1 housin finance market in india mr.vishal nhb

8/2/2019 1 Housin Finance Market in India MR.vishal NHB

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HOUSING FINANCE

MARKET IN INDIA

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Workshop on Housing Finance, Mongolia

June 27, 2011Mongolia


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ECONOMIC HIGHLIGHTS

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Social Demographics

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Population: 1.03 billion (2001 Census) of which about 28% reside in

the urban areas. Increasing trends of urbanization with massmigration towards cities.

Young population with median age around 24.9 years.Approximately 54% of the population aged 24 years and below.

A significant proportion (57.7%) of the population in the working agegroup of (15 59) years.

Around 26.1% of the population living below the poverty line.

Increasing per capita income in recent years has led to the growth ofan emerging middle class with growing purchasing power, providingnecessary impetus for growth of consumerism.


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INDIAN ECONOMY - HIGHLIGHTS

Strong macroeconomic fundamentalsbacked by sustained growth. Services sector accounts for around 65-70% of the GDP. One of the most attractive destinationsfor FDI globally. Indication of stronginvestor confidence. Progressive measures towardsDeregulation and Globalization leading toglobal integration. Financial sector reforms backed byrobust regulatory and prudential normsleading to a well-developed banking

system and vibrant capital market. India s Mega -Cities of Mumbai &Delhi will be the word s 2nd and 3rdlargest cities by 2015. Jones LangLaSalle.

Rapid GDPGrowth

Shift towards marketbased approach

All roundInfrastructureimprovements roads,telecom, ports

FinancialSectorReforms

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Indian Economy Recent Trends

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Economic recovery during 2010-11 with GDP growth estimated at 8.6%as compared to 8% during 2009-10. (CSO Estimates)

Industrial growth recorded at 8% during 2010-11, while the Servicessector grew at 9.6% during the period.

Accentuated inflationary pressures in the economy mainly attributed tospurt in food prices during the year mainly due to supply sidebottlenecks.

Phased exodus from expansionary monetary policy towards monetarytightening so as to curb mounting inflationary pressures.

Trade Deficit declined to US$ 88.96 billion during 2010-11 (April-Jan)from a peak of US$ 118.4 billion during 2008-09.

Foreign Exchange Reserves stood at US$299.2 billion (January, 2011) ascompared to US$ 252 billion (March, 2009)


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GDP Growth Trend

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Source: Macro-economic &

Monetary Developments, RBI,2010-11


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HOUSING CONDITIONS

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Housing Stock

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As per Census 2001, total housing stock in India was about 249million units.

29% of the housing stock was in the urban areas and 71% inrural areas.

Growing population and sustained urbanization have kept theavailable housing stock under increasing pressure.

Sustained improvement in the quality of housing stock in thecountry between 1961-2001.

A majority of the households live in permanent ( pucca) or semi-permanent ( semi-katcha) houses in rural as well as urban areas.


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Housing Shortage & Slum Population

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Housing shortage in India has witnessed an increasing trend over the years. The housing shortage in urban areas at the beginning of 2007 is about 24.71

million units and is likely to go up to 26.53 million units by 2012.

In rural areas housing shortage is estimated to reach 47.43 million units by2012.

99% of the shortage in urban areas pertains to Economically Weaker Sectionsand Lower Income Groups.

As per the Report of the Committee on Slum Statistics/Census, GOI, theslum population in 2001 was 75.26 million (26.31% of the urban population).

One out of every four persons reside in slums in India s cities and townswith the proportion of population living in slums and squatter settlementssignificantly higher in metropolitan cities.

Slum population is expected to increase to 93 million by 2011 and 104.6million by 2017.


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Stakeholders in Housing

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Stakeholders Extent of Participation Focus Areas

Government Central andState Level Formulating andimplementing policies andprograms particularly for theEWS/LIG sections

Monitoring and evaluationexercises

Policy formulation andimplementation of specialprograms for EWS/LIGsections

Supportive and conduciveenvironment

Public Sector Housing Boards,Development Authorities,Public Agencies, MunicipalCorporations etc.

Provision of land and basicinfrastructure

Focus on EWS/LIG/MIGhousing

Private Sector DevelopersBuildersConstruction Companies

Integrated TownshipDevelopment particularly inmetro and semi-metro areas.Focus on MIG/HIG segments

Individuals/SHGs/NGOs Self Builders sub-contractingCooperative societies

Individual housesCooperative societiesSelf Help Groups


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Housing: An agent for Financial Inclusion

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Housing has direct impact on employment and income generation -An engine for Equitable and Balanced Economic Growth.

Impact in terms of Improved habitat, Living, Educational, Social andCultural standards leading to Human Capital Formation and therebythe future Income capabilities.

Improved productivity leads to enhanced Income, Savings andRepayment potential on sustainable lines.

Sustainable Human Settlement: An Effective tool towards FinancialInclusion with Financial Stability and Social Inclusion

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Housing Demographics

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HOUSING FINANCE IN INDIA

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Evolution & Growth

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Predominantly comprised of informal sources of credit till the late eighties asthere were very few takers of housing loans and no support for formalizedinstitutions.

In 1988 NHB was established as the promoter, financer and regulator ofhousing finance institutions in India.

Since 1988, number of HFCs have increased in the public as well as theprivate sector.

Commercial Banks, which were initially reluctant to lend, are now intodisbursement of housing loans in a major way.

Low interest rates, rising disposable income, stable property prices and fiscalincentives have made housing finance an attractive proposition.

Increase in market share of Banks from 31% in 2000-01 to over 60% in 2008-09; the growth is mainly attributed to their large network, access to low costdeposits and equity support from Govt. which have helped in offering homeloans at lower rates of interest.

Share of HFCs decreased from 69% in 2000-01 to about 38% in 2008-09.


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Key Trends

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Sustained growth in recent years with a CAGR of around 21% during2003-11 supported by a prudent regulatory regime and robustperformance of Banks and specialized HFCs.

Prudent and well-regulated lending practices have helped keep theNPA s comfortably low.

Market segmentation based on borrower profile has helped diversifyrisk.

Significant demand for housing as affordability and accessibility aremajor challenges for the low and moderate income population.

Resultant shift in market focus towards Affordable Housing. Estimated outstanding housing loan as a percentage of GDP has risen

from 3.4% in 2001 to 7.25% in 2007. However, continues to be abysmallylow compared to other countries.


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Mortgage Debt as a % of GDP

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54% 57%

40%

34%

17%

7.25% 7%

0%

10%

20%

30%

40%

50%

60%

USA U.K. EuropeanUnion

Malaysia Thailand India China


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Demand-Driven Growth

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Changing borrower demographic profile

Increasing demand for housing backed by risingdisposable income and growing social aspirations for early

home ownership.

Fiscal benefits associated with interest payment on homeloans.

Aggressive and innovative lending practices implementedby PLIs in recent years


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Housing Loan Outstanding(Rs./billion)

332 418 492 591705 862 902

1092 12681532 1807

254 328491

8531268

17912310

25782770

3159

3664

586746

983

1444

1973

2653

3212

3670

4038

4691

5471

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011*

Total

Banks

HFCs

$ 104 billion

$ 122 billion

$ 71 billion

$ 59 billion

$ 44 billion

$ 32 billion

$ 22 billion

$ 17 billion$ 13 billion

$ 82 billion

$ 90 billion

*Provisional 18


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Housing Finance Disbursements

Disbursals (INR in billion )

*Provisional

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11*

126 146 178 209260 274 317

413 484575

712

56 86236

328504 586

700784

843944

1,105

182232

414

537

764

860

1,017

1,197

1,327

1,520

1,817

Total

Banks

HFCs

$ 4 billion$ 5 billion

$ 9 billion

$ 12 billion

$ 17 billion

$ 19 billion

$ 23 billion

$ 27 billion

$ 29 billion

$ 34 billion

$ 40 billion

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Institutional Hierarchy

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Kind of Institutions Regulator Target Groups

All India Level Financial

Institutions such as NHB,NABARD

Reserve Bank of India Refinancing Institutions catering to all

segments of the society with particularfocus on EWS/LIG and rural sections.

Banks including Regional RuralBanks, State Co-operative Banksand Foreign Banks

Reserve Bank of India All segments of society in both urbanand rural areas. Initiated major stepstowards linking the informal sectorwith the formal sector..

Housing Finance Companies National Housing Bank Dedicated institutions which lendtowards housing.Catering largely to the middle andhigher income groups particularly inthe urban and semi urban areas, theyhave limited presence and reach inrural areas.

Cooperative sector Institutions State Cooperative Acts Deep presence across the country,particularly in the rural areas, however,has had limited success in lending forhousing due to poor financials.

MicrofinanceInstitutions/NGOs/SHGs

Unregulated(Act to be introduced for

regulating the same)

Recent foray into housing particularlyin respect of home improvement

finance for the poor and lower incomesegments.


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Governance

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Housing Finance Companies promoted and regulated by National HousingBank.

Banks regulated and supervised by the Reserve Bank of India.

Cooperative sector institutions adopt norms as defined under the Registrarof Co-operatives Societies registered in each State. Resultantly, suchinstitutions can have varied norms depending upon the State laws etc.

MFIs/NGOs/SHGs are currently unregulated and are guided andgoverned by their respective norms/principles etc.

Regulatory bodies under their respective acts also frame guidelines anddirections on areas such as lending norms, prudential norms, provisioningrequirements, asset quality and capital, asset liability management,customer guidelines, fair practice codes, anti-money launderingrequirements of capital, etc.


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Products Offered/Terms & Conditions

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Parameter Banks HFCs Co-operativeSector/MFIs/NGOs

Housing Productoffered

Wide range of products rangingfrom new home loans, homeimprovement loans, land purchaseloans etc.

Products include homeimprovement loans, homeextension loan, short term

bridgeloans, land purchase loan,

homeequity etc

Limited products mainlycatering to

home improvement loans beingintegrated with livelihood

finance.

Average LTV Ratio Maximum 80% Maximum 80% Maximum 75%

Average IIR Maximum 40% Maximum 40% Maximum 35%

Loan Size Average size INR 0.4-0.5 million Average size INR 0.6 million Usually up to INR 0.05 million

Loan Tenure Maximum 20 years Maximum 15 years Maximum 5 years

Interest rates Linked to Base Rates and areusually competitive on account oflow borrowing cost. Both floatingand fixed being offered.

Slightly higher than Bankshowever more competitivethan CSOs/MFIs.Both floating and fixed rates

are offered.

Usually higher than otherinstitutions on account of highercosts.Only fixed rates of interest

offered.

Security/Collateral Mortgage of the property financed Mortgage of the propertyfinanced

Mortgage of the propertyfinanced/Group Guarantee etc

Service charges Maximum 2% Maximum 2% Not available

PrepaymentCharges

Maximum 2% Maximum 2% Not insisted upon


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Issues & Challenges

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The buoyant growth in the housing and housing finance markets in

recent years, has not been inclusive. A majority of India s population, especially the poor and slum

dwellers, not only lack access to housing and housing finance in theformal sector.

In India, about 23.1% of the urban population reside in slums wherethe quality of housing stock and basic amenities like potable water,sanitation, sewerage etc. is extremely poor.

Around 99% of the housing shortage of 24.7 million at the beginningof the 11 th plan period pertains to the EWS and LIG segments.

Initiatives have been taken by the Govt. and formal and informalinstitutions, particularly targeting the neglected segments like theEWS/LIG s etc.


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INITIATIVES &

POLICY MEASURES

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Policies & Programs

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National Urban Housing and Habitat Policy, 2007Implemented by Ministry of Housing and Urban PovertyAlleviationPromote & enhance the role of Government as facilitator andregulatorFocus on habitat with regional planning approachEarmark land for EWS/LIG groupsFocus on governments social housing schemes so as to increaseaffordable housing

Jawaharlal Nehru Urban Renewal ProgramBasic Services to the Urban PoorIntegrated Housing and Slum Development

Indira Awas YojanaCash subsidy scheme for rural BPL families

Impetus on Affordable HousingInterest Subsidy Scheme for Housing the Urban Poor1% Interest Subvention Scheme


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Initiatives by Formal Sector

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Commercial Banks have successfully linked with SHG s for on-lending to their customers.

HFCs have been making continuous and sustainedefforts to reach the low/moderate income groupsparticularly the economically weaker sections.

State Housing Boards and Development Authorities havestrived to play a proactive role in the supply of housingparticularly to the EWS and LIG segments


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Informal Sector Scope & Initiatives

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The role of microfinance institutions , non-governmental

organizations and community based organizations hasremained limited due to challenges such as funding, land title, loan repayments and products.

Offering full scale financial services to the poor is critical to thepromotion of financial inclusion.

In India, the EWS and poor sections depend to a large extent,on informal sources of credit including personalmoneylenders, pawnbrokers, NGO s and community basedMFI s .

Many semi-formal providers of housing finance such asSEWA, SPARC etc. co-operate with or build CBO s to carryout their community work.


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ROLE OF NHB

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Genesis and Objective

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Absence of specialized institutions catering to housing credit needs of thepopulation.

Need for an apex level institution for developing a market-oriented housingfinance system in the country.

NHB Established in 1988 by an Act of Parliament as the Apex Institutionfor the Housing Finance System.

Wholly owned by the Reserve Bank of India.

To operate as a principal agency to promote housing finance institutions bothat 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)


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Ideology

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Vision

Promoting Inclusive expansion with stability

in the housing finance market

Mission

To harness and promote the market potentials to serve thehousing needs of all segments of the population with

focus on low and moderate income housing


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Aims and Objectives

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To promote a sound, healthy, viable and efficient housingfinance system to cater to all segments of the population.

To support housing finance institutions through financing andcapacity building measures.

To catalyze flow of funds to all regions and incomes groups.

To develop market infrastructure for sound growth of housing

finance system.

To ensure expansion and stability in the housing finance market.


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Integrated Approach

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Mutually synergic roles

Regulation & SupervisionFinancingPromotion & Development

Aimed at confidence-building among Savers, Borrowers, Lenders andInvestors, Policy Makers and International Stakeholders.

Multi-prongedSimultaneous intervention on both the demand (financial) andsupply (real) side of the housing sector.

Multi- InstitutionsFinancing a range of institutions for extensive outreach.

Multiple Products

Vision: Promoting inclusive expansion with stability inhousing finance market


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Role of the National Housing Bank

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Augmenting Resources for the housing sector

Leveraging the liquidity

Support specialized institutions to serve as dedicatedcenters for housing credit

Fill the credit gaps suffered by low income householdsby strengthening linkages between formal and informalsector.

Strengthening linkages between formal and informalsector institutions - Financing MFIs


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Summing Up

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The growth in the Indian Housing Finance Sector in recent years hasnot been inclusive. To ensure success in lending to all segments ofthe society, particularly the low income households, a broad range ofaction on many fronts are required.

SCBs being the largest institutional platform, have to play a vital role

in adopting new approaches and introducing customized andflexible mortgage products in active partnership with State & LocalGovernments and other nonprofit organizations.

The schemes evolved must not only provide an affordable housingloan product but also a complete habitat-based solution.

The Govt. has to forge partnerships with various strategic partners inthe public as well as the private sectors to ensure the vision ofAffordable Housing for All is realized.


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1 housin finance market in india mr.vishal nhb

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