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M.F.S. CHAPTER – 8 M. Y. KHAN

M.F.S. CHAPTER – 8 M. Y. KHAN. HOUSING FINANCE. Chapter Objectives:. Housing in India: Some Highlights National Housing Bank – An Overview, Focus Areas and Strategies NHB: Prudential Norms. Housing in India. Hosing Finance Timeline. Housing in India.

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M.F.S. CHAPTER – 8 M. Y. KHAN

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  1. M.F.S.CHAPTER – 8M. Y. KHAN HOUSING FINANCE

  2. Chapter Objectives: • Housing in India: Some Highlights • National Housing Bank – An Overview, Focus Areas and Strategies • NHB: Prudential Norms

  3. Housing in India

  4. Hosing Finance Timeline

  5. Housing in India • Central Government formulates broad policy framework • Eleventh Five Year Plan (2007-2012): • Investment Requirements for housing estimated at INR 5.1 trillion (US$ 108 bn) • Acute housing shortage estimated at over 24.7 million units – Rural: 14.1 million units – Urban: 10.6 million units

  6. Housing Finance in INDIA: Some Highlights Second fastest growing economy in the world after China Rapid Urbanization and Rising middle class Contribution of Housing in GDP is about 6% Services sector accounts for 60% of GDP Political stability

  7. Importance of Housing: Engine of economic growth Second largest employment generator after agriculture Strong backward and forward linkages with over 250 ancillary industries Estimated investment for meeting housing needs up to 2012: US $ 108 Billions.

  8. Housing Finance: Drivers of Growth • High demand growth is driven by: – Improved Affordability: • Rising disposable income • Lower interest rates • Tax incentives (interest and principal repayments deductible u/s 80 - D) – Increasing Urbanisation: • Currently only 28% of the Indian population is urban – Favorable Demographics: • 60% of India’s population is below 30 years of age • Rapid rise in new households • Increasing number of nuclear families

  9. Key Players in Mortgage Market:

  10. Marketing and Distribution • Earlier marketing scenario: • Walk-in customers • Passive marketing, belief that word of mouth from a satisfied customer was the best form of advertising • Current marketing scenario: • With increased competition, buyers’ became more demanding • Customers want door-step service • Use of direct selling agents (third party distribution channels) • Property fairs and exhibitions • Cross selling products and services

  11. Regulatory Framework For HFCs • Guidelines for HFCs with regard to minimum capital, asset composition, composition of Board of Directors and appointment of auditors. • Public Deposit Acceptance Directions – Tenor of 1 to 7 years – Cannot exceed 5 times net owned funds – Credit rating – Statutory liquidity ratio – KYC norms • • Prudential Norms – Asset classification – Provisioning requirements (Provisioning on Non-performing Loans and Standard Non-housing Assets) – Capital adequacy - Atleast12% CAR

  12. Why Housing Finance for India? • Meets housing demand (Urbanisation, Demographics) • Prevents Slum proliferation/explosion • An engine of equitable economic growth – Investments, Savings, Wealth • Contributes to poverty reduction (asset building, retirement, empowerment, community strengthening, better quality of life) • Promotes financial stability and economic growth

  13. HOUSING FINANCE MARKET Households, Corporations, Trusts, Provident Funds Reserve Bank of India External Sources Government of India Scheduled Banks LIC/ GIC State Governments N H B State Apex CHFS Housing & Urban Devpt. Corporation Housing Finance Companies Public, Pvt. Agencies/ SHGs/MFIs Primary CHFS Households & Corporations LIC : Life Insurance Corporation of India GIC : General Insurance Corporation of India CHFS : Co-operative Housing Finance Societies

  14. Housing Finance : Exponential Growth

  15. HOUSING FINANCE – Exponential Growth Rs. in billion Housing Loans Disbursals Data pertained to banks and housing finance companies

  16. Share of Housing & Consumer Durables in GBC Source : RBI

  17. National Housing Bank - An Overview

  18. National Housing Bank • Established in 1988 by an Act of Parliament • 100% owned by Reserve Bank of India • Headquarters at Delhi • OBJECTIVE: “To operate as a principal agency to promote housing finance institutions both at local and regional levels and to provide financial and other support incidental to such institutions and for matters connected therewith … … shall act on business principles with due regard to public interest.” (National Housing Bank Act, 1987)

  19. National Housing Bank – FUNCTIONS • Promotion and Development of HFIs • Regulation and Supervision of HFCs • Financing Refinance for Individual Loans - Primary Lending Institutions Direct Finance for Projects - Public Agencies / Private & Joint Sector Corporate/s, Builders/NGOs/SHGs / MFIs

  20. BUSINESS OBJECTIVES • “To provide affordable housing to common man” • Develop Market Related Housing Finance System focusing on Unserved and Underserved segments • Catalyze Increased Investment through Private Sector Participation • Seek to reduce housing shortage say by 30% in next 3 years • Develope 15 lakh houses in 3 Years : To Divert Rs.75,000 crores institutional credit flow into housing sector

  21. Focus Areas

  22. Extreme Focus : Social and Financial Inclusive Housing • Rural Housing • Urban Renewal • Market Development • Capacity Building and Technical Assistance

  23. Public Private Partnership (PPP) Model • Salient Features of Public Private Partnerships Model: • Private Sector: • Innovation, Use of Technology • Professional Management • Quality Assurance • Efficiency and Speed • Maintenance Practices and Sustainability • Public Sector: • Policy Setting • National Planning • Regulation and Governance • Looking after Public Interest • Facilitating Economic Growth and Development

  24. NHB: PRUDENTIAL NORMS INCOME RECOGNISION - On Cash Basis. BASIS OF NPA: - ASSETS – “THE INTEREST HAS REMAINED PASTDUE FOR 6 MONTHS” - TERM LOAN - do - DEMAND/CALL LOAN - do - BILLS - do - LOAN AND ADVANCES – 6 MONTHS - do

  25. NHB: PRUDENTIAL NORMS – CONT… • INCOME FROM INVESTMENT: - IN CASE OF DIVIDEND FROM CO’S AND MF – CASH BASIS. - IN CASE OF BONDS AND DEBENTURES OF CORPORATES AND GOVT. – ACCURAL BASIS. • ACCOUNTING STANDARDS: - ACCOUNTING STANDARDS ISSUED BY “ICAI” MUST BE FOLLOWED.

  26. NHB: PRUDENTIAL NORMS – CONT… • INVESTMENT GUIDELINES: - HFCs ARE AUTHORISED TO INVEST IN SHORT TERM ASSETS AND LONG TERM ASSETS LIKEWISE… - EQUITY SHARE - PREFERENCE SHARE - DEBENTURES/BONDS - GOVERNMENT SECURITIES/ T – BILLS - UNITS OF MUTUAL FUND - AND OTHER INSTRUMENTS PRESCRIBED BY RBI

  27. NHB: PRUDENTIAL NORMS – CONT… ASSET CLASSIFICATION: 1. STANDARD ASSETS: - “THERE IS NO DEFAULT IN TERMS OF INTEREST OR PRINCIPAL REPAYMENT AND DOES NOT CONTAIN MORE THAN NORMAL RISK” 2. SUB-STANDARD ASSETS: - “IT IS THE ONE WHICH HAS BEEN CLASSIFIED AS NPA FOR A PERIOD NOT EXCEEDING 2 YEARS” 3. DOUBTFUL ASSETS: - “IT MEANS ANY LOAN/LEASED/HIRE PURCHASE ASSET WHICH HAS BEEN CLASSIFIED AS NPA FOR A PERIOD EXCEEDING 2 YEARS”

  28. NHB: PRUDENTIAL NORMS – CONT… 4. LOSS ASSETS - “IT IS THE ONE WHERE THE LOSS HAS BEEN INDENTIFIED BY NBFC OR THE AUDITORS” AND THERE IS A THREAT OF NON-RECOVRY DUE TO REDUCTION OF THE VALUE OF THE SECURITY OR DEFAULT ON THE PART OF THE BORROWER”

  29. NHB: PRUDENTIAL NORMS – CONT… • PROVISIONING REQUIREMENTS: 1. LOSS ASSETS: 100% PROVISIONING 2. DOUBTFUL ASSETS: 3. SUB STANDARD ASSETS: GENERAL PROVISION OF 10% OF TOTAL OUTSTANDING AMOUNT…

  30. NHB: PRUDENTIAL NORMS – CONT… DISCLOSURE IN BALANCE SHEET: - “EVERY HFC SHALL SEPARATELY DISCLOSE IN THEIR BALANCE SHEET, THE PROVISIONING IN RESPECT OF NPAs WITHOUT NETTING (WRITING OFF) THEM FROM THE INCOME OR VALUE OF THE ASSETS” - DEPRICIATION PROVISION FOR INVESTMENTS.

  31. NHB: PRUDENTIAL NORMS – CONT… • CAPITAL ADEQUACY REQUIRMENTS: • EVERY HFC SHALL MAINTAIN MINIMUM (TIRE -1 + TIRE – II) CPAITAL OF 12 PERCENT OF THEIR DEPOSIT LEVEL. • TIRE – I CAPITAL: IT INCLUDES “NET OWNED FUNDS” • TIRE – II CAPITAL: - TIRE – II CAPITAL MAINLY INCLUDES PREFERENCE SHARE, REVALUATION RESERVES, GENERAL PROVISIONS AND LOSS RESERVES, HYBRID DEBT ETC. - AT ANY POINT OF TIME, THE TIRE – II CAPITAL SHOULD NOT EXCEED 100% OF TIRE – I CAPITAL.

  32. NHB: PRUDENTIAL NORMS – CONT… • RESTRICTIONS ON INVESTMENT IN LAND, BUILDING AND UNQUOTED/UNLISTED SHARES • - MAX. LIMIT 20% OF NOF. • CONCENTRATION OF CREDIT AND INVESTMENTS: - MAX. CREDIT TO SINGLE BORROWER – 15% OF “NOF” - MAX. CREDIT TO GROUP OF BORROWERS – 25% OF “NOF” • SUBMISSION OF HALF YEARLY REPORTS TO NHB

  33. Thank You Visit us at : www.nhb.org.in

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