the date of release of the prospective loan. A penalty on un-utilized portion of refinance availed for prospective disbursements @ 2% above the applicable interest rate of refinance for the entire period of use would be levied in case the HFC fails to fully utilize the refinance amount within the given time period. The said certificate is required to be submitted in format NHB-ROD(HFC)-PL-03 within 14 days of the end of the three month period from the date of release of refinance for prospective loans, confirming that the amount drawn has been fully utilized
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for advancing individual housing loans, furnishing the number of loan accounts and specifying whether it is under regular refinance scheme or Golden Jubilee Rural Housing Refinance Scheme (GJRHRS) or Rural Housing Fund (RHF) and also attesting that such loans have been duly flagged against NHB?s refinance.
11.2 Adverse Balance
HFCs availing refinance from NHB shall furnish a certificate as at 31st March and 30th September every year, duly countersigned by their Statutory Auditors, confirming that the refinance outstanding from NHB does not exceed the total outstanding housing loans, in respect of which refinance has been obtained. In the eventuality of the outstanding refinance due by HFC to NHB exceeding the aggregate of all outstanding housing loans in respect of which refinance has been availed by the HFC i.e. adverse balance, the HFC would be required to repay refinance to NHB to the extent of adverse balance. This will be based on the above certificate, in the format ROD-HFC-HY-02(a) (for 31st March) / ROD-HFC-HY-02(b) (for 30th September). In case of adverse balance, the HFCs are also required to place the above certificate to their Board of Directors before forwarding the same to NHB. On receipt of the above certificate, NHB will advise the HFC about the amount of refinance to be repaid. The HFC will be required to pay the amount within one month of the date of such advice. Credit will be given for such payments on the date of credit of the amount to NHB?s Bank Account. The HFC will be required to furnish a list of refinance releases (i.e. loan accounts relating to each drawal of refinance) in which the adverse balance has arisen, along with the aggregate of outstanding housing loan in respect of each refinance loan account. The amount repaid to NHB will be adjusted accordingly. In this context, HFCs may note the following : (a) Loan accounts pre-closed due to shifting from fixed interest rate structure to variable rate of interest or for any other reasons and opening a new loan account of the same borrower and with the same housing unit financed as a primary security shall continue to be covered under the flagged housing loans against NHB?s refinance, and will not be reckoned for computation of adverse balance. (b) Book debts flagged / covered for the purpose of collateral security / additional margin requirements will not be counted for computing the sum aggregate of all outstanding housing loans in respect of which refinance has been availed as on 31st March / 30th September, i.e. additional margin stipulated over and above the security of book debts created out of refinance will not be reckoned for the computation of adverse balance. This additional margin will be for the purpose of collateral security and has to be maintained on the outstanding refinance.
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(c) Loan accounts for which refinance has been taken from NHB should be distinctly identifiable from the records of the HFC and the list of all such accounts should be available with the HFC and continue to be maintained in the records. (d) In the case of adverse balance arising due to pre-closure of loans in normal operations of lending and accelerated repayments, the same would get automatically included while computing the adverse balance and may be repaid following the required procedure and on the advice of NHB. Such repayments due to adverse balance shall not attract any levy. (e) Funds released towards prospective loans not earlier than 3 months to the half yearly statement will not be included under NHB outstanding while computing the adverse balance in view of the lag time involved in generating housing loans.
11.3 Borrowings from Institutions other than NHB
In case the HFC borrows funds from banks / financial institutions other than NHB, it shall inform NHB about the same giving particulars about the security offered for such borrowings and follow guidelines issued by NHB in circular no. NHB/ROD/HFC/LRS/15/2005 dated February 4, 2005 this regard. In case of borrowings by way of floatation of bonds / debentures whether unsecured or secured, listed or privately placed, HFC shall apply for a No Objection Certificate (NOC). The following documents are required to be submitted with the application for the NOC : (a) Copies of the memorandum / notes placed before the Board of Directors seeking approval for the bond / debenture issue and the resolution passed thereof. (b) Certified copy of the prospectus of the bond / debenture issue. In case the prospectus is not finalised, draft prospectus may be sent. However, the HFC shall submit the final prospectus to NHB at the earliest.
11.4 Loans Eligible for Refinance from NHB
All housing loans covered under the scheme should be Standard Assets as per the Housing Finance Companies (NHB) Directions, 2001 and should be unencumbered while HFCs claim refinance from NHB and during the entire term of refinance.
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ASIAN DEVELOPMENT BANK
I. BACKGROUND A. History
1. The National Housing Bank (NHB) was established in July 1988 as the apex body for the housing finance sector. NHB is wholly owned by the Reserve Bank of India (RBI), the central bank. NHB's three primary responsibilities are to (i) mobilize resources for the housing sector, (ii) promote the development of housing finance companies (HFCs), and (iii) regulate their operations.2. The Housing and Urban Development Corporation Ltd. (HUDCO) was incorporated in April 1970 as a wholly government-owned company to promote housing and urban development, particularly for low-income and economically weaker sectors. HUDCO is registered under the Companies Act as a public limited company and managed by a government-appointed board of directors. HUDCO?s operations are divided between housing and infrastructure finance, mainly through state and local agencies, with some direct assistance to individuals under the HUDCO Niwas scheme besides assistance to some privately sponsored projects. HUDCO is mandated to lend at least 55% of its funds to low-income and economically weak sectors.
B. Scope of Operations
As a housing finance promoter, NHB financially supports HFCs and facilitates access to institutional credit. NHB provides refinancing to 31 HFCs, commercial banks, and cooperative sector housing finance institutions (HFIs). The bulk of NHB?s assistance is in the form of refinance to eligible primary HFIs in the public, private, and cooperative credit sector. As a housing finance regulator, NHB sets prudential norms
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for capital adequacy ratio (CAR), income recognition, asset classification, and provisioning on HFCs? nonperforming assets. In January 1999 the NHB board approved a new refinancing scheme for community-based financial institutions (CFIs) under which any approved institution, mainly HFCs, can avail themselves of refinance for loans made to CFls. To augment sector resources, NHB has issued a number of mortgage-backed securities (MBS). In collaboration with Canada Mortgage Housing Corporation, NHB promoted a mortgage credit guarantee company for which the Asian Development Bank (ADB) has approved equity assistance. HUDCO provides credit for housing and infrastructure development through government and privately sponsored projects; develops and disseminates low-cost and eco-friendly construction technology; builds capacity in the sector through training, research, and consultancy; helps implement housing and urban infrastructure projects secured by state government guarantees; and assists privately sponsored projects. With the emphasis on fiscal reforms in the recent years, the ability of the states to provide guarantees has been constrained, thus limiting state-guaranteed assistance by HUDCO. Its direct lending window to individuals is a recent response to these changes. HDFC has promoted home ownership by providing finance through a wide variety of products. Besides giving direct loans to individuals, which account for most loans (73% by FY2002), HDFC has also added to housing stocks through loans to corporations and state ADB. 1995. PCR for the Karnataka Urban Infrastructure Development Project . ADB. 2002. India Mortgage Guarantee Company for $10 million under the private sector window. 2 agencies. Its associates include property m anagement, credit-rating, consumer finance, infrastructure finance services, asset management, insurance, and commercial banking companies.
C. Relationship with ADB and Other Lenders
The Project was the first loan to HUDCO and NHB. ADB had provided a loan of $20 million to HDFC under the Karnataka Urban Infrastructure Development Project, which targeted lending for low-income housing and slum improvement. ADB has supported technical assistance (TA) for capacity building4. In October 2001 ADB also approved TA to assess the role of MBS5. Other external assistance for the housing finance sector comes from Germany, Japan,Netherlands, United Kingdom (UK), United States, and World Bank. Germany has extendedseveral lines of credit through Kreditanstalt fur Wiederaufbau (KfW) to HUDCO and HDFC for low-income housing and rural building centers throughout the country. HDFC has also received UK funds and assistance from the United States Agency for International Development (USAID) under its Housing Guarantee Program. NHB borrowed $25 million of an authorized $40 million from USAID to expand refinancing operations. USAID, under its financial institutions reforms and expansion (FIRE) program provided
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HUDCO with $125 million. Japan provided NHB $250 million. International funds constitute 6-7% of the total resource needs of HUDCO and HDFC, and about 12-15% of NHB?s. The main sources of NHB and HUDCO funds include domestic bonds/debentures subscribed mainly by local banks/institutional investors, some of which enjoy fiscal/regulatory incentives. By contrast, HDFC relies significantly on public deposits (45% of total funding requirements) and domestic borrowings from banks and financial institutions (about48%).
II. IMPLEMENTATION A. Lending Policies
NHB?s lending policies have evolved over the years in response to the transformation of the Indian financial sector from a regulated to a more market-oriented one. Commercial banks have been increasing their housing finance portfolio recently, and the institutional infrastructure for it has been expanding significantly. Market forces and falling interest rates have compelled NHB to be more nimble in responding to market indicators and altering its terms of refinance. The agency has introduced MBS issues, a market-oriented intervention to raise funds. HUDCO?s housing and urban infrastructure assistance mainly support governmentsponsored and -guaranteed programs, but the agency has recently opened a direct lending window for retail clients. HDFC?s corporate objective is to provide market-based loans for home ownership. The agency continues to be commercially oriented, adopting a customer-centered approach and improving operational efficiency and use of technology.
B. Operational Performance of the Borrowers 1. Organization, Management, and Staffing
NHB is managed by a board of directors comprising nominees from RBI; central Government (ministries of finance, urban development and poverty alleviation, and rural development); and state governments; and other professionals from finance, architecture, and housing sectors. NHB?s staff strength, including professionals equals 80 HUDCO is managed by a board of government nominees and government-appointed professionals . With a staff including executives, HUDCO has its corporate office in Delhi with 33 other offices. HDFC is a joint stock company listed in the stock exchanges and managed by a team of professionals under the supervision of a board of directors. The agency has a network of 118 offices and 1,029 employees, including professionals such as engineers, architects, lawyers, and financial specialist.
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2. Personnel Administration
NHB staff include professionals from diverse disciplines such as economics, finance, law, civil engineering, urban/town planning, architecture, business administration, chartered accountancy, banking, computers, and information technology. NHB conducts human resource development programs regularly to upgrade staff skills to meet market needs. HUDCO develops human resources through regular training programs. During FY2002, 470 employees were nominated for staff development programs in India and abroad. HDFC, a professionally wellmanaged organization with a pool of committed, qualified staff from various disciplines, offers market-related compensation for its staff. HDFC revises its human resource development policies and compensation package periodically to meet market needs and staff aspirations.
3. Lending Operations
NHB regulates, promotes, and financially helps the housing finance industry. NHB?s lending programs include refinance of individual housing loans (in urban and rural areas, through HFIs and HFCs), project loans, rental housing schemes, slum upgrading, and offsite/ on-site infrastructure development. NHB routes its financial assistance through a wide range of intermediary retail institutions such as HFCs, scheduled banks, cooperative banks, regional rural banks, agriculture and rural development banks, apex cooperative housing finance societies, and CFIs. Thirty-one HFCs, with a network of more than 650 branches across the country and accounting for over 95% of HFCs? market share, are approved for refinance by NHB. In its appraisal of HFCs, NHB includes assessment of their conformity to financial parameters, prudential guidelines, track record of repayments,10 etc. As of FY2002 NHB?s cumulative refinance to HFCs, commercial banks, and cooperative finance institutions 10 Maintenance of a minimum CAR of 12%, liquid assets at least at 10%, minimum net owned funds of Rs100 million, and maximum net NPL of 5% are some of the parameters.
C. Borrower’s Financial Performance
NHB, being primarily a refinance institution, has a small loan book. NHB?s disbursements increased from Rs5.3 billion in FY1998 to Rs11 billion in FY2002. Significantly,the pace of growth in NHB?s operations has slackened from an annual growth of 45.3% in FY1999 to 5.4% in FY2002, reflecting the decline of refinance as a support mechanism in an increasingly market-oriented industry. HDFC registered consistent growth in loan approvals and disbursals. With an annual average growth of 29.3%
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over the last 5 years, HDFC?s approvals increased from Rs32.5 billion in FY1998 to Rs90.4 billion in FY2002, resulting in growth of outstanding portfolio to Rs171.7 billion by FY2002. HUDCO?s operations, which registered consistent growth in loan approvals up to FY2000, fell significantly in FY2001 but recovered somewhat during FY2002 with an approval of Rs81 billion. This trend is also reflected in HUDCO?s disbursements, which grew only very modestly over the last three years. HUDCO?s loan book composition has changed recently, with the share of housing falling from 60% to 39%, and the share of urban infrastructure increasing. While HDFC has consistently had a high proportion of disbursement to approval (around 84% over the last five years), this ratio has been low for HUDCO and has fluctuated considerably year by year.
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doc_939826879.docx