India Home Loans
Housing is one of the necessities of man, and the capital required per dwelling is so large that few individuals can raise it from their own savings. There is a great need for arranging for supplying loans for the purpose of house construction. However, for some reason or other, the shelter sector of the Indian financial system remained utterly underdeveloped till the end of the 1980s. The lack of adequate institutional supply of credit for house building was stressed as an important gap in the process of financial development in India. In the recent past, the authorities have initiated certain steps to bridge this gap.
The suppliers of house mortgage loans in India are the Housing and Urban Development Corporation, the apex Co-operative Housing Finance Societies, Housing Boards, central government, state government, Life Insurance Corporation, Commercial banks, General Insurance Corporation and private housing finance companies. The participation of commercial and urban co-operative banks in direct mortgage loans has been marginal till recently. The liC has been a major supplier of mortgage loans in indirect and direct forms. It has been giving loans for house building to the state governments, apex Co-operative Housing Finance Societies, HUDCO, and so on. In addition, it has been providing mortgage loans directly to individuals under its various mortgage schemes.
HOUSING AND URBAN DEVELOPMENT CORPORATION
Housing and Urban Development Corporation was set up in April 1970 with the specific purpose of providing loans for shelter. It has been financing housing projects located in the areas where there is a keen demand not only for houses but also for commercial and industrial sites. It provides mortgage loans to the co-operative housing societies.
STATE HOUSING FINANCE SOCIETIES (SHFSs)
The State Housing Finance Societies (SHFSs) constitute another major source of funds in the residential mortgage market. These societies advance loans for the construction of houses, purchase of land, improvements to existing houses, purchase of houses, and reimbursement of mortgage debt. The terms and conditions of loans differ in every state ; they also vary with the location of the house, the borrowers income group, and the purpose of loan within the state. The amount of loan is also linked with the primary societys shareholding in the apex society. The rate of interest charged is linked with the bank rate, and/or the respective societies own borrowing rate. The mortgages are annuity mortgages with equal monthly or quarterly installments of repayment during the life of the mortgage. However, sometimes half yearly or annual installments are also made.
The main sources of funds are:
Government Investment in the share capital
Loans from the Government and liC
Fixed deposits from individuals and institutions
Issue of debentures guaranteed by the Government
HOUSING DEVELOPMENT FINANCE CORPORATION liMITED
The Housing Development Finance Corporation Ltd plays a key role in meeting housing finance requirements. The HDFC was set up in 1977 by the ICICI out of the consideration that a specialized institution was needed to channel household savings as well as funds from the capital market into the housing sector. It works through branch and representative offices. HDFCs loans were linked up with planned saving. Given the sum needed for a house, a part of it has to be in the form of saving contribution, and the rest was given by the HDFC in the form of a loan. It discontinued home saving plan scheme from March 1993 because it had become unviable.
The sources of funds are:
Deposits under various deposit schemes
Domestic long-term funds collected from commercial banks and financial institutions
Long-term loans borrowed from international institutions, such as World Bank and United States Agency for International Development (USAID) HDFC 10-year bonds New Developments
New developments that have taken place in housing finance in India are:
The entry of the liC in a major way in the direct household mortgage loan originations
The introduction of the commercial banking system in direct loan origination process
The major initiatives by commercial banks to create housing finance subsidiaries along with the existing housing finance institutions or on their own The inception of GIC in the home loan process
The co-promotion of two regional housing finance companies by the UTI
Housing and Construction Investment
The liberalization of guidelines by the RBI regarding supply of housing loans by commercial banks
National Housing Bank
The RBI under the chair of C. Rangarajan appointed a committee. It gave certain recommendations for an institutional set-up of housing finance. The recent changes are in line with these recommendations. Some of these changes are discussed below:
Commercial Banks
The role of commercial banks in housing finance had remained negligible for long. The overall policy of banks and the guidelines issued by the RBI in 1979 n this respect had tended to restrict the flow of bank funds in the housing sector. The RBI revised these guidelines in November 1988 and took many steps to increase the flow of bank credit to the housing sector, particularly for the weaker sections.
The banks give housing loans against mortgage of property, government guarantee, liC policy, government promissory notes, shares and debentures. The loans are also available for repairs, additions, acquisition and development of land. The individuals, private housing finance companies, housing finance institutions, and private builders can obtain housing loans from banks.
Housing Finance Subsidiaries
Many banks and financial institutions have now set up special housing finance subsidiaries such as Canara Bank, GIC, and liC. In 1988, Canara Bank established Canfin Homes Limited. In July 1990, the General Insurance Company set up in a joint venture with its four subsidiaries, UTI, ICICI, IFC, HDFC, and SBI Capital Markets. The liC established liC Housing Finance Ltd. in 1991. It has introduced two schemes, i.e. Jeevan Kutir and Jeevan Niwas.
0in 0in 0pt Apart from these companies, three more housing finance companies have recently been set up, namely PNB Housing Finance Ltd, SBI Home Finance Ltd, and Gujarat Finance Corporation.
National Housing Bank (NHB)
National Housing Bank is a top level housing finance institution in India. It is a wholly owned subsidiary of the RBI. It was established in July 1988. 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 support to SLDBs in respect of their housing loans through subscription of Special Rural Housing Debentures floated by them.
The NHB has taken steps to augment real resources for housing by extending them loans at market rates of interest for land development projects to be completed within a specified time limit, viz. two years or so.
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.
Other Articles
