AN OVERVIEW OF HOUSING

FINANCE IN INDIA

Sajith. M Role of institutional financing agencies in the growth of housing

finance sector in Kerala Thesis. Department of Commerce and Management
Studies, University of Calicut, 2014
 CHAPTER III
AN OVERVIEW OF HOUSING FINANCE IN
INDIA

After analyzing the academic work already done in the literature, it is

appropriate to provide a theoretical background about the study. This chapter is
dedicated for this. The present chapter provides an overview of housing finance in
India, the measures taken by the Government for resolving the issue of housing
shortage, the major housing finance companies operating in India etc. The chapter
also includes the details about Housing in Kerala, the various agencies engaged in
housing sector, the Kerala State Housing Department etc, the important housing
schemes introduced by the state, state governments new housing policy etc were
also discussed.

3.1 Introduction

Housing is an important component and a measure of socioeconomic status

of the people. It is regarded as a critical sector in terms of policy initiatives and
interventions. A large portion of our population is still lacking proper housing
facility. The housing problem in India is an upsetting problem both in the rural and
urban areas. One of the main reasons of the problem of housing shortage is its size
of population. It is said that one among the every six persons in the world is an
Indian. India stands second among the worlds largely populated countries. The
growth of population in India from the beginning of this century is shown in the
table 3.1.

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 Table 3.1
Growth of Population in India 1901 onwards
(Figure in millions)
Year Population Decade Growth Percentage
of Growth
1901 238.4 - -
1911 252.1 1901-1911 13.7 5.75%
1921 251.3 1911-1921 -0.8 -0.32%
1931 279.0 1921-1931 27.7 11.02%
1941 318.7 1931-1941 39.7 14.23%
1951 361.1 1941-1951 42.4 13.30%
1961 439.2 1951-1961 78.13 21.64%
1971 548.16 1961-1971 108.93 24.80%
1981 685.18 1971-1981 137.02 25.0 %
1991 846.3 1981-1991 161.12 23.51%
2001 1012.4 1991-2001 166.10 19.63%
2011 1210.0 2001-2011 197.60 19.52%
1
(Source: www.censusindia.com and P.K. Chaubey(2012) , Population Policy for India-
Perspectives, Issues and Challenges, Khaniskha Publishers, New Delhi, pp.48).

From the table 3.1, it is clear that the population had a negative growth rate (-
0.32%) only in 1911-21 decade. The growth rate was very high (25%) in the
decade of 1971-81. After that, the growth rate in population is showing a slightly
decreasing trend even though the total population is increasing. It is estimated that
India would overtake China by 2030 and will became the most populous country in
the world.

3.2. Role of Government

Provision of housing facility to each and every individual in the society by
using the Government funds may not be possible even in a well developed economy.
Indian economy is not yet well developed, it is a developing economy. So it has to
resolve many issues in the process of development. Housing is only one among the
many issues before the Government. So the Government is regulating its housing
financial assistance in such a manner that, it is directed towards the poorest of the
poor in the society. Government is trying to find a solution by joining hands with the

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 private sector. The relative role played by both public and private sector over the
different five year plans is given in the following table.

Table 3.2
Relative role of Public and Private in
Housing investment over the plan periods
(Figures in Crores)
Public Private Total
Sl.No Plan Plan Amount
Amount Percentage Amount Percentage
Number period
1st Five year
1 1951-56 250 21.74% 900 78.26% 1,150
plan
2nd Five year
2 1956-61 300 23.08% 1,000 76.92% 1,300
plan
3rd Five year
3 1961-66 425 27.42% 1,125 72.58% 1,550
plan
4th Five year
4 1969-74 625 22.32% 2,175 77.68% 2,800
plan
5th Five year
5 1974-79 1,044 22.31% 3,636 77.69% 4,680
plan
6th Five year
6 1980-85 1,491 11.48% 11,500 88.52% 12,991
plan
7th Five year
7 1985-90 2,858 8.97% 29,000 91.03% 31,858
plan
8th Five year
8 1992-97 7,750 10.03% 69,476 89.96% 77,226
plan
9th Five year
9 1997-02 10,430 7.63% 1,26,170 92.36% 1,36,600
plan
10th Five
10 2002-07 1,26,694 34.89% 2,36,447 65.11% 3,63,141
year plan
11th Five year
11 2007-12 2,54,500 32.78% 5,22,000 67.22% 7,76,500
plan
(Source: Various plan documents)
It is clear from the table that total investment in housing has increased form
Rs. 11.5 billion in the first plan to Rs. 7.76 trillion in the eleventh plan. Compared
the public sector the private sector is contributing more to the housing sector. During
the ninth five year plan the share of public sector was minimum (7.63%) and the
same made by the private sector was maximum (92.36%). From tenth five year plan
onwards the share of public sector is showing an increasing trend. On the other
hand, the absolute investment in housing as a percentage of the total plan investment
has declined due to the shift in the governments emphasis from provider to

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facilitator. A progressive shift from a subsidy based housing schemes to cost
sharing or cost recovery cum subsidy scheme for rural housing is insisted by the
National Housing Policy.

3.2.1. Government schemes on Housing

Within the capacity as a facilitator for the housing development, the central
government has developed various housing schemes in order to wipe out the housing
shortage in the country. The table 3.3 shows the various housing programmes
launched by the government of India since independence.

Table 3.3
Important Housing programmes of
the Government of India since independence
Sl. Year of
Name of the programme
No. Launch
1 Integrated Subsidised Housing Scheme for Industrial workers and 1952
Economically Weaker Sections
2 Low Income Group Housing Scheme 1954
3 Subsidized Housing Scheme for Plantation Workers 1956
4 Middle Income Group Housing Scheme 1959
5 Rental Housing Scheme for State Government Employees 1959
6 Slum Clearance and Improvement Scheme 1956
7 Village Housing Projects Scheme 1959
8 Land Acquisition and Development Scheme 1959
9 Provision of House Sites of Houseless Workers in Rural Areas 1971
10 Environmental Improvement of Urban Slums 1972
11 Sites and Services Schemes 1980
12 Indira Awas Yojana 1985
13 Night Shelter Scheme for Pavement Dwellers 1990
14 National Slum Development Programme 1996
15 2 Million Housing Programme 1998
16 Valmiki Ambedkar Malin Basti Awas Yojana 2000
17 Pradan Mantra Gramodaya Yojana 2001
18 Jawaharlal Nehru National Urban Renewal Mission 2005
19 Pradhan Mantri Adarsh Gram Yojana (2009-10) 2009
20 Rajiv Awas Yojana 2011
(Source: Various reports of Government of India, Ministry of Housing, Ministry of Urban
development and Poverty alleviation)

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 From the above table, it is clear that there is a gradual decrease in the number
of schemes introduced by the Central Government year after year. The important
housing schemes launched by the Central government, which were proved to resolve
the issue of housing shortage in the country, are briefly discussed below.

1) Indira Awas Yojana (IAY 1985-86)

This scheme was introduced by the Government of India in the year 1985-86
with the intention to provide housing for the rural poor. It is meant for constructing
housing units for BPL people belonging to Scheduled castes, Scheduled tribes and
free bonded labourers belonging to rural areas. The attempt during the Eighth Five
Year Plan period was towards evolving an approach to rural housing which leads to
setting up of truly integrated micro habitats. The broad purpose of the scheme is to
provide financial assistance to some of the weakest sections of society to upgrade or
construct a house of respectable quality for their personal living. The vision of the
government is to replace all temporary (kutchcha) houses from Indian villages by
2017. Under the scheme, financial assistance worth Rs.70,000/- in plain areas and
Rs.75,000/- in difficult areas (high land area) is provided for construction of houses.
The houses are allotted in the name of the female member of the family or jointly
between husband and wife. The construction of the houses is the sole responsibility
of the beneficiary and engagement of contractors is strictly prohibited. Sanitary
latrine and smokeless chullah are required to be constructed along with each IAY
house for which additional financial assistance is provided from Total Sanitation
Campaign (TSC) and Rajiv Gandhi Grameen Vidyutikaran Yojana (RGVY)
respectively. IAY is an allocation based, centrally sponsored scheme funded on a
cost sharing basis between the Central Government and the State Government in the
ratio of 75%:25%, except in case of north-eastern states and Union Territories
(UTs). For north-eastern states the central government funds 90% and 100% for the
Union Territories. The funds are allocated to the states based on 75% weightage of
rural housing shortage and 25% weightage of poverty ratio. This programme was
proved to be the most effective programme for solving the rural housing problem.
Since 1985, 25.2 million houses have been constructed under the scheme. Later, this

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programme was included with Javahar Rogar Yojana (JRY). The aim of this scheme
is to develop a micro habitat and to ensure a base for higher level of earnings for the
beneficiaries.

2) Pradan Mantri Gramodaya Yojana (PMGY 2000 -01)

Every individual not only need shelter, they also require facilities such as
drinking water, proper sanitation etc. It is towards ensuring these things an initiative
of Central Government has announced, that is the Pardhan Mantri Gramohaya
Yojana (PMGY), in the field of provision of rural shelter. It aims at reducing the
shortage of houses of Below Poverty Line (BPL) families in the rural areas. It also
aims at the healthy development of the habitat in rural areas. This scheme is also
based on the pattern of Indira Awaas Yojana already implemented by the
government. The scheme is targeted to such people who are living below the poverty
line in the rural areas, belonging to Scheduled Castes/Scheduled Tribes, free bonded
labourers and non-SC/ST categories. The non-SC/ST BPL families can also be the
beneficiaries under the condition that the allocation to such people should not be
more than 40% of funds during a financial year. Funds to the tune of three percent
are earmarked for the benefit of BPL disabled persons. The District Rural
Development Agencies (DRDAs)/Zilla Parishads decide the number of houses to be
constructed in each Panchayat, and the same is intimated to the Grama Panchayat.
Then the Gram Sabha will select the beneficiaries from the list of eligible
households. The allotment of dwelling units will be in the name of female member
of the beneficiary household, or both in the name of husband and wife. Care will be
taken to ensure that the houses are located close to the village and not too far away
so as to ensure safety and security, proximity to place of work and for social
communication. The spirit underlying the Scheme is that the house is not to be
constructed or delivered by any external agency but is to be constructed by the
beneficiary himself or herself. It should be ensured that all dwelling units are
provided with smokeless chulhas which are fuel efficient. The construction of
sanitary latrines will form an integral part of the PMGY dwelling unit. The ceiling of
construction assistance under the scheme will be Rs.20,000 per unit for plain areas

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and Rs.22.000 per unit for hilly or difficult areas. The funds of the scheme will be
released to states in two installments by the Union Ministry of Finance on the
recommendations of the Union Ministry of Rural Development. The funds for the
second installment will be released after Utilization Certificate/Audit Report is
received. For monitoring and evaluation purpose, the State Government should
prescribe periodical report and returns through which the performance of PMGY in
the district would be closely monitored and also obtain appropriate reports and
returns from District Rural Development Agency. Then, these reports and returns
would be submitted to government of India by the states.

3) Valmiki Ambedkar Malin Basti Awas Yojana (VAMBAY 2001).

Valmiki Ambedkar Malin Basti Awas Yojana (VAMBAY) is a centrally

sponsored scheme by Ministry of Urban Development, Govt. of India for the benefit
of Slum Dwellers. The scheme is primarily aimed at ameliorating the housing
problems for the Slum Dwellers living Below Poverty Line in different towns and
cities of the country. The scheme is operated through HUDCO. The objective of the
new scheme is to provide shelter and to upgrade existing shelter for Below Poverty
Line (BPL) families in urban slums. It is an appropriate scheme for providing or
improving the quality of living environment of urban slum dwellers (BPL) who do
not possess adequate shelter. It would certainly be useful in tackling problems of
expanding slums, unlawful occupation and encroachments etc. As far as concerned
with the financing of the scheme, the central government will release subsidy or
grant (50 % of project cost for the state) to HUDCO, based on the allocation. The
state has to submit its project to HUDCO with the indication about the source of
raising the balance 50 % of the funds required for the project. This project will be
then checked and submitted by HUDCO to the Ministry of Urban Development.
After sanction, HUDCO intimate sanction to the State Government, asking them to
deposit the State Share of 50% in the accounts of the designed implanting agency.
On receipt of such certificate, HUDCO will release the grant portion to Urban
Development department.

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4) Jawaharlal Nehru National Urban Renewal Mission (JNNURM 2005-
06).

In India, 30 percent of countrys population belongs to cities and towns. But

its contribution to Gross domestic product is nearly 5055 percent. The degrading
conditions in cities have forced the government to rethink their strategies to adhere
to the socio-economic objectives of the country. JNNURM is a programme which is
meant to improve the quality of life and infrastructure in the cities. It is launched by
the Government of India under Ministry of Urban Development Department. It is a
massive city-modernisation scheme. It aims at creating economically productive,
efficient, equitable and responsive cities, by a strategy of upgrading the social and
economic infrastructure in cities. The important reasons for the degradation of cities
include inadequate infrastructure, increasing population and rising urban poverty.
So, the government has taken up the initiative to redevelop urban towns and cities by
developing infrastructure. The main objective of this programme focuses on water
supply, sanitation, solid waste management, road network, urban transport and
redevelopment of old city areas.

JNNURM aims at the integrated development of housing infrastructure

services in cities, securing effective linkages between asset creation & asset
management, to take up urban renewal programme and ensuring adequate funds to
meet these needs etc.

The duration of this mission is scheduled to be seven years beginning from

December 2005. Later it was extended by two more years, ie, upto 31 March 2014.
As regards the implementation mechanism the funds are channelled through state
level agencies, where grants from the central and state governments are pooled and
passed on as grants or soft loans to cities. It is the duty of cities to prepare
development plans. The mission emphasises transparency and accountability. The
share of grant funding by the central government can vary from 35% in the largest
cities to up to 90% in cities in the Northeast. Most cities receive grants covering
50% or 80% of costs depending on size.

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 As far as concerned with the Kerala state, Thiruvananthapuram and Cochin
Corporations alone come under the scheme. The funding pattern of
Thiruvananthapuram Corporation is Government of India 80%, Government of
Kerala 10%, urban local body 10% and that of Cochin Corporation is Government
of India 50%, Government of Kerala 30%, and urban local body 20%. During the
year 2010-11 it was proposed to implement water supply scheme, solid waste
management scheme, sewerage scheme, storm water drainage scheme for both the
cities and purchase of buses scheme of Thiruvananthapuram Corporation. The fund
will be released when the project is finally approved by the Government of India and
the department initiates the implementation process. The Nodal Agency of the
Scheme in the state is, Kerala Sustainable Urban Development Project (KSUDP).

5) Pradhan Mantri Adarsh Gram Yojana (PMAGY 2009-10).

Basically PMAGY is a rural development programme. This is introduced by

the central Government for the development of such villages where above 50% of
population consists of people from scheduled castes. This program would be
applicable to around 44,000 villages which had a scheduled castes population above
50%. The Plan aims to build an "Adarsh Gram" (Model village) which has adequate
physical and institutional infrastructure, in which minimum needs of all sections of
the society are fully met. All the facilities necessary for dignified living should be
available and the residents are enabled to utilise their potential to the fullest. In
March 2012 the Pradhan Mantri Adarsh Gram Yojana (PMAGY) was transferred to
the Ministry of Rural Development from the Ministry of Social Justice and
Empowerment. Initially the Centre had allocated a sum of Rs.555.4 million to
Assam, Bihar and Rajasthan. The programme was initially implemented in 1,000
villages in Assam, Bihar, Himachal Pradesh, Rajasthan and Tamilnadu. Each village
will get an amount of Rupees One million per year. In 2011, the annual funding per
village was raised to Rupees Two million. The aim of the scheme is to ensure that
the selected villages have all required physical and social infrastructure for an all
round socio-economic development. Another objective of the plan is elimination of
disparity between scheduled castes and other communities in terms of literacy rate,

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completion rate of elementary education, infant mortality rate, maternal mortality
rate and ownership of productive assets.

6) Rajiv Awas Yojana (RAY 2011)

This scheme was launched by the Ministry for Housing and Urban Poverty
Alleviation in 2011. The scheme is introduced with a vision to 'create a slum-free
India'. During the first phase which covers two years, has a budget of Rs.5,000
crore. Under the scheme, central support will provide Rs50,000 per unit, or about
25% of the cost of civic infrastructure (external and internal), whichever is lower.
The scheme is expected to be implemented in nearly 250 cities and towns by the end
of the 12th Plan (2017). The selection of the location will be done by states in
consultation with the Centre. The states would be required to include all the
cities already under the Jawaharlal Nehru National Urban Renewal Mission
(JNNURM) programme, those with a population of more than 3 lakh in the 2001
census, and some other smaller cities. A list of 157 cities, for which funds have been
released for preparatory work under the Slum Free City Planning Scheme, includes
all metros and upcoming centres like Visakhapatanam, Ahmedabad, Shillong,
Bhubaneswar and Varanasi. In this scheme, 50% of the in-city cost will be borne by
the Centre. In the case of north-east and special category states, the share of the
Centre would be 90%, which would also include the cost of land acquisition, if
necessary.

3.2.2. Housing Policies in India

A cautious policy framework is needed for housing to ensure that it does not
hamper the growth of the economy. The amount of investment in housing is very
large. For a developing country like India, the finance should be used very
cautiously, because it has to tackle many social problems. So the housing policy has
to be drafted very cautiously. Even though, the private sector has to play a larger
role, the government has to play its role of providing social housing for the poor.
Until 1990s, the housing policy was largely driven by government budgets and
regulations. In 1985, the National Commission on Urbanisation called for
reorganizing government policies and programmes to meet the challenges of

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urbanisation in the coming decade. In 1988, the Union government came out with
draft National Housing policy, modified in 1992, explaining the approach towards
the sector and the policy objectives. This document was revised later in 1998, and
brought forth as National Habitat and Human Settlements Policy 1998. Later on
2007 a new policy named National Housing and Habitat Policy 2007 was
formulated. The two different policies are briefly discussed below.

National Housing and Habitat Policy 1998

By identifying the importance of housing, the central government has

declared that Housing for all is the National agenda. They also decided to
construct 2 million houses every year for the poor. It is on this background the new
National Housing and Habitat Policy 1998, was formulated.

Objectives

a) Creation of surpluses in housing stock of the country.

b) Provision of quality and cost effective shelter for the poor.
c) Improving access to land, finance and technology by removing legal,
financial and administrative barriers.
d) Encourage partnership between private, public and co-operative sectors.
e) Use of modern technology for the housing sector to improve quality,
productivity etc.

It is estimated that an investment of Rs. 1,51,000 crores would be required to

resolve the housing shortage in the country. But, this much amount is not available
from the public sector. Not more than 25%, (ie, 37,750 crores) would flow from
banks, financial institutions, central and state governments. It is further estimated
that Rs.2, 50,000 crores shall be required for urban infrastructure during the ninth
plan. But not more than 10% would be available from Government sources. The
drive behind the policy is in creating a strong Public Private Partnership (PPP), to
resolve housing and habitat issues. Government has offered fiscal and other
concessions to motivate the private sector to take up the task of housing for poor.

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The policy also requires that research and development activities should propagate
information about new technologies, which can be used in with housing sector.

National Housing and Habitat Policy 2007

It is estimated that Indias urban population in 2001 was 286.1 million. Over
the previous five decades, annual rates of growth of urban population ranged
between 2.7 to 3.8%. 99% of the housing shortage of 24.7 million at the end of the
10th Plan relates to the Economically Weaker Sections (EWS) and Low Income
Groups (LIG) sectors. Given the fact that 26.7% of the total poor in the country lives
in urban areas the issue of affordability assumes critical significance. It is in this
back ground the new policy was announced in 2007, with the aim of providing the
Affordable Housing to all giving special emphasis on the Economically Weaker
Sections and Low Income Group sectors. The core focus of this Policy is provision
of Affordable Housing For All with special emphasis on vulnerable sections of
society such as Scheduled Castes/Scheduled Tribes, Backward Classes, Minorities
and the urban poor. The Policy seeks to develop innovative financial instruments
like development of Mortgage Backed Securitization Market (RMBS) and
Secondary Mortgage Market (SMM). It also seeks to attract Foreign Direct
Investment (FDI) in areas like integrated development of housing and new township
development. The Government would act as a facilitator and enabler by
developing suitable financial instruments for promotion of housing for the EWS and
LIG groups. The promotion of well designed Public-Private Partnerships for
undertaking housing and infrastructure projects is also an aim of the policy.

The ultimate goal of this Policy is to ensure sustainable development of all

urban human settlements and there by ensure better quality of life for them. The
policy also lays special emphasis on provision of social housing for the EWS or LIG
categories so that they are fully integrated into the mainstream of ecologically well-
balanced urban development.

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3.2.3. Evolution of Housing finance Sector in India

In India, housing is considered as the engine of economic growth. The

housing sector has strong linkages with many other industries. 78 paise in every
rupee invested in housing sector, contributes to the Gross Domestic Product. At
present there is high growth rate in the housing finance sector. The various agencies
operating in the area of Indian housing finance sector can be broadly classified into
two, ie, formal housing finance sector and informal housing finance sector. The
formal housing finance sector includes the Housing finance Institutions (HFI) like
National Housing Bank, Housing and Urban Development Corporation, Various
Housing finance companies Housing Development Finance Corporation (HDFC),
Life Insurance Corporation of India (LIC), General Insurance Corporation (GIC),
Unit Trust of India (UTI), Commercial Banks, Co-operative banks etc. The informal
housing finance sector includes personal savings, borrowings from money lenders or
friends or relatives, disposal of existing property etc. The commercial banks play a
major role in housing finance sector as they have vast spread branches everywhere
in the country. The development of housing finance agencies in the country attained
great momentum after the incorporation of National Housing Bank in1988, as an
apex institution in the field of housing finance.

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 Figure 3.1.
STRUCTURE OF INDIAN HOUSING FINANCE SYSTEM

(Source: www.nhb.org)

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 After independence, the government has taken many measures for the
development of housing sector in the country. In five year plan various housing
schemes were introduced. As there is lack of planning and proper co-ordination at
various levels of government, many of these schemes didnt produce the desired
results. So the government has decided to introduce some changes in the housing
finance sector through the setting up of some institutions. The important housing
finance institutions or agencies incorporated in the country were briefly discussed
below.

1) Housing and Urban Development Corporation (HUDCO - 1970)

HUDCO was incorporated in, 1970, as a 100% Government owned

institution. HUDCO was entrusted with the responsibility to ensure housing, urban
development and infrastructure development. 55% of housing finance of HUDCO
was designed to allocate Low Income and Weaker sections of the society. HUDCO
today has emerged as the leading national techno financing institution with the
major objective of financing or encouraging the housing activity in the country. It
aims at alleviating housing shortage of all groups in rural and urban areas and also
the development of urban infrastructure.

Objectives:

a) To make available long-term finance for construction of houses in urban and

rural areas and also undertake urban infrastructure development.
b) To help, promote and collaborate consultancy services for planning the
works related to housing and urban development in the country.
c) Financing for the setting up of new towns or satellite towns.
d) For the purpose of Housing and urban development, provide financial
assistance by way of subscribing the debentures and bonds issued by the
State Housing and Urban Development Boards, Development Authorities etc
in the country.
e) Help for the setting up of industrial enterprises which produce building
materials.

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f) To manage and distribute the funds received from Government of India and
other sources as grants or otherwise for the purpose of facilitating housing
and urban development programmes in the country.

2) Housing and Development Finance Corporation (HDFC - 1977)

HDFC was incorporated on October 17, 1977 under the chairmanship of H.

Parekh. It was registered under the Indian Companies Act, 1956. The aim was to be
in the business of mortgage finance for housing. This marked the beginning of
organization without the financial assistance from Government. The Primary
objective of HDFC is to enhance residential housing stock and to promote house
ownership by providing individual household/ families with long term mortgage
loans at commercially viable rate. It aims to finance low and middle income group
of people to purchase or construct a single family dwelling unit, for their own
occupation. It also aims to grant loans to the cooperative sector for housing their
employees. It also aims to increase the flow of resources to the housing sector by
integrating the housing finance sector with the overall domestic financial markets.
Since inception, HDFC has assisted more than 4.4 million customers to own a home
of their own, through cumulative housing loan approvals of over Rs. 5.66 trillion
and disbursements of over Rs. 4.56 trillion as on March 31, 2013.

3) National Housing Bank (NHB 1988)

During the Seventh Five Year Plan (1985-90), a sub group appointed to
study about the problems in housing finance identified that the lack of a national
level institution stands as a hindrance for the development of the housing sector. As
such, the committee proposed the establishment of a national level agency. The
Government of India, constituted a High Level Group under the Chairmanship of
Dr. C. Rangarajan, to examine the proposal. This committee also recommended the
setting up of National Housing Bank as an autonomous housing finance institution.
Accordingly, NHB was incorporated in the year 1988, as per the provisions of
National Housing Bank act 1987. NHB controls, regulates and provides refinance
to Housing finance companies and banks operating in the field of Housing finance.
NHB borrows from Government, Reserve Bank of India, and even from foreign

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capital market. The NHB also provides refinance facility to eligible housing finance
agencies such as housing finance companies, scheduled commercial banks, co-
operative banks or societies, state land development banks etc. The entire paid-up
capital of NHB is wholly owned by Reserve Bank of India, which contributed the
entire paid-up capital.

Objectives

a. To promote a sound, healthy, viable and cost effective housing finance

system to cater to all segments of the population.

b. To promote a network of dedicated housing finance institutions

c. To make housing credit more affordable.

d. To regulate the activities of housing finance companies based on regulatory

and supervisory authority.

e. To encourage augmentation of supply of buildable land and also building

materials for housing and to upgrade the housing stock in the country.

f. To encourage public agencies to emerge as facilitators and suppliers of

serviced land, for housing.

Regulation of Housing finance Companies by NHB

The NHB Act 1987, empowers the NHB to monitor the functioning of
housing finance companies to protect the depositors and the other stake holders. To
achieve this, the NHB is empowered to determine the policy and give directions to
the housing finance companies. Some of the important provisions for regulation of
HFCs by the NHB under the NHB Act, 1987 are,

i) Requirement of registration with the NHB apart from registration with the
Registrar of Companies.

ii) Requirement of bringing in minimum net owned fund of 200 lakh.

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iii) Maintenance of a percentage of assets in specified securities as per NHB
regulations.

iv) Creation of reserve fund by the HFCs to which they are required to transfer
at least 25% of their profits before any dividend is declared.

v) Regulation on issue of prospectus or advertisements soliciting deposits from

the public.

vi) Making prudential norms for HFCs.

vii) Giving directions to the auditors of the HFCs relating to financial statements
and disclosure requirements.

viii) Penalty for violation of the provisions or the directions issued and filing of
winding up petition against defaulting HFCs.

4) National Co-operative Housing Federation (NCHF)

The NCHF was established in 1969, as an apex national level organization

for the entire co-operative housing sector. The main objective was to promote,
develop and co-ordinate the activities of Housing co-operatives in the country.
NCHF was registered under the Multi-State Co-operative Societies Act-1984. (Now
this Act is replaced with Multi-State Co-operative Societies Act- 2002). Ministry of
Urban Development and Poverty Alleviation is controlling the activities of NCHF.
The primary co-operative societies operating in the country can be broadly
classified into four categories, they are

i) Tenant Ownership Housing Societies

ii) Tenant Co-partnership Housing Societies

iii) House Construction or House Building Societies

iv) House Mortgage Societies

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3.2.4. Major Housing finance companies in India

Housing being the one of the essential needs of mankind, the demand for
shelter grows in line with the increase in population and the standard of living;
hence the need of financing the purchasing of a House came up. The importance of
the housing sector can be judged by the fact that people consider house as the best
investment and want to invest their hard earned money or saving in a house. The
need for Finance to purchase a house brought out specialized Housing Finance
Institutions. The Housing Finance Companies (HFCs) as they are called today, have
stepped up their lending over the years contributing to the growth of the housing
sector. Their strength lies in their skills in lending exclusively for housing sector.
The revolutionary development that has happened in the housing market led to the
growth of Indian housing finance market. The result is that, a very large number of
companies come into the picture. The entry of commercial banks into the sector
leads to stiff competition in the field of housing finance. Some of the major players
in the housing finance market are discussed below.

1) Life Insurance Corporation Housing Finance Limited (LICHFL 1989)

LICHFL is incorporated in the year 1989 under the Companies Act, 1956.
The company was promoted by LIC of India and went public in the year 1994. It is
one of the largest housing finance companies in the country. The main objective of
the Company is to provide long term finance to individuals for purchase,
construction, repair and renovation of new or existing flats or houses. Around 89%
of the loan portfolio of LICHFL derived from the retail segment and the rest from
large corporate clients. The company has three important subsidiaries, viz. LICHFL
Care Homes Limited, LICHFL Financial Services Ltd., and Asset Management
Company Ltd. LICHFL Care Homes Limited, is engaged in the business of setting
up, running and maintaining assisted living community centre/care homes for senior
citizens; LICHFL Financial Services Ltd, is engaged in the business of marketing
various financial products and services, and LICHFL Asset Management Company
Ltd is engaged in business of managing, advising, administering mutual funds, unit
trusts, investment trusts and to act as financial and investment advisors and render

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financial advisory services. The company possesses one of the industry's most
extensive marketing networks in India. The company is having their registered and
corporate office at Mumbai. They have 7 regional offices also. The shares are listed
with National Stock Exchange (NSE) & Bombay Stock Exchange Limited (BSE).
During the year 2009-10, the company was awarded the 'Second Best Home Loan
Provider' award by Outlook Profit.

2) ICICI Home Finance Company Limited (ICICIHFL 1999)

ICICI Home Finance Company Ltd (ICICI Home Finance) was incorporated
in the year 1999 as 100% subsidiary of ICICI Personal Financial Services Ltd (ICICI
PFS). The company got registered in March 2000 with NHB. With effect from May
3, 2002, ICICI Home Finance becomes a wholly owned subsidiary of ICICI Bank
Ltd. It is the third largest housing finance company in India with almost 13% market
share. It provides long term housing loans to individuals and corporates. ICICI
Home Finance is the focal point for marketing, distribution and servicing of the
home loans products of the ICICI Bank. The company also offers loans for
commercial property and loans against existing property. The loans are offered for
tenors up to 25 or 30 years. The interest rate is connected to the ICICI bank floating
reference rate.

3) PNB Housing Finance Limited (PNBHFL 1988)

PNB Housing Finance Limited is a subsidiary of Punjab National Bank. It

was incorporated under the Companies Act -1956 and commenced its operations on
Novemebr 11, 1988. PNBHFL is a deposit accepting housing finance company. In
December 2009, it entered into strategic financial partnership with Destimoney
Enterprises Private Limited (DEPL). At present,51% of shares of PNBHFL is
owned by PNB and 49% by Destimoney Enterprises Limited. PNBHFL provides
housing loans to individuals (both resident Indians and NRIs) and corporate for
construction, purchase, repair and up-gradation of houses. It also provides loans for
commercial space, loan against property and loan for purchase of residential plots.
PNBHFL had a portfolio of Rs. 8505 crore outstanding as on September 30, 2013,
68% was towards individual housing loans, 23% towards Loans against Property

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,8% towards Construction Finance segment and balance 1% being securitised
portfolio bought by the company.

4) Dewan Housing Finance Corporation Limited (DHFL 1984)

Incorporated in Maharashtra in 1984 as Dewan Housing Finance & Leasing

Co, the company was renamed as Dewan Housing Development Finance in 1984,
then after to Dewan Housing Finance Corporation (DHFC) with its registered office
in Bombay. The company commenced its activities in August 1984, and has several
branches all over India. It was promoted by the late Dewan Kuldip Singh Wadhawan
and his family. The company is recognised as a private housing finance company by
the Government of India and the RBI has also considered it eligible for refinance
and financial support from the National Housing Bank. The company has been
permitted by the RBI to accept NRI deposits. The company provides housing
finance to individuals, co-operative societies, corporate bodies or their nominated
employees, groups of persons, etc, and leases commercial and residential premises
to reputed companies. For the first time in the history of housing finance, the
company has introduced a housing loan, offering dual protection by way of accident
risk cover and property insurance, free of cost to borrowers. It also offers financial
support to develop infrastructure facilities and for slum development. For the year
ended March 31, 2013, DHFL made a net profit of Rs. 45,185.48 lakhs showing an
increase of 47% over the net profit of the previous year.

5) General Insurance Corporation Housing Finance Limited (GICHFL 1989).

GIC Housing Finance Limited was incorporated as 'GIC Grih Vitta Limited'
on 12th December 1989. The name was changed to its present name vide a fresh
Certificate of Incorporation issued on 16th November 1993. The Company was
promoted by General Insurance Corporation of India and its erstwhile subsidiaries
namely, National Insurance Company Limited, The New India Assurance Company
Limited, The Oriental Insurance Company Limited and United India Insurance
Company Limited together with UTI, ICICI, IFCI, HDFC and SBI, all of them
contributing to the initial share capital. The Company was formed with the objective
of entering in the field of direct lending to individuals and other corporates to

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accelerate the housing activities in India. The primary business of GICHFL is
granting housing loans to individuals and to persons or entities engaged in
construction of houses or flats for residential purposes. The company has got a
strong marketing team, which is further assisted by Sales Associates (SAs). It has
tie-ups with builders to provide finance to individual borrowers. It also has tie-ups
with corporate for various housing finance needs. In the financial year 2012-13, GIC
Housing finance limited registered a profit after tax of 8,503 lacs.

6) Can Fin Homes Limited (CFHL 1987)

Can Fin Homes (CFHL), established in 1987. It is promoted by Canara Bank

in association with reputed financial institutions including HDFC and UTI. CFHL
was set up with the mission of promoting home ownership and increasing housing
stock all over the country. It is the first bank and the biggest bank sponsored housing
finance company (HFC) in the country and one among the top players in the
country's housing finance sector. Now the National Housing Bank (NHB) is also an
important equity holder in CFHL. It is one among the four HFCs selected by NHB
in its first phase of securitisation programme. CFHL offers loans for construction of
house, loan for the purchase of flat or house, finance for the acquisition of a plot and
construction of a house on the same. Under the composite housing loan scheme; it
offers loan for the extension of existing house and loan towards the repairs,
renovation and upgradation of a house or flat. CFHL enjoys 5 Star rating from NHB
for the purpose of refinance. The company enjoys a high safety rating of 'MAA+'
rating, which attracts depositors to the company. In the financial year 2012-13, it has
registered a net profit of 5,412 lacs.

3.3. Housing Finance and Commercial Banks

The primary function of commercial bank is accepting deposits from the

public and lending the same. Till recently, the commercial banks were reluctant to
give housing loan. They are of the opinion that the long repayment period leads to
higher risk. They were issuing housing loan only to meet the stipulation of priority
sector lending. But, the picture has changed now. The commercial banks realized
that, provision of housing loan is good to increase their profit. Even if, default is

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committed the borrower, the bank can acquire the property and realize the amount.
As such the commercial banks started expanding housing related disbursements.
This was actually a threat to the existing Housing finance companies. In the year
2000, 70% of the total loan disbursements in the housing sector was dominated by
the Housing finance companies. But after 5 years in 2005, the housing finance
companies share decreased to 36%. That is, within 5 years the commercial banks
accounted for the 64% of the housing loan disbursements in the country. The
competitive advantage the commercial banks have over the HFCs is their wide
network of branches reaching every nook and corner of the country. All the
commercial banks including public, private and foreign banks in the country are
eligible for disbursing housing loan. For this they need not register with NHB.
Housing loan is only one loan product among the variety of loan products of the
commercial banks. They can give loan for various purposes such as construction of
new houses or flat, purchase of house, renovation or alteration or extension of
existing house, purchase of land for construction of house etc.

3.4. Kerala Demographic factors

Kerala has the special distinction of following a model of development,

which places it well above other Indian States in terms of key development
indicators such as health, education, social welfare and participatory governance.
Although there are many factors which affect the development prospects of an
economy, the size and quality of the population remains a major determinant of the
potential of an economy. As per the provisional data published from the Directorate
of Census 2011, the population of Kerala was 3,33,87,677 persons. Out of this
1,60,21,290 ( 48.0 per cent) are males and 1,73,66,387 (52.0 per cent) are females.
When the last census was taken in 2001, these figures were respectively 3,18,41,374
total, 1,54,68,614 (48.6 per cent) males and 1,63,72,760 (51.4 per cent) females.
Children in the age group of 0 to 6 account for almost 10 per cent of the total
population. The growth rate of Keralas population during the last ten years is 4.9
per cent, which is one of the lowest rates among Indian States. This is much smaller

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than the 9.5 per cent growth in population during the decade ending 2001 (previous
census).

3.4.1. Agencies in Housing Sector of Kerala

Several agencies which are implementing housing schemes in the state

include Kerala State Housing Board, Kerala State Co-operative Housing Federation,
Kerala State Development Corporation for SC/ST, SC/ST Development department,
Rural Development department including Kudumbashree, which implements
Ashraya housing scheme for the destitute etc. Nongovernmental agencies such as
COSTFORD and Habitat Technology group, co-operative societies like Kerala State
Co-operative Housing federation and Corporation like, Kerala Police Housing &
Construction Corporation etc have also helped in constructing houses. Several
NGOs also have contributed significantly. These Agencies and departments have
provided assistance to construct about 7,42,000 houses from the period from 2007-
08 to 2012-13. Apart from the Government agencies, a large number of financial
institutions are functioning in the housing sector of the Kerala state. They include
HUDCO, HDFC, LICHFL, Sundaram Home Finance, GIC Housing Finance,
HOUSEFED, Commercial banks etc.

3.4.2. Focus areas in Keralas Housing Sector during XIIth plan

During the 12th plan period (2012-17), the Government of Kerala has
identified some focal areas for the development of Housing in Kerala. They are
briefly pointed out below.

a) Provide adequate and affordable housing for all.

b) Speed up the efforts to meet the housing needs of landless tribals, fisherman,
traditionally employed and poorest of the poor.

c) Ensure the adequate flow of funds to the housing sector from national and
international financial institutions, Non Resident Indians etc.

d) Promote the construction of cost effective and environment friendly houses.

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e) Popularise the use of energy efficient technology, locally available building
materials etc among the general public.

f) Research work may be undertaken to identify alternative material to be used

instead of river sand due to its acute shortage.

g) To address the gap in infrastructural facilities by providing necessary

infrastructural facilities.

h) Set up a Housing Regulatory Authority to regulate the building activity and

to settle the dispute.

i) Aiming to construct 12 lakh housing units during the 12th five year plan
period (of which 60% intended for the Economically Weaker Sections). The
fund for this programme will be met from the centrally sponsored schemes of
IAY, RAY, funds from HUDCO and other financial institutions.

j) Improve the effectiveness and reach of Kerala State Housing Board with the
help of HUDCO and other consultancy services.

k) It is intended to implement a comprehensive Habitat and Housing Policy in

the state during the 12th plan period.

3.4.3. Kerala State Housing Department

The Kerala State Housing Department is entrusted with the responsibility to

co-ordinate the various housing schemes in the state. It is the nodal department in
housing sector of the state. It is headed by a Secretary. The Kerala State Housing
Board and Kerala State Nirmithi Kendra are the major enterprises under the
Department of Housing. The primary objective of the Housing Department is to
formulate and implement various housing construction or loan schemes for catering
the housing needs of public belonging to various income groups such as
Economically Weaker Sections, Low Income Group, Middle Income Group and
High Income Group. The important housing finance institutions in Kerala are
discussed below.

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1) Kerala Nirmiti Kendra (KESNIK 1985)

Kerala State Nirmithi Kendra is an Autonomous body of Government of

Kerala under Housing Department. It was formally inaugurated in the year 1985.
This institution stands for reduction in cost of house construction. They have the
objective of promoting research in house construction techniques to reduce cost. An
important objective of Nirmiti Kendra is to manufacture good quality building
materials at low cost. It also provides training to various categories of people with
regard to low cost housing. It was vested with the responsibility to co-ordinate,
monitor and regulate the activities of the District level Nirmiti Kendras in the state.
It provide advice and guidance to Government on emerging housing concepts and
policies. It extends consultancy services in housing and allied fields. The most
important feature of Nirmiti Kendra is the use of Cost Effective Environment
Friendly (CEEF) Technology in housing. The use of CEEF Technology will lead to
nearly 20 to 35% reduction in the cost of house construction compared to
conventional construction. In the year 1996, it was shortlisted in the Best practices
100 List by the United Nations for the initiatives taken in the field of housing and
habitat. In 2004, it was identified by the Government of Kerala as a nodal agency for
implementing Rain Water Harvesting in the state.

2) Kerala State Housing Board (KSHB 1971)

The Kerala State Housing Board was constituted in the year 1971, as per the
Kerala State Housing Board Act 1971, by merging the previous City Improvement
Trust. The KSHB functions with the mission to provide shelter to all homes less in
the state. It gives emphasis on the construction of houses for the weaker sections in
the society. The primary objective of the Board is to formulate and implement
various housing construction schemes and housing loan schemes for catering the
housing needs of public belonging to various income groups In addition to this,
general improvement schemes (like commercial cum office complex), government
directed schemes (like Rental Housing Schemes, slum improvement schemes,

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housing complexes for EWS, Rehabilitation Housing Scheme etc.) and deposit work
(ie. Taking construction of work of other agencies) also forms part of the activities
of the Board. The KSHB has won the Best Housing Agency Award, in the country
during the years 1992-93, 94-95, 95-96, 96-97, 97-98, 98-99 and the year 99-2000.
The award was instituted by HUDCO (Housing and Urban Development
Corporation).

3.4.4. Important Housing Schemes and Programmes in the State

The development of housing facility in the state is the responsibility of the

concerned state. Even though the central government is introducing various housing
schemes and programmes, the state government has to design and formulate
appropriate housing schemes in the state to resolve the issue of housing shortage.
The Kerala government has been introducing various housing schemes through
various agencies operating in the state to solve the problem. Important among them
are discussed below.

1) M.N. Laksham Veedu Punarnirmana Padhathi

Through the Kerala State Housing Board, this scheme is introduced. One
lakh houses scheme was launched by the Kerala Government in 1972. The aim was
to construct one lakh houses in the state with an area of 250 Sq. ft. A total of 960
panchayaths in the state decided to construct 100 houses in each panchayath, thereby
making a target of 96,000 houses. The present conditions of these houses are very
pathetic because of three decades of aging. It is for the renovation or repair of
houses, M.N.Laskham Veedu Punarnirmana Padhathi was introduced by the
Government. Financial assistance for the reconstruction of houses is implemented
through the KSHB. The Government subsidy will be 75,000/- for General Category,
1,00,000 for SC Category and Rs.1,25,000/- for ST category. 50% of the subsidy
amount will be given by Kerala State Housing Board and the balance amount shall
be met by the Local Self Government Departments.

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2) Innovative Housing Scheme

In the 11th five year plan, under 2nd years programme (2008-2009) it is
proposed to construct residential flats (4-6 storied) in government land for the
displaced labours in the economically weaker section in urban area. It is proposed to
implement the scheme at the Government land available with the Board at
Thrikkakara (Ernakulam) and Poojappura (Trivandrum). In continuation of the
project it is proposed to construct 111 flats at a cost of Rs.5.82 Crores, at Thrissur
and Trivandrum.

3) Tsunami Rehabilitation Programme (TRP)

Kerala State Housing Board has been designated as nodal agency for the
implementation of the Coastal Housing and Re-settlement Programmes (CHRP).
Government has also decided to entrust the construction of houses at Trivandrum,
Malappuram ,Kozhikkode, Kannur and Kasargod districts to KSHB for direct
execution. The Board has undertaken the responsibility to construct a total of 1,204
houses under this programme. The district wise distribution of houses are
Trivandrum (31), Malappuram (208), Kozhikkode (567), Kannur (128) and
Kasargod (270). The land at Beemapally (Trivandrum) and Veliyamkode
(Malappuram) are only handed over to the Housing Board.

4) Suraksha Housing Scheme

The scheme is to give financial assistance for the houseless Economic

Weaker Sections in both Urban and Rural areas. The Government assistance is
strictly limited to the vulnerable sections under the EWS group after strict scrutiny
of their eligibility. Under this Scheme, assistance will be given to persons owning at
least 2 cents of land to construct a house by themselves. The scheme will have an
option to associate Voluntary Agencies and Non-Government Organisations to assist
the construction. The capital subsidy from the State Government shall be Rs.9,000
per house and Rs.2,000 shall be the beneficiary/Voluntary contribution. Rs.19,000/-

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will be construction loan for a building costing Rs.30,000/-.
In cases where Voluntary Organizations are associated, they shall provide entire
amount to the beneficiary or build the structure upto roof level and the Government
Subsidy shall be disbursed. In this case no loan component is involved and
beneficiary is fully free from repayment.

5) New Suraksha Housing Scheme

The Kerala State Housing Board in its meeting held in 2007, had approved a
new financial pattern for Suraksha Housing Scheme. In this scheme the construction
cost of one house is taken as Rs.1,00,000/-, against the present amount of
Rs.30,000/- and the Government Subsidy as Rs.25,000/- against the present amount
of Rs.9,000/-. It is proposed to construct 2,000 houses during the financial year
2010-11. The pattern suggested is given in the following table.

Share of different parties Amount

Share of beneficiary 25,000

Share of voluntary organisation 50,000

Government subsidy 25,000

Total 1,00,000

6) Tribal Housing Scheme

As part of the construction of housing schemes for the primitive tribes during
the year 2006-07, the Government have issued sanction for the construction of 270
buildings for primitive tribes at Sulthan Bathery taluk in Wayanad district. The
work has been entrusted to KSHB. The construction cost of one building is
Rs.90,000/- and the total cost required for the construction of 270 buildings
amounts to Rs. 243 lakhs. The said amount has been disbursed by the tribal

135
department. All the 270 buildings have been completed in 2009 and handed over to
tribal department.

3.4.5. Kerala State Housing Policy 2011

The new policy visualise the promotion of sustainable development of the

housing with the objective to ensure Adequate and Affordable housing for all. The
government tries to satisfy the needs of the poor, marginalised and disadvantaged
people of the society to ensure inclusive growth. The policy also intends to redefine
the role of state in the capacity as a facilitator, catalyst, builder and regulator in the
field of housing finance.

The focus areas of the new policy include the following.

1) To meet the housing needs of landless tribal people, fishermen, traditionally

employed and poorest of the poor.

2) To formulate innovative financial models of partnerships namely, Public

Private Panchayats Partnership (PPPP), by safeguarding the interest of the
Public.

3) Promotion of adequate flow of funds to the housing sector from international

and national financial institutions, NRIs etc.

4) Development of satellite townships in an integrated and sustainable manner.

5) To address the gap in infrastructural facilities and ensure the supply of

quality basic services.

6) To stimulate the use of cost effective, environment friendly, energy efficient

technology in the construction of houses.

7) Promoting research to identify an alternative material for river sand.

8) Introducing appropriate projects for the construction of houses for Non-

Resident Indians and Non- Resident Keralites.

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 The state government intends to launch various housing schemes to ensure
adequate and affordable housing to all. The policy would be reviewed once in five
years and address the issues if any and also develop the remedial measures.

3.5. Summary

When having a look on the history housing finance in India, it can be

observed that the authorities failed to give an emphasis to this sector in the early
years of development. It is only in the 1970s housing finance attracted the serious
attention of the government. This has led to the setting up of HUDCO in 1970. Even
then the problem housing shortage could not be solved. The setting up of HDFC in
1977 is example of the interest shown by the private sector in this field. The
measures taken by the government to solve the problem of housing shortage is
mainly based on the budget declarations. It takes long 41 years after independence to
set up an apex level housing finance institution in the national level. Within the time
of formation of NHB nearly 80% of the housing stock in the country was financed
from the informal sector. In Kerala, Kerala State Housing Board was set up in 1971
as per the instruction of central government. Later Kerala Nirmiti Kendra was set up
in the year 1985 with the objective of cost reduction in building houses. Along with
the formation of NHB the central government has introduced various housing
schemes such as Indira Awas Yojana, Valmiki Ambedkar Malin Basti Awas Yojana,
Rajiv Awas Yojana etc in the national level. In the state level Kerala government has
also came forward with so many housing schemes such as, One lakh house scheme,
M.N.Laksham veedu punarnirmanan padhathi, Innovative Housing scheme, New
suraksha housing scheme etc. In the national level and state level separate housing
policies have been formulated with the objective of providing affordable housing for
all. By identifying the profitability and safety in the housing finance many Housing
finance Companies were incorporated in the country. In the post-liberalization era
the commercial banks were also attracted by the housing finance sector and started
lending loans for meeting the housing needs of various categories of people. The
Co-operative societies in various parts of the state are also lending housing loans. At
present a borrower has so many options for availing a housing loan.

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 As the present chapter has given an idea about the formal housing finance
system in India. The next chapter deals with the Growth and performance of
selected housing finance agencies in the country, using secondary data.

138
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13) Natioanl Housing and Habitat policy 1997, Ministry of Housing and Urban
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Websites

1) www.nhb.org

2) www.spb.kerala.gov.in

3) www.censusindia.com

4) www.urbanindia.nic.in

5) www.indiainfoline.com

6) www.deal4loans.com

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