CHAPTER - 1V
HOUSING FINANCE SCHEMES IN INDIA - AN ANALYSIS
House is a basic necessity. Everyone, rich or poor, whether in rural
areas or urban areas, needs a house to protect his life and property and also to
promote his well-being. Houses do a great deal more than housing the people.
They channel human relationship and are an integral part of the society. A house
is not an isolated structure but forms part of the neighbourhood and the total
community.
Housing does not mean the construction of a shelter only, a shelter
to protect way from the inclemencies of weather. Housing in its wide sense a
comprehends a shelter designed to fit in with his social and cultural wants and
located in proper environment supported by physical and social infrastructure.
The physical characteristic of the present day houses in the country
also reflects various phases of the evolutionary process in the socio-cultural
growth of the country. There is a growing demand for recognition of housing as
basic human right. Providing adequate housing is the responsibility of the State.
In a large country like lndia, natural diversities, geographical and climatic
extremes and socio- economic disparities have enhanced the magnitude of the
problem of housing. The rural urban divide is a glaring example of the disparity.
Estimates show that lndia will have 41 million people without a proper roof over
their head by the year 2000 A.D. Of this, 32 million people would be in rural
areas. Although there has been a sharp increase in the construction of houses in
the past two decades, escalating land prices, paucity of land in urban centres
and high interest rate have dampened the pace in recent years.
HOUSING SHORTAGE IN INDIA
Housing shortage is the gap between total demand and total stock
of houses. A shortage arises due to many forces among which the most
important are the slze and growth in population, the marriage age and the
prosperity of the economy
The housing shortage is estimated to have increased from 9 million
dwelling units in 1951 to 21.1 million in 1981 to 39.1 million in the year 2001.
Table No. 4.1
Source: NBO and Seventh Five Year Plan.
As is seen in Table No. 4.1, housing shortage has grown faster in
rural areas as compared to the urban sector. Rural and urban housing conditions
in the country are unsatisfactory. The migration from rural areas, growth of cities
and towns, growth of population, limited land, steep rise in construction materials
have all contributed to the problem.
In spite of the tremendous boost provided to the housing sector in
recent times, the hous~ng shortage in the country continues to be alarming. State
Govt. has encouraged specific programmes and policies in the public and private
sectors in construction activities. The housing policy aims at all-round
development in housing and environmental situation and eradicating the
bottlenecks In the housing sector. The magnitude of the housing shortage in
urban and rural areas and the year- wise details from 1991 to 2001 are exhibited
in Table No. 4.2 and a diagrammatic representatiin of the same is given in
Fig. - 1.
Table No. 4.2
Source: National milding Organization
The housing shortage which stood at 8.23 million i n 1991 is
expected to fall to 6.64 million in 2001 is due to the healthy investment from all
quarters and equalizing the resources through various housing finance
institutions and by broad-basing the institutional set up in the housing sector. The
Govt. expects to reduce the urban housing shortage to the barest minimum and
by 201 1 A.D; housing shortage will almost be negligible.
HOUSING AND THE FIVE YEAR PLANS:
The Housing Programmes and Policies of the Govt. date back to
the First Five Year Plan when the emphasis was laid on encouraging the housing
to people from various sectors. Both the central and the state Governments have
been implementing a number of housing schemes right from the first five year
plan for eliminating the housing shortage in the country. It is therefore not
surprising that houslng is regarded as an important index of overall economic
activtty. It would appear that housing has not enjoyed a high priority under our
Plans.
Though emphasis was laid on housing during the Five Year Plans,
the investment in housing was not adequate enough to meet the ever increasing
demand, owing to further growth of population and the new household
formations. In the initial stages adequate priority was not accorded to the housing
sector thus resulting in low investment in this particular area.
The allocat~on made for housing in successive Five Year Plans
reveals that though there has been a cumulative increase as compared to the
total outlay, the percentage of provision made for housing has been declining.
Total Financial Outlay and Outlay for Housing in Five Year Plans are presented
In Table 4.3
Table No. 4.3 Total Financial Outlay and Outlay for Housing in Five Year Plans
, Fl, F~eFcenGg; 1 outlay
for Housin 1150 34
:
F;i ;year Total Outlay Plans (Rs. in crore)
1 First 3360 2 Second 6750 1300 19 3 Third 10400 1550 15 4 Fourth 22635 5 Fifth 47561
172210 7 Sek 8 Ei hth
Source: Ministry
80 3 1458 10 610000 77976
Jrban Affairs and Employment.
In the First Five Year Plan, provision made for housing was 34
percent of the total plan outlay. It was 19, 15 and 12 per cent respectively in the
Second, Third and Fourth Plan periods. It was 10 per cent in the Seventh Plan
period and it was kept to the extent of 12 per cent of the total outlay during the
Eighth Five Year Plan.
HOUSING FINANCE
Housing Finance is an important element of housing policies
persuaded by'the Governments of developed and developing countries of the
world. In India the flow of credit into the housing sector comes from two sources
that is formal and informal sectors. According to Dr. Rangarajan Committee
Report in the year 1987, the formal sector comprises of :
b Central and State Governments' budgetary allocation
'i General financial institution, namely LIC, GIC, and its subsidiaries,
scheduled commercial banks and Provident Funds
P Specialized housing finance instiiutiins like National Housing Bank (NHB)
the HUDCO.
Apex and Cooperative finance institutions are in the public sector
while HDFC and other housing finance companies are in the private sector. The
informal sector consists of the households themselves, public and private
employers extending house loans to their employees and project financing by
HUDCO and other agencies outside the budgetary processes.
In lndia 1941, we had 5.72 lakhs surpluses houses, but in 1951, we
had a shortage of 2.57 lakhs houses and the shortage is co:ntinuously increasing
with the growth in population. The Government has been able to solve the
problem of food, but not shelter. For 1988 itself we needed 250 lakhs houses in
India. which required a finance of Rs. 88,000 crore. This shortage is increasing
by 3.5 per cent per annum and by 2000 A.D. lndia will require 320 lakhs houses
more. The finance of which requires Rs. 1,80,000 crore. Table No. 4.4 shows the
housing requirements in the Ninth Plan.
Table No. 4.4
As per the Ninth Plan, a total sum of Rs.150.370 crore is need for
construction of 330.1 lakhs units leaving a margin of 98.370 crore to be mobilized
Housing Requirements during Ninth Plan
No.
1 2
Segment
Urban Rural
Total
Number of Units (in Lakhs)
167.6 162.5
Source: Industrial Economist, 30'~ 0ctober - 1 4 ' ~ o v e m ~ ~ e r 1998, p. 48
Fund's Requirement From Formal
121.370 29.000
330.1 150.370
by the expansion of formal sector and also encouraging informal sector flows.
Supply demand ratio for urban housing comes to 1:3.
In such circumstances, it is not possible for the Government alone
to tackle the problem. Hence it was decided to sponsor the private sector in
housing finance through the National Housing Bank, which is a subsidiary of RBI.
They will help all private wrporations to work as per their norms. They expect the
private sector not to depend on them totally but will sponsor wrporations, which
generate funds from the public itself by. way of deposits and from the loan
seekers by way of House Loan Account Scheme.
For housing finance no recognized instiiutions were existed till
1971. When Government of lndia constituted the Housing and Urban
Development Corporation (HUDCO), individual demands for housing loans were
fulfilled by the setting up of Housing Development Finance Corporation (HDFC)
in 1977. The establishment of National Housing Bank (NHB), an apex body
owned by the RBI in 1988, has a new direction to the decentralized finance
system by promoting housing finance institutions.
The major institutions meeting the housing finance in lndia are:
1. NATIONAL HOUSING BANK OF INDIA (NHB)
NHB was set up in July 1988 under the National Housing Bank Act
1987 with the following objectives:
i. To mobilize resources for the housing sector,
ii. To promote financial institutions, both in the urban and rural areas.
iii. To provide financial, technical and administrative assistance to such
institutions.
iv. To regulate the working of housing finance institutions at all levels.
v To provide advisory services in operating the policies relating to savings
mobilization, credit appraisal, disbursement and recovery.
vi. To identrfy, legal, fiscal, institutional and other constraints to the
development of the housing finance system and to recommend measures
to remove them.
vii. Establishing House Loan Account Scheme, extending the refinancing
schemes for housing finance by commercial banks and other financial
institutions; and
viii. Co-operative land development and shelter programme of public and
private agencies through HUDCO and other financial institutions and
scheduled banks.
It must be stated that housing finance companies across the
country are confronted with a stark problem : a cash crunch of unprecedented
proportions. Refinancing is inadequate and institutional credit is limited. Many
squarely blame the NHB for the present state of affairs as the apex institution
NHB is expected to refinance approved HFCs. Currently there are about 370
Housing finance companies in the country and only 26 of them have been
approved by NHB for refinance facilities. There are a large number of HFCs,
which are depending on it for more than 65 per cent of their loan funds. The
problem is that the NHB itself neck deep in trouble due to the stock scam.
The RBI has suspended the long-term operational assistance of
Rs.50 crore to NHB. The 13 per cent bonds floated by the NHB in December 92
yielded only Rs 45 crore when compared to Rs 88 crore mobilized in 1991. The
Capital Gains Bond Scheme under which NHB mobilized Rs. 156 crore till
September 1992 has been terminated. NHB's problem has naturally had a
deleterious effect on the refinance it is able to offer to the HFCs. The
Government has been dithering over the implementation of the Working Group
Report on Finance for the Housing Sector as the RBI, the Ministry of Finance and
Ministry of Rural Development have objected to some of the important proposals
put forward by the Group. For instance, the report argued that the Government
must do away with the discrimination, which the HFCs face, compared to other
financial institutions.
There are three main factors which have a direct bearing of housing
finance, viz., I) The availability of serviced land, which is a natural resource and
cannot be changed; 2) Providing land for housing implies, cutting of other
sections like agriculture and forestry as the industrialization and urbanization
have appropriated a large chunk of land, the environment is affected by this
encroachment; and 3) the availability of building materials at a reasonable price.
Since 70 per cent of the Indians are poor, the housing components
must therefore be manageable. With this housing situations ,claiming immediate
national attention, housing finance institutions have mushroomed in the last few
years. However, despite them and their disbursement, much needs to be done
especially in areas of policy, law and taxation.
These aspects have been analyzed and reported by the Working
Grwp on Finance for the Housing Sector. It is considered as the most
comprehensive document on the subject. But many of the suggestions have
been demolished. Rejection and lethargy have also disillusioned and
d~scouraged the housing finance authorities.
2. HOUSING AND URBAN DEVELOPMENT CORPORATION (HUDCO)
Over the decades the housing scenario presents a dismal picture.
The living conditions of the people, especially those from the economically
weaker strata, are abysmally low. Shelter, even though a roof over one's head,
continues to be one of the burning issues of the day.
It is in this environment that it was decided in 1970 to establish
HUDCO as a fully owned Government of lndia enterprise with the following
conditional objectives:
i. To provide long term finance for construction of houses for residential
purposes or finance or undertake housing and urban development
programmes in the country.
ii. To finance or undertake, wholly or partially, the setting up of new satellite
towns.
iii. To finance or undertake the setting up of building material industries.
iv. To administer the money received from time to time from the Government
of lndia and other sources as grants or otherwise for the purposes of
financing or undertaking housing and urban development programmes in
the country.
v. To promote, establish, assist, collaborate and provide consultancy
services for the projects of designing and planning works relating to
housing and urban development programmes in India and abroad.
vi To subscribe to the debentures and bonds to be issued by the State
Housing Board Improvement Trust, Development Authorities specifically
for the purpose of financing housing and urban development programmes.
Incorporated on April 25, 1970, HUDCO was an expression of the
concern of the Central Government with regard to the deteriorating housing
conditions in the country and the desire to assist the state authorities and
various agencies in dealing with it. HUDCO has emerged as the leading national
techno - financial institution with the major objective of financing and
encouraging the housing activrty in the country and alleviating the housing
shortage of all groups in rural and urban areas with an emphasis to cater to the
needs of the Low Income Groups.
Resource base of HUDCO
The present paid up capital of HUDCO is Rs. 1,613 crore as
against the authorized capital of Rs. 2,500 crore. HUDCO created a reserve of
Rs. 1,126 crore over the years. This institution has further mobilized resources
from LIC, GIG, UTI, Banking Sector, International Assistance and Market
Borrowing as well as through public deposits to the tune ~f Rs. 20,006 crore. At
present the cumulative resource base of HUDCO is Rs. 28,043 crore. The details
are shown in Table No. 4.5 and 4.6 respectively.
Table No. 4.5 Resource Base of HUDCO (as on 31.03.2003)
B. INTERNATIONAL RESOURCES
Table No. 4.6
A. INTERNAL RESOURCES
Foreign Aided Projects Sanctioned
SI. No.
1
2
W, Germany DM 135M 8670 MJY (Million Japanese Yen) availed for 26 Projects
BIC, Japan for Water Supply & Sewerage Projects Rs. 345.57 Cr (LOC) ($73M) $30M (Rs. 135.60) Cr. raised from US Capital Market
ian Development $100M for Housing (Rs
Source : Website of HUDCO
Programmes of HUDCO:
-
Provisional
Capital Base (Authorized) Equ~ty (Paid-up) Share Application Money Reserves Net Worth
Borrowings (SLR Debentures, Taxablemax-free Bonds, Loans from LIC, GIC, UTI, NHB, International Borrowings, Public Deposits etc.)
In order to realize the objectives for which it was established,
Amounts (Rs. in crore) 2500 1613
50 1126 2748
20006
L Total
HUDCO has implemented a variety of schemes for providing shelter and there by
28043
improving the living conditions of the people. HUDCO extends assistance of
benefiting the masses in urban and rural areas under the broad spectrum of
programmes as described below:
Housing: Urban Housing, Rural Housing, Staff Rental Housing, Co-
operative Housing, Repairs and Renewals, Urban employment through Housing
and Shelter upgradation, Night Shelter for Pavement Dwellers, Working Women
Ownership Condominium Housing, Housing schemes through Private Builders.
In addition to Housing, HUDCO also extends assistance to
infrastructural facilities (like land acquisition, urban infrastructure, basic
sanitation, etc.), consultancy se~ices, building technology and training in human
settlements.
HUDCO's financial assistance for their projects are made available
to agencies which include State Housing Board, Rural Housing Boards, Slum
Clearance Boards, Development Authorities, Primary Co-operatives, Apex Co-
operative Housing Federation, NGOs and Professional Private Developers.
Though HUDCO started its assistance for Rural Housing only from
1977-78, its contribution to rural housing for weaker section has been significant
since its inception.
Financing by HUDCO is invariably project oriented and the
objective is to ensure that projects are affordable to the target groups and at the
same time technically sounds, financially viable and legally acceptable. HUDCO
ensures that the houses built for Economically Weaker Section (EWS) and Low
Income Group (LIG) families remain within their repaying capacity.
People who have been classified by HUDCO in different economic
categories include:
I. Economically Weaker Section Economically Weaker Section (EWS) with
household income of Rs. 1,250 per month or less.
ii. Low Income Group (LIG) - household income not more than Rs. 2,650 per
month. This group should be above EWS
iii. Middle Income Group (MIG) with household income above the LIG but not
more than Rs. 4,450 per month and
iv. High Income Group (HIG) above MIG -but not more than Rs. 4450 per
month.
The details of annual allocation of resources by HUDCO are shown
in Table No. 4.7.
Table 4.7 indicates that 30per cent of the annual allocation of
resources by HUDCO is for EWS, while the annual allocation of resources to LIG
and MIG represent 25 per cent each. The annual allocation of resources by
HUDCO to HIG and Other categories constitutes 20per cent only.
A differential interest rate policy operates for various categories of
household with over ridding emphasis on concessional rate of lending for EWS
and LIG .The lower the household income, the lower the interest rate and vice -
versa. Similarly, the lower the cost of shelter unit, the higher the HUDCO's loan
Table No. 4.7 Annual Allocation of Resources by HUDCO - 'I. No. I 2 3 4
Category Financed
EWS LIG -- MIG HIG 8 Others
- Total 100
Percentage Allocated
Source: Corporate Protile: HUDCO
30 25 25 20
55
45
component as part of the project cost. In the case of EWS where the unit cost is
Rs. 7500 or below, HUDCO finances the entire project cost.
From the following it can be seen that with the increase in unit cost,
project cost goes of declining. Details of the Extent of Financing of the Cost of
Houses to loanees coming under various categories of Income are given in Table
No. 4.8
Table No. 4.8 Details of the Extent of Financina of the Cost of Houses to Loanees corning under various iategories of lncome
Other major fields where HUDCO operates are:
I. Urban infrastructure
II. Training and Research input into Shelter Programmes
Ill. Action Plan Schemes such as:
a. Integrated low cost sanitation scheme
b. Urban employment generation schemes through shelter
upgradation and training.
c. Night shelters
d. Building centres
IV. HUDCO's asststance to rehabilitation housing for national calamities
V. Land Bank for shelterless category
VI. Layout design and analysis models developed by HUDCO
SI. No. I
- I .-..- I . - 4 1 HIG
Income Category
FWS
60
Extent of Financing of the Cost of House (in percentage)
RO
Source: Corporate Profile: HUDCO
VII. Support to building material industry
VIII. Design development and consultancy support
Trends in Sanctioning and Releasing of Funds by HUDCO:
HUDCO's programmes during the 8th plan period, i.e., from 1992 to
1997, had envisaged to support housing and infrastructure projects with a
substantial loan commitment. The sanctions were of the order of Rs. 7323 crore
and the releases were to the tune of about Rs. 5,286 crore.
The increased sanctions and release size, reflects the
Government's thrust for a larger housing effort for the poor and the urban basic
services. This prop3 indeed had helped to provide shelter and amenities to a
large number of economically weaker and socially downtrodden sections of the
society in rural and urban areas.
Table No. 4.9 Details regarding the Operations of HUDCO during the Eighth plan period
Source: Corporate Profile: HUDCO
The Eighth Plan operations of HUDCO had surpassed its financial
and operational efforts during the last twenty two years (i.e., 1972 to 1992) as is
evident from Table 4.9.
HUDCO - Vision 2002
The vision statement for HUDCO 2002 envisages the role of market
leader in supporting housing and urban development needs of the emerging 21''
century into the right choices of options, for policies, progammes and projects
and diversified mode of delivery options through public, private, cooperative,
corporate, NGO and individual sectors.
The HUDCO vision 2002, projects its activity levels of financial
sanction and releases of the order of Rs.12, 717 crore and Rs.11, 058 crore as
given in Table No. 4.70 and a diagrammatic representation of the same is given
in Fig. - II.
Table No. 4.10 HUDCO: Vision 2002 -- (Rs. in crore)
St. No. 1 2 3
Operations
. Up to Eighth Plan (70-92) Eighth Plan (92-97) Vision 2002 Ninth Plan (97-2002)
Total
Sanctions
6,801 7,323 12,717
Source: Corporate Profile HUDCO 26,841
Releases
4,358 5,286 11,058
Grand Total 11,159 12,609 23,775
20,702 47,543
As a market leader in this area of techno - financial assistance,
HUDCO would emerge as the only organization of its kind for dealing with the
needs of shelter and infrastructuie development of human settlements. In short it
would be the overwhelming endeavor to serve as an organization for housing
and urban development sector and also for meeting the goals of social objectivity
and profitability.
As HUDCO completes three decades in the service of the nation, it
has contributed its mite towards poverty alleviation with successful performance
in provision of housing and basic services. Today HUDCO's assistance covers
the housing needs of all income categories of the society with a significant
emphasis on the needs of the deprived. It covers assistance for construction of
new housing stocks as well as for upgradation of the existing housing stock with
an exclusive allocation of its annual resources for the needs of the weaker
section and low income groups. HUDCO extends funds to this section at a
cheaper and affordable rate of interest with a higher amount of funding towards
the total cost of house and a longer repayment period. HUDCO during its three
decades of existence, has extended assistance for taking up over one crore
dwelling units in total, in urban and rural areas. HUDCO's assistance for housing
in last three decades has helped in providing shelter to 101.4 lakhs families in
urban and rural areas and significantly 94 per cent has beneficiaries are the poor
and low income groups. In recent years its annual contribution has been over 1.5
million housing units. In 1999 to 2000, its contribution as part of 2 Million Housing
Programme is particularly significant as HUDCO is contributing to support more
than 4 lakhs units as a + thep!%gramme tq&yf seven hkhs in urban areas t .- 7.; y,.;;; r- \ and more than six lakhs'.@?qainst the prograhuqe target of 13 lakhs in rural
, . ,i ~
areas. Under the 2 Millin Hou- ~ % i j ~ ~ & ~ against the target of 10 lakhs
housing units, HUDCO extended support to build 10.65 lakh units in 1998 to
1999 and 11.09 lakh housing units in 1999 to 2000.
In the fiekl of provision of basic infrastructure in urban areas
HUDCO's contribution has been significant. HUDCO has assisted in the
implementation of 1811 projects with a total project cost of Rs.20,613 crore and
its loan assistance came to the tune of Rs. 12,242 crore. This covers
infrastructural facilities such as water supply, sewage, drainage, sdid water
management, transportation, including airports.
Human Settlement Management Institute (HSMI), the research and
training wing of HUDCO, is the model institute on behalf of the Ministry of Urban
Affairs and Employment to co-ordinate various training and documentation
activities under the Information, Education and Communication (IEC) component
of Swarna Jayanti Shahari Rozgar Yogana (SJSRY), the major poverty
alleviation prograri-*lie in urban area. Seventy training programmes have been
conducted under IEC during January 1999-March 2000.
HUDCO had achieved a land mark performance during 1999-2000.
HUDCO achieved an all time high sanction of Rs 8.899. 89 crore, about 33.5 per
cent growth over last year's achievement of Rs 6666.67 crore by providing
assistance for construction of 16.34 lakh dwelling units and over 1.8 lakh
sanitation units. It had also given support by taking up 86 urban infrastructural
projects through out the country. The loan amount released during 1999-2000
amounted to Rs 4,317.50 crore, which shows an increase of 35 per cent over the
period 1998-1999 (Table No.4..11). HUDCO had also received awards for its
outstanding performance as evaluated against the MOU's entered into with the
respective ministries. The award, for being the top ten Public Sector
Undertakings, was received by HUDCO from the Prime Minister on 1st April
Details regarding HUDCO's Operational Performance as on 3oth
Table No 4 11 HUDCO's Landmark Performance at a glance during 1999-2000.
- - - - --- (Rs. in crore)
June 2003 are presented in Table No.4.12
No 1 2 Source. Shelter - HUDCO publication, Vol. Ill No: 2,
April 2000, p. 6.
Operations
sanctions - -Releases
1998-'99
6,666.67 3,200.68
1999-2000
8,899.89 4,317.50
Growth (in percentage)
33.50 35.00
Table No.4. 12
From Table No.4.12, it is discernible that HUDCO has so far given
assistance for the construction of more than1.35 crore Residential Dwellings,
1.10 crore Dwellings for Economically Weaker Section, 13.84 lakh Residential
Dwellings for Lower Income Group, 4.3 lakh Dwellings and for Middle Incpme
Group and 2.67 lakh Residential Dwellings for Higher lncome Croup besides
providing financial assistance for the construction of 4.15 lakh HUDCO Niwas
Deta~ls regarding the Scheme-wise assistance given by HUDCO
upto 3oth June 2003 are given in .Table No.4.13
Table No.4.13 Details regarding the Scheme-wise assistance given by HUDCO upto 30" June 2003
Table No.4.13 indicates that a major part of HUDCO's financial
assistance constitutes assistance for Urban Housing (68.93 per cent),while the
assistance for Rural Housing; Co-operative Housing and Staff Rental Housing
represent 2.9 per cent, 1.18 per cent and 2.09 per ceni respectively.
Details regarding the Urban Infrastructure Operations of HUDCO
upto 30Ih June 2003 are exhibited in Table No.4.14
Table No. 4.14
Details regarding the Urban lnfrastructure Operations of HUDCO upto 3oth June, 2003
Source: Website of HUDCO
It can be observed from Table N0.4.14 that HUDCO's Urban
lnfrastructure Operations encompasses Utility Infrastructure, Social lnfrastructure
and Commercial Infrastructure. Among the Urban lnfrastructure Operations,
Utility lnfrastructure represents the single major component accounting for about
71.5 per cent of the total, while Sociallnfrastwcture and Commercial
lnfrastructure constitutes 7.08 per cent and 21.42 per cent respectively.
3. HOUSING DEVELOPMENT FINANCE CORPORATION (HDFC)
Incorporated 1n1977 with a share capital of Rs. 100 million, HDFC
has since emerged as the largest mortgage finance institution in the country,
promoted by lClCl and with initial investments from the International Finance
Corporation and the Aga Khan, the corporation had a series of share issue
raising its capital to Rs. 1 19 billion.
Objectives:
The prlmary objective of HDFC is to enhance residential housing
stock and to promote house ownership. Another objective is to increase the flow
of resources for housing through the integration of housing finance institutions
with the domestic capital market.
Operations:
HDFC commenced operations as a mortgage bank. It raised large
resources, both domestic and international ,and lends primarily to individual
households. In 1991, it entered the retail deposit market by offering savings and
~nvestment opportunities to households by competing with other instruments in
the financial market As a result, the number of depositors have risen from 56
thousand in 1991 to over 9, 58000 in 1998 with an outstanding amount of Rs.
44.24 billion, HDFC has a mix of individual and corporate clients ,both on the
funding and lending side.
HDFC's lease finance facilities are being offered to companies and
devebpment authorities for the development of infrastructural facilities and other
assets. Cumulative approvals and disbursements of HDFC as on 31'' March
1998 were Rs.4.33 b~llion and Rs.3.01 billion respectively.
Table NO. 4.15 shows the total resources raised by HDFC during
the years 1996 -1998, including international borrowings.
Table No. 4.15 Details regarding the Resources of HDFC from 1996 -1998
(Rs. in Billion). SI. - IF-. 1 Institutional Loans
Years 1997 1998 7.70 7.52 8.19
2 Domestic loansand Bonds 17.82 22.58 29.06 3 Deposits -- - . , - 25.13 35.02 44.24
Total .- -- -- 50.65 65.12 81.49 Source: HDFC, Corporate Profile.
The total resources of HDFC which stood at Rs.50.65 billion during
1996 has increased to Rs.81.49 billion during the year 1998,registering a growth
rate of 60.88 per cent when compared to the period 1996 as is evident from
Table No.4.15
Lending :
HDFC's loan approvals in the year 1991 aggregated to Rs. 8.14
billion, which increased to Rs. 32.51 billion by 1998. Disbursements for 1998
were Rs.27.54 billion. At the end of March 1998 the cumulative loan approvals
amounted to Rs. 148.38 billion and disbursement amounted to Rs.122.33 billion.
Financial Performance:
HDFC has a track record of high growth and profitability and has
consistently maintained a sound financial position. As at 31st March 2000
HDFC's capital and reserves were Rs.119.11 crore and Rs.1976.86 crore (Table
No.4.16).
The div~dend declared for financial year 1998 was Rs.75 per share.
The capital adequacy of the corporation as at 31st March 1998 was 17.6 per cent
as against a minimum of 8 per cent. Non-performing loans of HDFC were 0 .69
per cent of the loans outstanding.
Houslng finance companies accepting deposits are required to
obtain credit rating for their deposit instruments from a recognized agency and
HDFC was awarded "AAA rating for deposits and bonds both from CRlSlL and
The financial results for the year ended, 31st March 1999 and 31st
March 2000 is presented in Table No. 4.16
Table No. 4.16 The financial results of HDFC for the year ended, 31st March 1999 and
L - h a ? --
Source HDFC - mancia1 results dated. 3rd ME!~ 2000. 1
2 3 (2-1)
4 5 (54)
6 . - 7 - -
I I t,
Getails regarding the pattern of Shareholding of HDFC are shown
In Table No. 4.17
and Taxation) Depreciation Profit before ax Provision for Tax Net Profit Equlty Capital (Paid Up) Reserves --- Earnings Per Share (Shares of Rs.10 each during the
49.77 388.90 55.00
333.90 119.11
1,852.73
28.03
43.58 460.81 59.00
401.81 119.11
1,976.86
33.73
Table No. 4.17
Source: HDFC financial results dated, 3rd May 2000
Foreign Institutional Investors represent the major part (53.68 per
cent) of the shareholding of HDFC, while Foreign Direct.lnvestment, contribution . account for 20.89 per cent of the total. The share of Members (in the Depositoty)
works out to be a miniscule share (0.09 per cent) of the total.
Loan Portfolio
At present HDFC has 3,14.000 loan accounts with an excellent
record of loan recovery with a most sophisticated Management Information
System and loan recoveries. Non-perfonin~.i::..;?ns cover only 0.69 per cent of its
outstanding portfolio.
Other major services rendered by HDFC include the following:
I Property related services - Property identification, sales and service,
property valuat~on~
-. Training - Centre for housing finance, is an effective managerial training
~nstltut~on for houstng finance institutions and for housing finance
\i International Union for housing finance
P Major Consultancy Services - Investment appraisal for housing finance,
Development of mortgage servicing manual, Workshop on housing
finance
Housing finance companies promoted by HDFC include:
P SBI Home Finance Ltd - SBI Capital Market of HDFC
P Can Fin Homes Ltd - Canara Bank and HDFC and ADB
P GIC Housing finance Ltd. - GIC and HDFC
i HDFC Bank - The Bank was promoted by HDFC and commenced
operations in Feb.1995 with a capital of Rs.2 billion of which 25.78 per
cent is held by HDFC and 20 per cent Nat West Group. HDFC Bank has
37 branches (31st March 1998).
In order to face the cut throat competition from the banks that are
entering this sector. HDFC plans to further increase it to reach by adding
branches and opening service centres in smaller cities. As it is mainly focused on
individual customer it has been able to control -it NPA at 0.52 per cent of its loan
portfolio at present. HDFC has a very strong capital adequacy ratio of 20.8 per
cent of risk weighted assets. It has been a consistent performer. Its total income
from operations has grown to Rs.2012.86 crore on 31st March 2000 as against
Rs 1.746.87 in the financial year ended 31st March 1999.
The fall in the interest rate did not affect HDFC, as it was able to
raise deposits before ~nterest rate started coming down.
Different Home Loan Schemes of HDFC:
Home loans for Individuals I Housing Loan I Extension loans I
Home Land Purchase Loans. Under these schemes HDFC offers loans for
houses for buying or constructing home or even to extend or to improve existing
home. Purchase of land, apartments, and multi family bungalow are also allowed
in the scheme.
The maximum loan amount, which can be availed under the
scheme, is Rs.50 lakhs to an individual. HDFC will allow 85 per cent of the cost
of the property, including the cost of land.
The current rate of interest applicable in respect of total loan
sanctioned is ilj.75 per cent. Rate of interest includes interest taxes. The
effective rate of interest varies depending on the term of loan. HDFC reserve the
rate to vary the rate of Interest prospectively at any time in response to changes
In money market condltron or of a levy, tax on interest or any other charge or
burden is imposed or levled by any authority or Government.
Table No. 4.18 The current rate of interest applicable in respect of total loan sanctioned by HDFC
Loan Sanctioned Rate of Interest (%) Per annum'
12.50 13.50 14.50 14.50 15.00
Source: HDFC Corporate Profile
Home Loans for N.R.l's:
Under this scheme an NRI person can avail a maximum amount of
Rs. -50 lakhs or 85 O/o of the cost of the property including cost of the land which
ever is less.
Home Improvement Loans:
Home improvement loans are being sanctioned for:
9 Internal and external repairs
9 Water proofing and roofing
9 Internal and external painting
> Plumbing and electrical works
The loan amount will not exceed Rs. 10 lakhs or 90 per cent of the
cost of the improvement, which ever is lower.
Adjustable Rate Home Loans (ARHL):
Housing finance market has witnessed periodic fluctuations in
interest rate - both downward and upward. That is the loanee stands to gain
interest rates drop and vice versa. Adjustable rates are linked to retail Prime
Lending Rate (PLR). Kate adjustment takes place evey six months from the date
of the first disbursement, if there is change in RPLR .The Current Applicable
Rate of lnterest in respect of ARHL is presented in Table No. 4.19
Table No. 4.19 I The ~ r r e n ~ i i g " e ~ R z + o f lnterest of lRHL Current rate (%)
No. Loan Amount Bas~s ~- ~~~ ~- ~p
Per annum - - I Uq to R S -~ 1 Crore ~- RPLR 12.5 *
Wllh effect hwn May 8, 2WO (Tern 20 years -- Repayment by way of EM1 on annual rest basis)
Source: HDFC Corporate Profile
The effective interest rate of HDFC with effect from May 8,2000 on
different loan schemes were listed in Table No. 4.20 and Table No. 4.21.
Table No. 4.20 lnterest Rates of HDFC
Name of Loans No:
- - - extension loans1 land
urchase loan loans/ land
Table No. 4.21
Single Rate Irrespective of loan amount
ARHZ % I Fixed Rate %
!purfse loan for :.: Terms of Repayment
-- U to W r s
6 years - 10 years
- U to 5 m r s 6 ears-loyeam -
p.a.
12.50
Future Trends
p.a.
13.00
Source: HDFC Brochure.
-
applicable to Home Loans by HDFC
HDFC has developed a network of institution to serve its customers
-
Rate Of
- -
Interest %) P.a.
- --- - 12.50 13.50
- - 14.50
15.50 - -
with specialized finarlclal services through partnership with the best institutions in
thew particular fields of activity
Fixed Rate Home loans
source HDFC Brochure P
Processing of Admission fee
1.00 1 .OO 1 00
1 00
ROI % p.a.
1 1.50
12.50
EM1 for a loan of Rs. 10,000
350 284 246 224
(6 years)
EM1 for Rs. 1, 00,000
2,284 1,856
(for 7 years) Current ratio per annum
11.00 12.00
The Government of lndia had constituted a Committee to review
the entry of private sector in the insurance scenario and the Committee
submitted its report in January 1994, recommending major reforms in the filed of
insurance. In the light of the recommendations by the Committee, the
Government had taken a decision to deregulate the present nationalized
insurance sector and as a result of this the new lnsurance Regulatory Bill was
passed in the Parliament permitting the entfy of private sector into the field of
insurance.
HDFC's next endeavor is to enter into insurance business.
lnsurance has direct links with the competitive advantages that HDFC has
developed over the years. HDFC has a large customer base of shareholders,
depositors and borrowers. Insurance has very close links with housing finance.
HDFC has also submitted a proposal to the SEBI to launch Real
Estate Mutual Fund Guidelines are formulated by SEBI, thus expanding the
areas of which it understands best in serving customers professionally and
effectively.
4. DEWAN HOUSING FINANCE LIMITED (DHFL):
The Premier Housing Finance Corporation in private sector was
incorporated in 1984 under the Companies Act 1956. The Board of Directors
consists of eminent personalities having wide exposure and expertise in the field
of Banking and Finance. Union Bank of lndia has acquired an equity participation
In DHFLS capital structure
DHFL lends at the current rate of interest to individuals, corporate
bodies, co - operatives and associations of persons for residential houses other
than resort houses in lndia.
DHFL is classified as a " Housing Fmance Corporation by the NHB
and recognized by the Government of lndia through its Ministry of Finance.
HOUSING LOAN SCHEMES OF DHFL
Double Protection Plan
Free accident risk cover plus property insurance is offered to the
extent of loan liability to safeguard the interest of the borrower or his family.
Regressive Payments Scheme
The scheme is meant for applicants who are due for retirements
with in five to ten years and have applied joinUy with the eligible younger co-
applicants.
Special Rural Housing Scheme (SRHS)
The objective of Special Rural Housing Scheme (SRHS) is to
address the problems of rural housing through improved access to housing
credit, which would enable an individual to build a modest new house or to
improve or to add to his dwelling in 'rural area'. Rural area for the purpose of the
scheme is the area i r l any town, the population ofwhich does not exceed 50,000
as per 1991 Census
Loan w~ll be given for construction, purchase, improvement
upgradation, major repairs of houses in free hold !and in rural areas.
The interest rates applicable on home loans of DHFL during 2003 is
presented in Table No. 4.22
Table No. 4.22 Details regarding the interest rates applicable on home loans of DHFL during 2003
Annual rates of interests (fixed rates) applicable to the loan amount
ranging from Rs. 10,000 to Rs. 100,00,000 for 1 - 5 years works out to 9.25 per
cent per annum, while the same for 6 - 10 years and 11 to 20 years represent
9.75 per cent per annum and 10.25 per cent per annum respectively (Table No.
4.22). But the annual rates of interest (variable rate) for the periods mentioned
above come to 10 per cent per annum only.
House Loans Account Scheme:
DHFL is authorized to accept HLA deposits by the NHB. The
scheme is deslgned to help an aspiring house maker in more ways than one. It
inculcates the habit of saving in a planned manner by providing a person
considerable incentive by way of concessional interest rate on the housing loans.
The scheme matures at the end of five years from opening the account. A person
1s entitled to a housing loan according to his aggregate savings in the HLA
account, ranging from four times to fifteen times of the savings. The scheme
allows great flexibility in terms of the amount of deposits, frequency of deposits;
etc
Rented Housing Scheme
This scheme has devised for the benef& of employees and workers
in the corporate world. Under this scheme proposals for rental housing projects
will be considered, provided the proposal is exclusively for the employees or
workers
Land Development, Shelter Project Scheme:
This is a scheme for professional developers, applicable to project
of land development of either for plot development or for group housing or a mix
DHFL, slnce its incorporation in 1984, has taken a quantum leap in
all facets of its operations to become a front runner among housing finance
companies in India. The company has a paid up equity base of Rs. 9.03 crore,
having the following share holding pattern. Details regarding the pattern of Share
Holding of DHFL are given in Table No. 4.23
Table No. 4 23 Detail-ardtn-epattern of Share Holding of DHFL - - -- I :A I Name of the Shareholder / % Of Shares held /
. -. --
Total ~ -- 100.00 -- Source: DHFL Brochure.
LIC and Housing Finance
With a view to solve the problem of housing shortage in the country
LIC has taken massive efforts by providing financial assistance to individuals,
Co-operative housing societies and State Governments. LIC has established a
new subsidiary called LIC Housing Finance Ltd in 1989. The main objective of
this organization is to provide long t e n financial assistance to realize the
objective of National Housing society.
LIC Housing Finance Ltd (LICHF) with its network of 67 area offices
and 6 regional offices has a cumulative housing loan disbursement of over
Rs.4536 crore. It has a market share of 25 per cent of the organized housing
finance. It ranks second only to HDFC which has 54 per cent of the market share
.of the organized housing finance.
CANFIN Homes Ltd
CANFIN Homes Ltd is a housing finance company supported by
NHB on a regional level under the Indian Companies Act in the International Year
of Shelter for home less (1987) in association with UTI, HDFC, IClCl and Canara
bank Financial Services Ltd. The main objective is to lend money to individuals,
co-operatives and corporate bodies for acquisition or construction of residential
units only.
Housing Finance in Co-operative Sector:
The principles of mutual aid, self help, practice of thrift which one
the basic principles of co operative organizations, generate a sturdy feeling of
self reliance which is of basic importance in a democratic way of life. By pooling
their experience and knowledge and by helping one another, members of co-
operative societies not only find solutions of individual problems but also become
better citizens.
The Co-Operabve Societies Act of 1904, the legislation in india with
regard to Cooperatives, amended in1912 to permit the formation of solutions for
purposes other than credit. The first co operative housing society was set up in
lndia in 1909 known as Bangalore Cooperative Society in Mysore state
(Karnataka) and Bombay Co-operative housing Association in 1913 in Bombay
state (Maharashtra)
In lndia in the field of housing there is a three tier co-operative
structure with the National Co-operafive Housing Federation at the apex level
and the State Housing Federation with middle and the Primary Societies in the
lower level. There are different kinds of Housing Cooperatives in lndia, which
range from building societies to Co-operatives, Township societies and housing
cooperatives, higher purchase companies, etc.
The housing structure of co-operative housing societieq in Kerala
consists of two levels, i.e, primary and state level societies. In the state level the
Kerala State Housing Federation (House Fed) established in 1970 provide loans
and advances to primary c:ooperatives. The federation provided financial
assistances amounting Rs.1, 00,283 houses up to 1998.
At present the housing society apex co-operatives are getting
finance from LIC. NHH & HUDCO. The apex federation raises more of its funds
from LIC, NHB & HUDCO as their effective role of refinance in co-operative
sector. So the central Government must ensure the regular flow of funds to the
housing co-operatives for the execution of their housing projects because the
central Government can play an effective. role for the u p l i e n t of this institution.
The following chart depicts the channel of f iand to cooperative sector.
CHANNEL OF FINANCE
HUDCO
i -+ State Co-operqtive Housing Federation
+ Members
Role of Banks in Housing Finance:
There is a vast scope for housing promotion in India and banks can
play a vital role in the promotion of housing. To enable larger flow of resources to
the housing sector banks have been allowed to change interest at different rates,
provided they are below the prime lending rate in respect of housing finance
intermediary agencies.
Currently banks advances up to Rs. 3 lakh for housing in rural and
semi-urban areas. rhese areas are treated as priority sector advances by banks.
It has been decided to increase the limit up to Rs. 5 lakh for the purpose of
compensation of priority sector advances. The RBI has approved the advances
made by commercial banks for construction and repairs as priority sector
advances. Indirect lending through Government housing finance agencies such
as HDFC for construction of homes, slum clearances, etc will also be considered
as priority sector advancement subject to a ceiling of Rs.3 lakh per housing units.
The RBI has removed the margin restricfions on housing finance by
banks and has brought about many changes. For instance, the Syndicate Bank
provides Housing finance up to 70 per cent of the value of the property, subject
to a ceiling of Rs.25 lakh per housing unit. The banking sector received an edge
over the housing finance companies because of the lower prime lending rate.
Banks also do not levy commitment charges, administrative fees, unlike housing
f iand companies, which increase the lending cost by 1 to 1.5 per cent.
Taking advantage of the cost factor, number of banks has revised
their lending rates. ANZ Grindlays Bank have made their home loans easily
affordable through scheme like "Home Loans Umbrella, Home loans Banner" for
buying, construction, extension and renovation of houses. Syndicate disbursed
loans amounting to Rs 80.64 crore in 1997-98 and corporation bank has a target
of Rs 150 crore. in the total disbursement of Rs 126 crore in 1997-98.
Rate of Interest in Housing Finance:
Housing finance up to Rs 5 lakhs is being considered as priority
sector advance as per the RBI regulations 1997. Bank offers the most
competitive rate of riter rest ranging from 12 per cent to 15 per cent. Housing
Finance Corporation Banks offers the best rate of interest compared to other
housing finance companies ranging from 12 per cent -25 per cent to 14 per cent.
The rates of interest have been steeply decreasing from year to year due to the
acute competition among various institutions in the field of housing finance.
The Interest rates of Commercial banks and other Housing Finance
Corporations are presented in Table No. 4.24.
Table No. 4.24 Details regarding the Interest rates of Commercial Banks and other Housing
CANFIN Homes Construction
8-1 5 years
lClCl
Source: The Mathrubhumi Daily 2001, October 30. p.10.
The Repayment Method :
Considering repayment of loans in comparison with the interest
rates, different housing finance companies work out different repayment
equations. Some companies calculate interest as a monthly reducing balance
compared to HDFC the calculation is in a year reducing basic which is costlier
than monthly reducing balance method. Bank of lndia calculates interest on daily
balance system. State Bank of lndia uses a quarterly balance system while all
other banks uses monthly reducing balancing system. The other requirements for
lending housing loans slightly varies from one institution to other such as the
repayment period, monthly repayment period (EMI) maximum loan amount,
processing charges, administrative fees, penalty for premature closing and
number of documents required. Table No. 4.25 clearly shows the comparative
procedures for obtaining a housing loan from different housing finance
companies.
Table No. 4.25 Comparative procedures for obtaining a housing loan from different Housing Finance Companies and Banks
I !
I
I Maximum loan I
i 9 ' Rs.
amount [ 25,00,000
i I
- ~ 4 - -~
I Penalty for I repayment of
36 times of
monthly income or 80
%of total cost
'3 loan ahead NIL
scheduled period ~~~
I -~
Rs . 25,00,000
NIL
85 % of total cost up to Rs. 50,00,000
2 O h
11 Insurance p-
-~ - , Required Required
Rs. 10,00,000
NIL
Source: Brochure of~espective Institutions. Required Required
redemption charges
NIL
The demand for housing finance can be attributed to a fall in the
rates of interest . Other factors responsible indude the stabilization of real estate
in the country is increasing the disposable income of Government employees on
account of pay revision and acute shortage of dwelling units in the country.
Presently 150 households manage with hundred houses. As per the estimate of
Planning commission, the shortage in urban and rural housing will be 93 million
units and 29.8 million units respectively by the year 2001; thus taking the total
shortage to all most forty million units which requires an investment of Rs. 52,000
crore in the Ninth F i e year Plan period.
Housing finance companies on their part are restricting their
strategies by opening single window clearance for a number of products and
opening new service centers in various cities of the countries to tap the growing
demand.
It is important for consumer that not only he should feel pleased in
the availability of multiple sources of housing finance but also other aspects like
the interest rate, pay back facility flexibility in repayment of monthly installment
and other legal and economic conditions .
The problem of housing still past due to multi dimensional problems
encounter by HFC's themselves such as: Availability of Funds: The average
lending rate of HFC's varies between 12 to 15 per cent but the cost of raising
funds is around 16 per cent in many cases.
Entering into an Era of Rate War
Players in the field have entered to an era of rate war due to high
competitive market.
Risk of Default
Since the HFC's are running short of funds, any default by the
customers will have a direct impact on the lending capaclty of the companies.
When compared to commercial banks HFC's NPA level is only 49 per cent where
as the banks NPA comes to 8.20 per cent.
The other two major problems faced by the HFC have legal
aspects (default by borrower and time to take its settlement) and high stamp
duties.
Towards improving the quality and quantny of housing stock,
housing calls for vast capital resource but adequate incentives are not provided
to individuals for investing in instrument of housing finance. Fiscal concessions
will go a long way in mobilizing the much needed resources. The law makes
compulsory by HFC's to deduct taxes at the source on interest more than Rs.
2,500 a financial year . This is a gross discrimination as mutual funds do not
come under its purview and consequently appear attractive.
The tax sop in the union budget coupled with falling interest rate
have made housing frnance more attractive proposal for the individual today.
Most HFC's decide the quantum of loan on the basis of his income and the
assessed repayment capac~ty.
Housing finance does not enjoy the status of a priority sector. The
role played by everyone operating in this field is not very laudable. Many of the
conditions governing their operations are conducive. It is high time that the
strategic importance of housing finance is recognized and encouraged.
The economy witnessed continuation of reform and the general
policy of liberalization especially in the banking sector. This development had
important bearing on mobilization and deployment of saving potentials with
further deregulation of interest rates. For a significant development the concept
of 'Affordable Housing' is being increasingly seen in terms of cost reduction and
income up gradation rather than in the form of subsidies. This will evolve a
sustainable housing solution in the housing market.
In the changing economic scenario, it is equally important to
integrate the housing financing system with the other sectors of the economy so
that surplus funds could be channelised for housing.
A large volume of funds is to be injected to the housing sector to
improve the lending capacity.
Banks and housing finance institution should be empowered to
create equitable mortgage by taking the deposits of title deeds and given power
of sale in that court intervention. Settling a secondary mortgage market could be
a viable alternative for mobilizing additional resources.
A unlforrn and reasonable stamp duty is to introduce through out
the country to mlttgate the magnitude of the problems.
Amendment of Transfer of Property Act has been called for to
recognize the right of flat owners in a co-operative society for the creation of
mortgage.
Prov~ding housing facilities is a social responsibility of the
Government. There fore profa should be secondary, particularly the Government
sponsored housing finance company.
Removal of Urban Land Ceiling Act, grant of infracture status to
housing reduction of interest rate, for housing loan, simplified procedures in the
sanctioning of loans, more income tax concessions to individuals will give a boost
to construction.
With the rapid transformation taking place in financial system, as a
result of liberalization and globalization of capital movements, the very structure
of existing institutions are passing through the process of rigorous
transformation. Housing finance companies are also not exception to it and have
made great strides in past few years. Restructuring of these institutions and
developing appropriate marketing orientations is a major challenges faced by
them.
HUDCO's Role in housing Co- operative Finance:
HUDCO started financial assistance to rural housing in 1977-78. In
the Ninth Five Year Plan (1997 -2001). HUDCO had sanctioned loan over
Rs.14, 000 crore and released more than Rs. 12,000 crore for housing and
urban infrastructure
The housing loans sanctioned by HUDCO to primary societies
belonging different income categories are depicted in Table No. 4.26
Table No. 4.26 The housing loans sanctioned by HUDCO to primary societies belonging to different income categories up to 1-2-1998.
,a,icu,ars Income Categories
- - - - EWS I LIG MIG I . 1 Maximum Estimation 1 ,.- RS. A,.- I
1 1 (in Rupe;) .- ) ~
3 Duration ears 15 10 10 lnterest applicable to primary
- -. ~~
socie 15.2 % 19 %
-~ ~ -
Source: HUDCO Brochure: 1998
Table No. 4.26 discloses that more importance is given to more
economically weaker section in view of the extent of financing cost, iie., 90 per
cent and interest levled on such loans (12 per cent) .The period allowed for
repayment of such loans is also the maximum in the case of this category of
loanees i.e.. 15 years)