CONTENTS

Chapter Heading	Pages
ECONOMIC SCENARIO : 1999-2000	2-3
HOUSING SCENARIO:1999-2000	4-9
INSTITUTIONAL FRAMEWORK FOR HOUSING FINANCE : HOUSING FINANCE COMPANIES	10-25
INSTITUTIONAL FRAMEWORK FOR HOUSING FINANCE: BANKS	26-33
INSTITUTIONAL FRAMEWORK FOR HOUSING FINANCE : COOPERATIVE SECTOR	34-39
NATIONAL HOUSING BANK (NHB)	40-49
7. ASSET QUALITY IN HOUSING FINANCE	50-52
GOVERNMENT HOUSING INITIATIVES	53-59
NATIONAL HOUSING BANK (AMENDMENT) ACT, 2000	60-63
MORTGAGE BACKED SECURITISATION (MBS)	64-69
ANNEXURE	70
GLOSSARY	71-72

CHAPTER – I

1.1 Over the years it has become increasingly obvious that the housing sector is closely connected to the overall economy. In any country, the macro-economic environment has a direct bearing on the housing market and housing finance and vice versa. It is also becoming evident that the economic uplift of the developing nations cannot be achieved solely by foreign capital and import of technological know how. Economic and social developments critically depend on the broader actions enabling people to develop a sense of responsibility and belonging whereby individual performance can be used in the interest of material and social improvement of the community. Acquisition of homeownership renders the essential confidence and social status to an individual by virtue of which he/she can reach the zenith of his/ her potential. In the broader perspective, homeownership stabilizes the aggregate demand conditions in the macro-economic sense, improves the housing situation, generates effective employment and adds to fixed capital formation and assuages the pressure on the social-welfare system. Hence, the socioeconomic significance of housing is far-reaching in any country and shall never be undermined particularly in the context of a developing nation like India.

1.2 The Indian economy witnessed a marginal decline in the real GDP during the year 1999-2000 with the real GDP growing at a rate of 6.4% during the year. There was, fortunately, no inflationary pressure during most part of the year and the foreign exchange reserves position also remained comfortable. All these combined together had a positive impact facilitating further growth. In the recent years the growth prospect of any market economy has been highly dependent on the global economic and financial market conditions. During 1999-2000, with the improvement of global growth and trade opportunities, the world by and large experienced a stabilization in the troubled economies, particularly in the south-east Asian region. In India, a favourable global as well as national macro-economic environment contributed effectively to the growth in the housing finance segment despite the pressure caused by the continuing fiscal deficit alongwith varying liquidity conditions and interest rate structures.

1.3 The experiences of new-economies of the world revealed the potential of the housing sector to act as an engine of growth. At home, the Government of India also started meting out considerable priority to the housing sector and made its commitment evident to the development of the housing sector and housing finance system. During the past three years, successive Union Budgets have announced measures resulting in significant growth in the housing sector. The budgetary measures have sought to improve investments in housing activities through fiscal incentives announced for various stake holders in the housing sector viz. borrowers, investors, lending institutions and construction agencies. Besides the annual budgets, the Government has also undertaken a number of sector specific policy interventions as a part of the National Agenda for Governance. The Union Budget for the fiscal 2000-01 proposed to emphasize the following aspects of growth:

  revitalize the rural economy-agriculture and allied activities

  nurture the potential of knowledge-based industries

  strengthen and modernize traditional industries

  combat infrastructure bottlenecks in a sustained manner

  prioritize human resource development specially the weaker section of the economy

  impart sufficient credibility to the fiscal management to support the aggregate growth strategy

1.4 A more liberalized external regime combined with a high level of food stocks and a high level of foreign exchange reserves was expected to strengthen the supply side mechanism during the year 2000-01. On the demand side, the budget stance of reining in the overall fiscal deficit was also expected to contribute favourably to augment the aggregate effective demand.

1.5 In the backdrop of the congenial economic environment, the Reserve Bank of India (RBI) reduced the Bank Rate by 100 basis points during the year besides reducing the cash reserve ratio from 9% to 8% in April, 2000. Following the policy measures of the Reserve Bank of India, most public sector banks announced a reduction in their lending as also their deposit rates. All these are expected to have repercussions on the housing finance market as well.

CHAPTER – II

2.1 Over the years housing and housing finance activities have assumed a prominent role in the economic development of a country through their numerous backward and forward linkages with the rest of the economy. Hence, any development in this sector would have a multiplier effect on the equilibrium level of income of a country. As the past experience indicates that housing finance activities in most parts of the world have been a low-risk, consistent business proposition, it can be effectively used as a built-in-stabilizer in the macro system where the other financial activities are comparatively more volatile in nature. In other words, investment in housing is expected to bring about a steady and sustainable growth in the economy even if not spectacular. It is a reality that till date many countries in the world have not been able address the problem of providing adequate shelter to every citizen of the country. It is more so in the case of developing / underdeveloped countries. The housing situation and particularly the housing shortage in India has been a matter of grave concern for the decision makers as well as common populace for quite some time. In developing nations like India, housing can contribute effectively in fixed capital formation as well as creation of productive employment. In an increasingly inter-linked global economic environment, any major financial activity is bound to have certain international exposure and housing finance is no exception to this rule. For example, the economic growth and price stability of any country depends, to a considerable extent, on the international conditions. This, in turn, affects the domestic rate of interest and eventually the quantum of saving-investment and the economic equilibrium. Over the past few years, housing finance has become an increasingly attractive business proposition especially for financial institutions in India owing to its low-risk characteristics. At the same time, due to the industrial recession in the past couple of years, there has been a dearth of alternative avenues for deployment of funds by these institutions, which might have also contributed positively to enhance their interest in housing. The sector has also received special fillip with the facilitating fiscal incentives announced in the last two Union Budgets.

2.2 The ideal strategy to tackle the housing problem, however, needs to be based on simultaneous intervention in the financial sector as well as the real sector which postulates the need for increased supply of loanable funds for creation of housing stock, efforts to augment the supply of developed land and building materials, containing the costs of construction and enhancing the levels of affordability. Rationalization of the various laws and regulations governing the housing sector and simplification of the rules and procedures relating to land records maintenance and title verification, municipal laws governing the supply of infrastructure services and provision of housing are expected to enhance the transactions in the formal sector and increase efficiencies, thereby resulting in better performance of the sector.

2.3 The information regarding actual magnitude of the housing shortage in the country is collated during every census. The results of Census of 2001 are yet to be finalised and the actual magnitude of the shortage will be known only then. However, based on the 1991 census, the National Buildings Organisation (NBO) has estimated that the housing shortage by the year 2001 will be 19.40 million units. Of these 12.8 million dwelling units (65.98 per cent) would be in rural areas and 6.6 million dwelling units (34.02 per cent) in urban areas. The Government of India has envisaged construction of two million houses additionally every year under the National Agenda for Governance out of which 1.3 million dwelling units are proposed to be constructed in the rural areas and 0.7 million dwelling units in urban areas. Inspired by the thrust given by the Central Government to the housing and the housing finance sector in the last couple of Union Budgets, the disbursements of housing finance by the various financial institutions has recorded significant growth. During the first three years of the Ninth Five Year Plan [1997-2002], the housing finance companies approved by the National Housing Bank (NHB) for its refinance assistance [which account for nearly 98% of the total housing finance business carried out by these category of institutions] disbursed an amount of Rs. 22977.27 crore as against a total target of Rs. 12000 crore during the 9 th Plan period with an average annual growth rate of 28.51 % . As per the information available with NHB, the banking sector also disbursed a sum of Rs. 15147.34 crore between the year 1997 and year 2000, exceeding the stipulated housing finance allocation of RBI in each financial year. The state level apex cooperative housing federations disbursed an amount of Rs. 1886.31crore as loans to primary housing cooperatives during the first three years of the 9 th Five Year Plan with an annual average growth of 16.71%.

2.4 One of the main bottlenecks facing the housing finance sector is the non-availability of long-term capital for investment. Traditionally, the funds for the housing sector have come from the individuals themselves by way of their own savings or from the financial institutions who are primarily engaged in the intermediation process of channelising funds from the savers to the borrowers. However, the funds so mobilised through the formal sector financial institutions have been much lower than what is required to tackle the housing problem. In the absence of long-term market for resources, the Government has to play a significant role in making available long-term resources. In our neighbourhood, in countries like Korea, Philippines, Singapore, Thailand etc. the Government has been making available substantial funds for housing at subsidised rates. One way of raising long term resources needed for the housing sector could be securitisation of mortgages. Securitisation offers a viable, sustainable and market oriented sourcing mechanism for funds. However, in order to make the instrument acceptable to the investors, a few measures are required. For example, the issues related to sale of mortgage loans (transferability of assets, method of transfer), insolvency of the originator, issuance and transferability of MBS, foreclosure of mortgages, provisions concerning investments by institutions, fiscal issues relating to borrowers, originators, issuers & investors, accounting issues and regulatory issues need to be resolved. Hence, the Government supports to ensure an efficient foreclosure mechanism, rationalisation of inter-state variances in stamp-duty & registration charges, mandatory identification of risks and rating of MBS, standardisation in accounting procedure and a friendly taxation treatment would go a long way in enhancing the long-term flow of funds for the sector. These issues are discussed at length in a later chapter in this Report.

2.5 The inelastic supply of land has also resulted in a spurious increase in the real estate cost and has priced out many potential house owners. The Central Government had taken a bold initiative in repealing the Urban Land (Ceiling & Regulation) Act. However, many major State Governments are yet to do so. The very high cost of stamp duty payable at the time of purchase of the property has also been acting as disincentive for owning a house. This has also resulted in the properties being undervalued. It is, therefore desirable to reduce the stamp duty on conveyancing. Besides, it is also desirable to have a uniform stamp duty structure throughout the country. Housing finance companies extend loans on the mortgage of the property and the borrowers are required to execute documents for creation of mortgage in favour of the housing finance companies. Most of the housing finance companies obtain security of mortgage by deposit of title deeds and the Memorandum of deposit of title deeds to be executed by the borrower in this regard is required to be stamped. In some states, it does not attract stamp duty whereas some other State Governments are charging stamp duty on Memorandum. Once all the State Governments allow exemption from stamp duty, the cost of borrowing of housing loan will go down for the individuals.

2.6 In our country where a proportion of the population cannot afford a house, the alternative is to provide houses on rent. With the Rent Control Act as is existing today in many States being in the favour of tenants, people who can afford to build houses to be let out on rent are not coming forward. It is because of this reason, many houses which are otherwise eligible for being rented out have been kept vacant. The Central Government has already enacted a Model Rent Control Act. Housing being a State subject, the State Governments need to follow suit.

2.7 In terms of the estimates of the National Buildings Organization (NBO), the housing shortage in the country is more in the rural areas. The primary lending institutions have expressed that they are unable to lend more in the rural areas mainly because of absence of clear title to the land on which the house is to be constructed and non-acceptability of agricultural land as collateral security for housing. The respective State Governments will have to play a facilitating role so that the lending institutions can lend with comfort to the people in these areas.

2.8 The recent thrust given by the Government to the housing and housing finance sector and the various fiscal concessions offered by the Government to the people have had the desired effect. The demand for housing has picked up. This is evident from the growth of housing finance disbursed by the housing finance companies.

2.9 The Union Budget for the year 2000-01 contains the following measures to encourage housing activities:

  The provision of deduction of interest, on account of borrowed capital in the acquisition or construction of a house for self occupation, available under section 24(1)(vi) of the Income Tax Act,1961, has been increased from Rs.75,000 to Rs.1,00,000, provided the property was acquired or constructed with capital borrowed on or after 1.4.99 and the acquisition or construction completed before 31.3.2003.

  The ceiling on the amount eligible for rebate under Section 88 of the Act ibid, on the repayment of principal of housing loan, has been increased to Rs.20,000 from the earlier level of Rs.10,000.

  Exemption from Income Tax under section 54 F in respect of long term capital gains arising from the transfer of capital assets (not being a residential house) and invested in the manner prescribed is now available to an assessee, even if he already owns one house.

Besides the above, the Union Budget includes several measures in respect of rural housing. A goal of providing 25 lakh dwelling units in rural areas has been fixed. The following measures have been included in this regard:

  To provide more than 12 lakh houses under the Indira Awas Yojana for people below poverty line.

  To construct of 1 lakh houses for families with income below Rs.32, 000 per annum, under a credit-cum-subsidy Scheme.

  To construct 1.5 lakh houses under Golden Jubilee Rural Housing Finance Scheme with refinance assistance from the National Housing Bank to banks and housing finance companies

  To increase the equity capital of HUDCO by Rs.100 crores to facilitate construction of about 9 lakh houses in rural areas

  To support construction of another 1.5 lakh houses through cooperative sector and voluntary agencies etc.

2.10 Amendment to the NHB Act

2.10.1 In the context of the larger outlay envisaged in the 9 th five year plan and since accessibility of credit by the economically weaker sections and affordability continue to be the critical aspect of the housing sector and in the light of experience gained so far, there was a felt need to instill requisite thrust to the sector so as to enable it to respond better to the demands of a dynamic environment. In addition, in the context of establishment of a sound housing finance system, NHB has also been entrusted with responsibilities to regulate the deposit acceptance activities of housing finance companies (HFCs) under the NHB Act. The provisions of the NHB Act pertaining to regulation of the deposit acceptance activities of HFCs were analogous to the provisions contained in the Reserve Bank of India Act, 1934 concerning the regulation of non-banking financial companies (NBFCs). The RBI Act was amended in January 1997 strengthening the regulatory and control provisions. The NHB Act was, therefore, required to be amended on lines of amendment to the RBI Act. The National Housing & Habitat Policy and both the 8 th and the 9 th five year plans have focussed on the need to augment larger resources for the housing sector through asset securitisation. Further, the Housing & Habitat Policy has ascribed a lead role to NHB in initiating the process of mortgage securitisation and development of a secondary mortgage market. In order to enable NHB to set up appropriate institutional mechanism for this purpose, certain amendments to the existing Act were required. A Bill to amend the NHB Act was introduced in the Rajya Sabha on March 16, 2000 and after it was considered and passed by both the houses of the Parliament, it received the assent of the President on May 24, 2000. The National Housing Bank (Amendment) Act has come into force from June 12, 2000.

2.10.2 The salient features of the amendment to the NHB Act are as under:

  Regulation of Deposit Acceptance activities : Amendments have been carried out with a view to safeguard public interest by introducing registration of HFCs, maintenance of liquid assets, creation of Reserve Fund etc. ;

  Asset securitisation and development of a secondary mortgage market by NHB in the country;

  A simple, speedy and cost effective method of recovery of overdues by the housing finance institutions by providing for the sale of property charged as security for the loan assistance granted by such institutions ;

  Enhancement of the authorised capital of the National Housing Bank to rupees two thousand crores. The amendment also provides for broader share-holding in the equity of NHB by public sector institutions and other institutions owned or controlled by the Central Government with the provision that the aggregate share holding by these institutions shall, at any time, be not less than fifty-one percent.

  Restructuring of the Board of Directors of NHB; and

  Authorising NHB to undertake certain additional business of financing agriculture and rural development banks or any other institution or group of institutions as may be notified by the Central Government, making of loans and advances for residential township-cum-housing development projects, undertaking securitisation of loans, setting up of mutual funds and undertaking or participating in housing mortgage insurance business, and promoting mortgage banks.

In concurrence with financial sector reforms, the amendments to the NHB Act, 1987 are expected to encourage healthy competition among various players of the housing sector, to result in easier availability of better quality products at affordable prices to the borrower.

Details pertaining to provisions under the amended Act are discussed at a later chapter in this report.

CHAPTER-III

3.1 The total number of HFCs in the mailing list of NHB as on 31 st March, 2000 was 341 as against 368 in the preceding year. Of these, NHB has received data as per the statutory return from 83 HFCs under its system of off-site supervision in terms of the Housing Finance Companies (NHB) Directions, 1989. Since the accounting year for the HFCs is April-March, the statistical data given in this chapter are as at the end of March, 2000. For the purpose of analysis of the data, these 83 HFCs are grouped into three categories as follows :

Categories of HFCs	31 st March, 1998	31 st March, 1999	31 st March, 2000
A]HFCs which have furnished the data	119	100	83
B] Out of A],HFCs approved for financial assistance from NHB (approved HFCs)	26	29	26 ã
C] Out of A], HFCs having NOF Rs.50 lakh and above ( excluding approved HFCs )	38	30	29
D] Out of A], HFCs having NOF less than Rs.50 lakh	55	41	28

3.2 During the year 1999-00, no HFCs have been included in the list of HFCs approved for financial assistance from NHB. Thus, the number of approved HFCs as on 31 st March, 2000 is 29.

Table 3.1 : Broad financial information as on 31st March, 2000

(Rs. in crore)

Category of the HFC	Paid up capital	Free Reserves	NOF	Public Deposits o/s	Housing Loans o/s
A] HFCs approved for financial assistance from NHB
As on 31st March, 2000	1393.88	3426.00	4701.62	7180.98	25140.13
As on 31st March, 1999	1128.57	3126.89	4121.80	6088.95	24975.10
B] HFCs having NOF Rs.50 lakh and above
As on 31st March, 2000	121.82	11.62	124.71	44.98	175.95
As on 31st March, 1999	81.94	17.97	95.17	47.77	98.69
C] Other HFCs
As on 31st March, 2000	5.94	0.53	3.75	7.47	9.93
As on 31st March, 1999	6.27	0.58	4.40	14.50	10.01
Total
As on 31st March, 2000	1521.64	3438.15	4830.08	7233.43	25326.01
As on 31st March, 1999	1216.78	3145.44	4221.37	6151.22	25083.8 0

 

Source: Annual Statutory Returns

3.3 The above analysis indicates that the NOF of approved HFCs, which amongst themselves account for around 98% business in the housing finance sector by this category of institutions in the country, increased by 14.07% from Rs.4121.80 crore as on 31 st March, 1999 to Rs.4701.62 crore as on 31 st March, 2000. Significantly, the category of HFCs having NOF Rs.50 lakh and above has also registered a growth of 31.04% during the year as it increased from the earlier level of Rs.95.17 crore as on 31 st March, 1999 to Rs.124.71 crore as on 31 st March, 2000. The NOF of all the HFCs reporting to NHB increased from Rs.4221.37 crore as on 31 st March, 1999 to Rs.4830.08 crore as on 31 st March, 2000, thus registering a net increase of Rs.608.71 crore with a growth percentage of 14.42% .

3.4 It may also be observed that of the total outstanding housing loans of Rs.25326.01 crore as on 31 st March, 2000, the outstanding housing loans of approved HFCs account for Rs.25140.13 crore, representing 99.27% of the total housing loan portfolio. Similarly, the amount of outstanding public deposits with the approved HFCs as on 31 st March, 2000 was Rs.7180.98 crore as against the total of Rs.7233.43 crore in respect of all the reporting HFCs.

  The amount of housing loans sanctioned and disbursed by approved HFCs have shown steady growth over the last four years :

Table 3.2 Housing loans sanctioned and disbursed by approved HFCs*

(Rs. in crore)

	1996-97	1997-98	1998-99	1999-2000
SANCTIONED	5546.02	8155.99	10319.18	14351.20
DISBURSED	4627.74	5767.55	7399.69	9812.03

*figures given in this table are enumerated from the balance sheet of approved HFCs and not from HFC.DIR.I & HUDCO figures are inclusive of infrastructural assistance

ã Of the 29 approved HFCs, 3 HFCs viz. Happy Home Profin Ltd., GIC Housing Finance Ltd. & Orissa Rural Housing Development Corporation have not furnished data.

3.6 The outstanding public deposits with all 83 reporting HFCs increased by 17.59% to Rs.7233.43 crore as on 31 st March 2000 as against the previous year’s figures of Rs.6151.22 crore.

A] HFCs approved for financial assistance from NHB

3.6.1 The outstanding public deposits with the approved HFCs which stood at Rs.6088.95 crore as on 31 st March, 1999 rose by Rs.1092.03 crore to stand at Rs.7180.98 crore as on 31st March, 2000, thereby registering an increase of 17.93%.

B] HFCs having NOF Rs.50 lakh and above

3.6.2 The outstanding public deposits with HFCs having NOF Rs.50 lakh and above continued to decline for second consecutive year to stand at Rs.44.98 crore as on 31st March, 2000 as against Rs.47.77 crore as on 31 st March 1999, a decline of Rs.2.79 crore. This decline can be largely attributed to the fact that many HFCs in this category became ineligible to accept public deposits due to non-compliance with the requirements of directions/prudential norms prescribed by NHB.

C] Other HFCs

3.6.3 The outstanding public deposits with other HFCs which were Rs.14.50 crore as on 31 st March, 1999 decreased to Rs.7.47 crore as on 31 st March, 2000 owing mainly to the reason stated above for the decline in the deposits of HFCs having NOF Rs. 50 lakh and above.

Table 3.3 : Category-wise public deposits

(Rs. in crore)

	Outstanding public deposits as on 31 st March
Category	1998		1999		2000
of the HFC	No. of A/cs	Amount	No. of A/cs	Amount	No. of A/cs	Amount
a) HFC approved for financial assistance from NHB	1540887	5876.19	1622399	6088.95	1537531	7180.98
b) HFCs having NOF Rs.50 lakh and above	70698	88.56	33391	47.77	28048	44.98
c) Other HFCs	62863	18.83	56217	14.50	13695	7.47
Total	1674448	5983.58	1712007	6151.22	1579274	7233.43

3.7 Classification of public deposits

The classification of public deposits as per size, maturity and interest rate for different categories of HFCs is given below:

3.7.1 Size-wise classification

Table 3.4 : Size-wise public deposits with all reporting HFCs

(Rs. in crore)

Size-wise	Outstanding public deposits as on 31 st March
public deposits	1998		1999		2000
	Amount	%	Amount	%	Amount	%
Upto Rs.5,000	53.36	0.89	128.73	2.09	104.47	1.44
Rs.5,001 to Rs.10,000	184.38	3.08	431.27	7.01	343.69	4.75
Rs.10,001 to Rs.25,000	390.54	6.53	905.74	14.72	877.88	12.14
Rs.25,001 to Rs.50,000	340.59	5.69	1087.84	17.69	1208.55	16.71
Rs.50,001 to Rs.1,00,000	261.89	4.38	971.15	15.79	1042.24	14.41
Over Rs.1,00,000	4752.82	79.43	2626.49	42.70	3656.60	50.55
Total	5983.58	100.00	6151.22	100 .00	7233.43	100 .00

It is observed that the share of public deposits of over Rs.1,00,000 which accounted for more than 79% of the total deposits in 1998 and subsequently fell sharply to less than 43% as at the end of March,1999, a gain increased to account for 50.55% of the total deposits as on 31 st March, 2000.

A] HFCs approved for financial assistance from NHB

3.7.1.a) The approved HFCs which represents 99.27% of the public deposits outstanding with all reporting HFCs as on 31 st March, 2000 have their deposits predominantly concentrated (50.78%) in the deposit-size of over Rs.1,00,000 while the deposits of upto Rs.25,000 account for only 18.06%.However, as can be verified from the table below, in the slab of Rs.1,00,000 and above, a greater concentration of deposits was observed in 1997-98 (80.55%) which came down substantially during 1998-99 (42.96%).

Table 3.5 : Size-wise public deposits with approved HFCs

(Rs. in crore)

	Outstanding public deposits as on 31 st March
Size-wise	1998		1999		2000
public deposits	No. of A/cs	Amount	No. of A/cs	Amount	No. of A/cs	Amount
Upto Rs.5,000	105786	42.91	276242	122.46	234406	100.88
		(0.73)		(2.01)		(1.40)
Rs.5,001 to Rs.10,000	1070423	167.03	445493	420.39	366176	335.68
		(2.84)		(6.91)		(4.67)
Rs.10,001 to Rs.25,000	191315	349.25	475340	885.56	460970	861.00
		(5.95)		(14.54)		(11.99)
Rs.25,001 to Rs.50,000	82821	329.25	261470	1078.88	295162	1199.70
		(5.60)		(17.72)		(16.71)
Rs.50,001 to Rs.1,00,000	37409	254.47	121680	965.77	133295	1037.60
		(4.33)		(15.86)		(14.45)
Over Rs.1,00,000	53133	4733.28	42174	2615.89	47522	3646.12
		(80.55)		(42.96)		(50.78)
Total	1540887	5876.19	1622399	6088.95	1537531	7180.98

figures in parenthesis indicate % share

B] HFCs having NOF of Rs.50 lakh and above

3.7.1.b) For this category of HFCs, the public deposits outstanding is however continued to cluster in the category of Rs.10,001 to Rs.25,000 although the share of this category to total deposits decreased marginally from 33.47% as on 31 st March, 1999 to 31.90% as on 31 st March, 2000.

C] Other HFCs

3.7.1 c) In this category of HFCs, the concentration of public deposits was highest in the size-group of Rs.10,001 to Rs.25,000 representing 33.73% of the total deposits followed by the size-group of Rs.25,001to Rs.50,000 representing 21.96% of the total deposits outstanding as on 31 st March, 2000.

The above analysis clearly indicates that the approved HFCs are concentrating on relatively big depositors vis-à-vis the other ones. Hence it can be concluded that these category of HFCs still have a strong potential untapped in the form of the relatively small depositors and if they can mobilise the savings of this segment of depositors more successfully, it would help increase their resource base substantially.

3.8 Maturity period-wise Classification

The analysis of maturity period wise classification of public deposits indicates that during the year a shift in preference has taken place in favour of having maturity period of 24 months or more but less than 48 months, with 55.40% of the deposits outstanding with the HFCs concentrated in this slab whereas in the last year the maximum concentration was observed in the slab having maturity period 12-24 months. Keeping in view the long term nature of housing loans, this shift towards deposits having relatively longer maturity period can be considered a welcome sign from the perspective of asset-liability management.

Table 3.6 : Maturity-wise public deposits with all reporting HFCs

(Rs. in crore)

	Outstanding public deposits as on 31 st March
Maturity-wise	1998		1999		2000
public deposits	Amount	%	Amount	%	Amount	%
Less than 12 months	115.97	1.94	546.38	8.88	13.81	0.19
12 months or more but less than 24 months	1615.35	27.00	3094.58	50.31	915.22	12.65
24 months or more but less than 48 months	2684.37	44.86	1191.08	19.36	4007.01	55.40
48 months or more but less than 60 months	464.59	7.76	449.86	7.31	420.17	5.81
60 months	709.70	11.86	558.30	9.08	1244.68	17.21
More than 60 months but less than 84 months	216.43	3.62	172.63	2.81	315.88	4.37
84 months	174.37	2.91	138.39	2.25	316.65	4.37
More than 84 months	2.80	0.05	0.00	0.00	0.01	0.00
Total	5983.58	100.00	6151.22	100.00	7233.43	100 .00

In this context. it may also be observed that the public deposits with a comparatively shorter maturity period decreased sharply during the year whereas a significant positive trend can be observed in favour of deposits having maturity period of 60 months or more to 84 months.

A] HFCs approved for financial assistance from NHB

3.8.1.a) In this category of HFCs, maturity period-wise the largest component of outstanding public deposits was in the slab of 24 months or more but less than 48 months. Public deposits which were Rs.1163.28 crore [19.10% of total]as on 31 st March, 1999 have substantially increased to Rs.3980.61 crore as on 31 st March, 2000, accounting for 55.43 % of total outstanding public deposits. On the other hand, public deposits having maturity period of 12 months or more but less than 24 months have decreased sharply from Rs.3078.66 crore [50.56% of total] on 31 st March, 1999 to Rs.907.64 crore[12.64% of the total] as on 31 st March, 2000.

Table 3.7 : Maturity-wise public deposits with approved HFCs

(Rs. in crore)

	Outstanding public deposits as on 31 st March
Maturity-wise	1998		1999		2000
public deposits	No. of A/cs	Amount	No. of A/cs	Amount	No. of A/cs	Amount
Less than 12 months	582	112.26	99239	545.79	4014	13.68
		(1.91)		(8.96)		(0.19)
12 months or more but	211026	1565.62	635548	3078.66	156514	907.64
less than 24 months		(26.64)		(50.56)		(12.64)
24 months or more but	647766	2644.69	447880	1163.28	678941	3980.61
less than 48 months		(45.01)		(19.10)		(55.43)
48 months or more but	280665	462.20	116620	446.14	256452	416.73
less than 60 months		(7.87)		(7.33)		(5.80)
60 months	214087	702.79	232554	550.51	236064	1233.24
		(11.96)		(9.04)		(17.18)
More than 60 months but	104418	214.41	19772	169.65	149582	315.16
less than 84 months		(3.65)		(2.79)		(4.39)
84 months	82310	171.46	70786	134.92	55964	313.92
		(2.92)		(2.22)		(4.37)
More than 84 months	33	2.76	0.00	0.00	0.00	0.00
		(0.04)		(0.00)		(0.00)
Total	1540887	5876.19	1622399	6088.95	1537531	7180.98

figures in parenthesis indicate % share

B] HFCs having NOF of Rs.50 lakh and above

3.8.1 b) For this category of HFCs, the concentration of public deposits in the slab of 24 months or more but less than 48 months continued for the third consecutive year. Although the absolute magnitude of public deposits in this slab declined marginally from Rs.22.70 crore as on 31 st March, 1999 to Rs.22.61 crore as on 31 st March, 2000, it still accounted for 50.27% of the total outstanding public deposits.

C] Other HFCs

3.8.1 c) The public deposits of this category of HFCs continued to show a decreasing trend as most of the HFCs belonging to this category have become ineligible to accept public deposits. As on 31 st March, 2000, the maximum amount of deposits were in the slab with the maturity period of 24 months or more but less than 48 months.

3.9 Interest rate-wise Classification

The maximum concentration of deposits continued to be around the interest slab of 11% to below 13% which accounts for 54.32% of the public deposits outstanding as on 31 st March, 2000. The share of deposits in the interest rate slab of 9% to below 11% increased from 6.36% to 18.48% during the year ended March, 2000. On the other hand, share of deposits carrying interest rates of 13 % or more has fallen sharply from 51.39% to 26.95% as on 31 st March, 1999 and 31 st March, 2000 respectively. This is fairly indicative of the fact that the downward movement of interest rates in the aggregate economy can be observed in the housing finance sector as well.

Table 3.8: Interest rate-wise public deposits of all reporting HFCs

(Rs. in crore)

Interest rate -wise	Outstanding public deposits as on 31 st March
public deposits	1998		1999		2000
(rate per annum)	Amount	%	Amount	%	Amount	%
Below 6%	4.10	0.07	3.95	0.06	8.61	0.12
6% to below 9%	3.72	0.06	10.13	0.17	9.46	0.13
9 % to below 11%	443.17	7.41	391.07	6.36	1336.57	18.48
11% to below 13%	1484.82	24.81	2584.85	42.02	3929.20	54.32
13% or more	4047.77	67.65	3161.22	51.39	1949.59	26.95
Total	5983.58	100 .00	6151.22	100 .00	7233.43	100 .00

A] HFCs approved for financial assistance from NHB

3.9.1 a) For this category of HFCs, the public deposits in the interest bracket of 11% to below 13%, increased from Rs.2580.34 crore as on 31 st March, 1999 to Rs.3919.02 crore as on 31st March, 2000, representing 54.58% of the total deposits held by them. In the interest bracket of 13% or more, the deposits which were Rs.3107.19 crore as on 31 st March, 1999 have fallen sharply to Rs.1908.93 crore as on 31 st March, 2000.

Table 3.9: Interest rate-wise public deposits with approved HFCs

(Rs. in crore)

Interest rate -wise	Outstanding public deposits as on 31 st March
public deposits	1998			1999		2000
(rate per annum)		No. of A/cs	Amount	No. of A/cs	Amount	No. of A/cs	Amount
Below 6%		0	0.00 (0.00)	531	2.28 (0.04)	2928	8.05 (0.11)
6% to below 9%		4935	2.80 (0.05)	16176	10.08 (0.17)	11347	9.42 (0.13)
9 % to below 11%		43010	441.68 (7.52)	91524	389.06 (6.38)	252127	1335.56 (18.60)
11% to below 13%		226848	1479.18 (25.17)	492662	2580.34 (42.38)	618279	3919.02 (54.58)
13% or more		1266094	3952.53 (67.26)	1021506	3107.19 (51.03)	652850	1908.93 (26.58)
Total		1540887	5876.19	1622399	6088.95	1537531	7180.98

B] HFCs having NOF of Rs.50 lakh and above

3.9.1 b) This category of HFCs, however, continued to rely on the high cost funds. Though these HFCs are offering higher rates of interest than the approved HFCs, the deposits bearing interest rates 13% or more, which were Rs.43.85 crore as on 31 st March, 1999 have come down to Rs.34.71 crore as on 31st March, 2000. The deposits bearing interest rates of 11% to below 13% have, however, increased from Rs.2.79 crore to Rs.9.57 crore during the period under review.

C] Other HFCs

3.9.1 c) In this category of HFCs, public deposits as on 31 st March, 2000 declined by around 48% as compared to the previous year. The deposits, which were Rs.14.50 crore as on 31 st March, 1999 decreased to Rs.7.47 crore as on 31 st March, 2000. Public deposits bearing an interest rate of 13% or more constitute around 80% of the public deposits outstanding with these HFCs as on 31 st March, 2000.

3.10 Unclaimed Deposits

Table 3.10: Year-wise break-up of Unclaimed deposits with approved HFCs

	No. of Accounts	Amount (Rupees)	% Growth
1997-98	20755	602,037,487	——–
1998-99	27991	872,945,000	44.99%
1999-2000	26829	755,515,000	(-)13.45%

3.10.1 The above table indicates that the unclaimed deposits with the approved HFCs increased by 44.99% during 1998-99 with the number of accounts remaining unclaimed also showing an absolute increase by 7236 accounts. However, the trend was reversed in the year 1999-2000 with the amount unclaimed showing a 13.45% decline. These HFCs have reported that on maturity the depositors are duly informed by the company to either withdraw or renew the deposits.

3.11 Depositor’s Protection

11.1 In order to protect the interests of the depositors, Government of India has been taking significant steps to ensure refund of the deposits accepted by the NBFCs on due dates. The first important measure in this direction was taken in 1974 when limits upto which the NBFCs can accept deposits, the manner in which and the conditions subject to which such deposits could be accepted or invited were prescribed by an amendment to the Companies Act. Further in 1996, through an amendment to the Companies Act, a company which is in default in the repayment of any deposit or part thereof and any interest thereupon in accordance with the terms and conditions of such deposit was prohibited from inviting deposits. If a company has failed to repay any deposit or part thereof in accordance with the terms and conditions governing such deposits, the Company Law Board, if satisfied, may on its own or on the application of a depositor direct by an order the company to make repayment of such deposit or part thereof forthwith or within such time as may be prescribed. Whoever fails to comply with the order of the Company Law Board shall be punishable with imprisonment and also a fine. Special provisions have also been incorporated under the Companies Act in respect of small depositors i.e. depositors who has deposited a sum not exceeding Rs. 20,000 with a company in any financial year. In addition, every offence connected with or arising out of acceptance of deposits is a cognizable offence under the code of criminal procedure. The State Governments on their part to protect the interest of the depositors have also initiated certain measures. The Government of Bihar had constituted a Non Banking Financial Companies Inquiry Commission under the Commission of Inquiry Act 1952. The mushroom growth of Non Banking Financial Companies (NBFCs) in the state of Bihar and the inducements and allurements offered by them to deceive the depositors caught the attention of the State Government in 1995. The Government subsequently set up a Commission that statred operation in 1998. The Commission submitted its interim report in November, 1999 suggesting certain measures to curb the malpractice of the fly-by-night operators and extend protection to the depositors. The major recommendations of the Commission included passing of a State legislation enabling the Government to take action against the unscrupulous promoters and directors of financial establishments who have fraudulently defaulted in repaying the money taken from public, setting up of one or more Designated Courts to try expeditiously the offences under the said legislation and setting up of a Directorate of Financial Establishments in the Department of Institutional Finance and Programme Implementation equipped with officers to take action against all corporate and unincorporated bodies violating the laws.

3.11.2 If an HFC fails to repay any deposit or part thereof in accordance with the terms and conditions of such deposit, an officer of the National Housing Bank authorized by the Central Government for the purpose can order the HFC to repay the deposit or part thereof forthwith or within such time and subject to such conditions as may be specified in the order. Whoever fails to comply with any order is punishable with imprisonment for a term which may extend to three years and shall also be liable to a fine of not less than rupees fifty for everyday during which such non compliance continues.

3.11.3 Some State Governments like Tamilnadu State Government has already enacted a legislation to take action against the promoters of financial companies which have failed to repay the depositors.

3.12 Borrowings of HFCs

The total outstanding borrowings of HFCs as on 31 st March, 2000 was Rs.21729.99 crore as on 31st March, 2000 as compared to Rs.13405.68 crore as on 31 st March, 1999, thereby showing an increase of 62.10%.

A] HFCs approved for financial assistance from NHB

3.12.1.a) The outstanding borrowings of approved HFCs from Banks, Financial Institutions, refinance from NHB, financial assistance from foreign Governments/authorities, money received by way of subscription to debentures floated by the HFCs, etc., excluding public deposits, stood at Rs.21673.87 crore as on 31 st March, 2000 as compared to Rs.13388.79 crore as on 31 st March, 1999.

B] HFCs other than those mentioned under A] above

3.12.1b) The outstanding borrowings of these HFCs excluding public deposits stood at Rs.56.12 crore as on 31 st March, 2000 as compared to Rs. Rs.16.89 crore as on 31 st March, 1999

3.13 Outstanding housing Loans

The total outstanding housing loans of HFCs as on 31 st March, 2000 were Rs.25326.01 crore as on 31 st March, 2000 as compared to Rs.25083.80 crore as on 31 st March, 1999.

A] HFCs approved for financial assistance from NHB

The outstanding housing loans of approved HFCs stood at Rs.25140.13 crore as on 31 st March, 2000 as compared to Rs.24975.10 crore as on 31 st March, 1999.

B] HFCs having NOF of Rs.50 lakh and above

The amount of outstanding housing loans in respect of this segment of HFCs stood at Rs. 175.95 crore as on 31 st March, 2000 as compared to Rs.98.69 crore as on 31 st March, 1999.

C] Other HFCs

The outstanding housing loans of other HFCs which were Rs.10.01 crore as on 31 st March, 1999 marginally declined to Rs.9.93 crore as on 31 st March, 2000.

3.14 Investments

A] HFCs approved for financial assistance from NHB

The investments of this segment of HFCs have increased to Rs.5433.84 crore as on 31 st March, 2000 from Rs.4060.03 crore as on 31 st March, 1999, showing a quantum jump of 33.84%.

B] HFCs other than those mentioned under A] above

The investments of these HFCs which stood at Rs.16.49 crore as on 31 st March, 1999 increased to Rs.31.93 crore as on 31 st March, 2000.

3.15 HFC Branch Network

uring the year under review the number of branches of HFCs approved for NHB refinance increased from 482 to 524 as at the end of June, 2000. However, a (In the earlier years the outstanding housing loans pertaining to HUDCO included the outstanding in respect of urban infrastructure as well. However, this year onwards, HUDCO outstanding figure would include only core housing loans.) marked tendency of clustering branches in the southern region and the western-central region of the country has been observed whereas the northern and especially the eastern / north-eastern region remained more or less outside the branch networking purview of these HFCs. Tables showing the statewise and region-wise spread of branch network of approved HFCs are given below :

Table 3.11: State-wise Branch Network of Approved HFCs as on

	June 30,2000	June 30,1999
Name of the State/UT	No. Of Branches	No. of Branches	Trend
Andaman & Nicobar	1	1
Andhra Pradesh	51	50
Arunachal Pradesh	0	0
Assam	9	10
Bihar	11	10
Chandigarh	8	8
Dadra& Nagar Haveli	1	1
Daman & Diu	0	0
Delhi	17	17
Goa	6	5
Gujarat	49	39
Haryana	5	5
Himachal Pradesh	2	2
Jammu & Kashmir	1	1
Karnataka	64	65
Kerala	30	29
Lakshadweep	0	0
Madhya Pradesh	24	23
Maharashtra	101	80
Manipur	1	1
Meghalaya	1	1
Mizoram	0	0
Nagaland	0	0
Orissa	10	11
Pondicherry	3	3
Punjab	7	6
Rajasthan	20	20
Sikkim	1	1
Tamil Nadu	51	44
Tripura	2	1
Uttar Pradesh	30	31
West Bengal	18	17
TOTAL	524	482

Table 3.12: Region-wise spread of HFC branch networking as on

	June 30,2000	June 30,1999
Name of the Region	No. of HFC Branches	No. of HFC Branches
North Zone	70	70
South Zone	199	191
West & Central Zone	201	168
East & North East Zone	54	53
TOTAL	524	482

Scheduled Commercial Banks

4.1 In order to facilitate augmented flow of resources to the housing sector, the Reserve Bank of India, during the year 1999-2000, extended permission to the commercial banks for granting term loans to housing intermediary agencies against the direct loans sanctioned/proposed to be sanctioned (including advances to NRIs ) by the latter, irrespective of the size of the loan per borrower extended by these intermediaries, thus, removing the earlier ceiling of Rs. 5 lakhs and Rs. 10 lakhs in rural/semi-urban and urban/metropolitan areas respectively. Besides, the same [ excluding NRI advances] is now to be treated as achievement of commercial banks under their housing finance allocation for the year. The Reserve Bank of India also stipulated that henceforth direct housing loans upto Rs. 10 lakhs by banks for construction of houses by individuals in urban / metropolitan areas as well as subscription to NHB/HUDCO bonds would be eligible for inclusion under priority sector. All these coupled with the earlier year’s policy pronouncement of earmarking 3% of the incremental deposits of commercial banks for housing, resulted in a considerable spurt in banks’ lending for housing. Besides, the low-risk nature of housing finance business and lack of alternative avenues for deployment of funds have also induced the banking sector to take a keen interest in the sector in the recent times. Thus, while credit extended to small scale sector by the commercial banks witnessed a decline in the year 1999-2000, loans to housing, consumer goods and services sector registered a considerable increase.

4.2 The housing finance allocation for commercial banks during the last five years, has been as under :

Table 4.1: Housing Finance by Commercial Banks

(Rs. in crore)

	1995-96	1996-97	1997-98	1998-99	1999-00
Allocation	927.03	1071.45	1295.19	1480.83 1	3051.52
%age increase	28.08	15.58	20.88	14.33	106.07
Disbursal	842.03	1805.62	1454.77	3951.99 2	9911.35
%age increase	12.48	114.44	(-)19.43	82.79	150.79
%age achieved	90.83	168.52	112.32	158.49	324.80

Note 1: Calculated at the rate of 3% of incremental deposits for 1998-99
Note 2: Based on the information received by the Bank from PSBs

Hence, it can be observed from the above table that thrice in the past 5 years the housing finance disbursed by commercial banks surpassed the target allocated to them.

4.3 The bank group

The details of region-wise classification, size-wise classification and population & bank group wise classification of outstanding housing loans of scheduled commercial banks are given below :

Table 4.3 : Region-wise classification of Outstanding Housing Loans of

Scheduled Commercial Banks as on March 31

(Rs. in crore)

	1998		1999		2000
Region / State/UT	No. of A/c s	Amount	No. of A/c s	Amount	No. of A/c s	Amount
Northern Region
Haryana	23197	199.90	29757	277.14	55819	451.01
Himachal Pradesh	7132	53.13	8621	72.27	18314	137.00
Jammu & Kashmir	7671	70.30	9599	93.41	16958	116.26
Punjab	51098	412.59	50354	446.57	92151	635.99
Rajasthan	55550	324.59	53354	550.48	92965	795.02
Chandigarh	4105	55.35	4520	70.29	7829	84.15
Delhi	26936	378.16	35670	530.94	54749	1151.45
Region Total	175689	1494.02	191875	2041.1 0	338785	3370.88
North-Eastern Region
Arunachal Pradesh	122	1.59	148	1.63	153	1.75
Assam	12220	95.91	13408	148.74	26043	188.05
Manipur	565	5.14	758	7.01	1482	9.38
Meghalaya	1017	7.40	812	11.74	1541	11.62
Mizoram	309	3.91	429	7.20	1646	10.66
Nagaland	192	1.76	408	3.89	729	4.03
Tripura	1289	8.83	2803	10.15	4124	15.63
Region Total	15714	124.54	18766	190.36	35718	241.12
Eastern Region
Bihar	49890	304.59	52481	408.59	86500	509.29
Orissa	29649	204.87	24961	265.53	50438	359.47
Sikkim	245	1.31	178	2.48	1025	4.85
West Bengal	98017	806.03	107012	948.14	170664	1094.05
Andaman & Nicobar Islands	155	0.77	129	1.14	392	4.58
Region Total	177956	1317.57	184761	1625.88	309019	1972.24
Central Region
Madhya Pradesh	48064	359.91	61907	480.09	115143	790.93
Uttar Pradesh	82828	675.69	115739	886.40	189154	1323.14
Region Total	130892	1035.6 0	177646	1366.49	304297	2114.07
Western Region
Goa	4220	39.80	5585	54.16	9948	81.69
Gujarat	70392	544.39	91020	693.85	136991	972.67
Maharashtra	130190	1482.81	152705	1567.04	273926	2725.73
Dadra & Nagar Haveli	34	0.36	64	0.50	61	0.52
Daman & Diu	157	1.19	169	1.65	343	1.75
Region Total	204993	2068.55	249543	2317.2	421269	3782.36
Southern Region
Andhra Pradesh	107521	1049.77	131337	1323.24	216264	1736.22
Karnataka	78856	828.56	94849	1192.79	193582	1788.32
Kerala	92848	816.86	109747	1036.56	212651	1481.80
Tamil Nadu	94070	882.27	114708	1247.09	217586	2008.26
Lakshadweep	32	0.23	15	0.15	19	0.13
Pondicherry	1593	13.54	1902	35.86	4200	29.48
Region Total	374920	3591.23	452558	4835.69	844302	7044.21
Total All India	1080164	9631.51	1275149	12376.72	2253390	18524.88

Source: Basic Statistical Returns, RBI