RESERVE BANK OF INDIA
INDUSTRIAL&EXPORT CREDIT DEPARTMENT
CENTRAL OFFICE,
CENTRAL OFFICE BUILDING,
POST BAG - 10030,
MUMBAI - 400 001.
RBInet - bomiecd
E-Mail-rbibiecd@giasbmo1.vsnl.net.in
TELEPHONE 266 1602
FAX 022-266 0407 Ref.IECD.No.(HF) 2 /03.27.25/2000-2001 August 7,2000 The Chairman/Chief Executive
of all Commercial Banks Dear Sir, Housing Finance Allocation
for the year 2000-2001 Please refer to our circular IECD.No.(HF)24/03.27.25/98-99 dated April 15, 1999 regarding housing finance allocation for the year 1999-2000. It has been decided that, for the current financial year i.e. April 2000 to March 2001, each bank should compute its share of the housing finance allocation at 3 percent of its incremental deposits as on the last reporting Friday of March 2000 over the corresponding figure of the last reporting Friday of March 1999. However, this is the minimum housing finance allocation and there is no objection to banks exceeding this level, having regard to their resources position. 2. The final figures of deposits as on the last reporting Friday of March 1999 and 2000 and the amount of housing finance allocation representing 3% of the increase in deposits during the said one year period applicable to your bank for the year 2000-2001 should be advised to us within a fortnight from the date of receipt of this circular. 3. Banks may deploy their funds under the housing finance allocation in any of the three categories i.e. direct finance, indirect finance or investment in bonds of NHB/HUDCO or combination thereof. The other instructions contained in our earlier circulars (as summarised in the Annexure) remain unchanged. 4. For the purpose of monitoring the macro level performance of the commercial banks in disbursement of housing finance vis-à-vis their housing finance allocation, banks should continue to submit on quarterly basis, commencing from the quarter ended 30th June 2000, details of disbursements made by them towards housing finance, as per the format enclosed to our circular under reference (specimen enclosed for ready reference) within 20 days from the close of the respective quarter. 5. Please acknowledge receipt. Yours faithfully, (S.H.Shetti)
General Manager Encls : 7 sheets Annexure Summary of instructions on housing finance 1. Bank credit eligible for being
treated as housing finance under
housing finance allocations - Finance provided for construction of residential houses to be constructed by public housing agencies like HUDCO, Housing Boards, local bodies, individuals, co-operative societies, employers etc. priority being accorded for financing construction of housing meant for economically weaker sections, low income group and middle income group. However, housing finance of the following nature shall not form part of housing finance allocation :
- housing finance granted by banks to their own employees;
- housing finance granted to Non Resident Indians (NRIs) direct or through Housing Finance Institutions (HFCs);
- direct housing loans in excess of Rs.5 lakhs and Rs.10 lakhs provided in semi-urban/rural areas and Urban/Metropolitan centres respectively; and
- housing loans taken over from other lending institutions.
- Finance for construction of educational, health, social, cultural or other institutions/centres, which are part of a housing project and which are necessary for the development of settlements or townships;
- Finance for shopping complexes, markets and such other centres catering to the day to day needs of the residents of the housing colonies and forming part of a housing project;
- Finance for construction meant for improving the conditions in slum areas for which credit may be extended directly to the slum-dwellers on the guarantee of the Government or indirectly to them through the State Governments;
- Bank finance for purchase of plot alone may be treated as part of housing finance provided the bank obtains a declaration from the borrower that he intends to construct a home on the said plot, whether with the help of bank finance or otherwise, within a period of two years from the availment of said finance. Since the compliance with the declaration rests with the borrower, the banks may if they so desire, incorporate suitable covenants in the loan documents at the time of sanction to enable them to recall the loan or charge higher rate of interest in the event of non-compliance by the borower with his declaration.
- Finance provided to (i) the bodies constituted for undertaking repairs and (ii) the owners of building/house/flat, whether occupied by themselves or by tenants, to meet the need based requirements for their repairs/additions, after satisfying themselves regarding the estimated cost (for which requisite certificate should be obtained from an Engineer/Architect, wherever necessary) and obtaining such security as deemed appropriate.
- Housing finance provided by banks for which refinance is availed of from National Housing Bank (NHB).
- Bank credit given for slum improvement schemes to be implemented by Slum Clearance Boards and other public agencies.
- Investment in the guaranteed/non-guaranteed bonds and debentures of NHB/HUDCO in primary market provided investment in non-guaranteed bonds is made only if guaranteed bonds are not available.
2. Terms and conditions for
sanction of Housing Finance - Security, margin, repayment schedule
In respect of direct lending for housing to borrowers, banks are free to evolve their own guidelines on aspects such as margin, security, repayment schedule, etc. with the approval of their respective Board of Directors. - Rate of interest
The rate interest on direct/indirect housing finance will be in conformity with RBIs directive in force. The directive presently in force is DBOD No.Dir.BC.106/13.03.00/99- dated 29th October 1999. - Indirect housing finance
- General
Banks should ensure that their indirect housing finance is channelled by way of term loans to housing finance institutions, housing boards, other public housing agencies, etc. primarily for augmenting the supply of serviced land and constructed units. It should also be ensured that the supply of plots/houses is time bound and public agencies do not utilise the bank loans merely for acquisition of land. Similarly, serviced plots should be sold by these agencies to co-operative societies, professional developers and individuals with stipulation that the houses should be constructed thereon within a reasonable time, not exceeding 3 years. For this purpose, banks may take advantage of various guidelines issued by NHB for augmenting the supply of serviced land and constructed units. (ii) Lending to Housing Finance Institutions In terms of NHB guidelines, housing finance companies total borrowings whether by way of deposits, issue of debentures/bonds and advances from banks or from financial institutions but excluding any loan obtained from NHB should not exceed 10 to 15 times of their Net Owned Funds (i.e. paid-up capital and free reserves less deferred revenue expenditure and intangible assets). Considering the above ceiling on total borrowings of housing finance companies prescribed by NHB, the stipulation restricting the quantum of term loans to be extended to housing finance companies by banks to 3 times of NOF of housing finance companies have been withdrawn in respect of housing finance companies which are eligible to draw refinance from NHB. However, in respect of other housing finance companies, the stipulation will continue to exist. (iii) Lending to Housing Boards and other agencies Banks may extend term loans to state level Housing Boards and other public agencies. However, in order to develop a healthy housing finance system, while doing so, banks must not only keep in view the past performance of these agencies in the matter of recovery from the beneficiaries but they should also stipulate that the Boards will ensure prompt and regular recovery of loan instalments from the beneficiaries. (iv) Financing of land acquisition In view of the need to increase the availability of land and house sites for increasing the housing stock in the country, banks may extend finance to public agencies for acquisition and development of land provided it is a part of the complete project, including development of infrastructure such as water systems, drainage, roads, provision of electricity, etc. Such credit may be extended by way of term loans. The project should be completed as early as possible and, in any case, within 3 years, so as to ensure quick re-cycling of bank funds for optimum results. If the project covers construction of houses, credit extended therefor in respect of individual beneficiaries should be on the same terms and conditions as stipulated for direct finance. (v) Term loans to private builders In view of the important role which professional builders as providers of construction services have to play in the housing field, especially where land is acquired and developed by State Housing Board and other public agencies, commercial banks may extend credit to private builders on commercial terms by way of loans linked to each specific project. The period of credit for loans extended by banks to private builders may be decided by banks themselves based on their commercial judgement subject to usual safeguards and after obtaining such security as banks may deem appropriate. Such credit may be extended to builders of repute and employing professionally qualified personnel. It should be ensured, through close monitoring, that no part of such funds is used for any speculation in land. Care should also be taken to see that prices charged from the ultimate beneficiaries do not include any speculative element, that is, prices should be based only on the documented price of land, the actual cost of construction and a reasonable profit margin. 3. Refinance from RBI Finance provided by banks would not be eligible for refinance from RBI. 4. Certain clarifications about Direct Housing Finance - Bank finance extended to a person who is already owning a house in the town/village where he resides, for buying/constructing a second house in the same or other town/village for the purpose of self occupation, may be considered as direct housing finance.
- Bank finance extended for purchase of house by a borrower who proposes to let it out on rental basis on account of his posting outside the headquarter or because he has been provided accommodation by his employer, may be treated as direct housing finance.
- Finance extended by banks to borrowers for purchase of old house, irrespective of the age of the dwelling unit in accordance with their lending policy may be classified as direct housing finance.
5. Housing Finance to Non-Resident Indians (NRIs) Authorised Dealers in Foreign Exchange have been granted permission to grant loans to NRIs holding Indian passports for acquisition of a house/flat for residential purposes subject to certain terms and conditions. The housing loans granted to NRIs should be treated outside the purview of annual housing finance allocation. Further, it should not be included in the quarterly housing finance statements required to be forwarded to us. 6. Term loans to Housing Finance Intermediaries Banks have been permitted to grant term loans to housing intermediary agencies against the direct loans sanctioned/proposed to be sanctioned (including those to Non-Resident Indians) by the latter irrespective of the per borrower size of the loan extended by these agencies. Further, housing finance sanctioned by commercial banks to housing finance intermediary agencies would henceforth be reckoned for the purpose of achievement of their housing finance allocation irrespective of the per borrower size of the loan extended by these agencies. However, term loans extended by commercial banks to housing intermediary agencies against the latters on-lending to Non-Resident Indians will not be treated as housing finance for the purpose of the scheme of yearly housing finance allocation applicable to banks. As regards rate of interest on term loans extended by commercial banks to housing finance intermediary agencies for on-lending to Indian residents, banks are free to charge interest rates without reference to their own Prime Lending Rate. 7. Term loans for housing projects
involving budgetary support In respect of housing projects undertaken by both public sector and private sector undertakings, banks are free to sanction term loans for financially viable and bankable projects provided they have income generation capacity sufficient to repay the loan together with interest. Further in respect of projects undertaken by public sector units, term loans may be sanctioned only for corporate entities (i.e. public sector entities registered under Companies Act or a Corporation established under the relevant statute). Such term loans should not be in lieu of or to substitute budgetary resources envisaged for the project. The term loan could supplement budgetary resources if such supplementing was contemplated in the project design. 8. Quarterly statements For the purpose of monitoring the macro level performance of the commercial banks in disbursement of housing finance vis-à-vis their housing finance allocation banks are advised to submit on quarterly basis details of disbursements made by them towards housing finance as per the format (specimen enclosed) within 20 days from the close of the respective quarter. 9. Housing Loans under Priority Sector Housing finance limits considered as Priority Sector Advances are as under : (a) Direct Finance - Loans upto Rs.5 lakhs for construction of houses by individuals in rural and semi-urban areas.
- Loans upto Rs.10 lakhs for construction of houses by individuals in urban and metropolitan areas.
- Loans upto Rs.50,000/- for repairs to damaged houses by individuals.
(b) Indirect Finance - Assistance given to any governmental agency for construction of houses for slum clearance and rehabilitation of slum dwellers subject to a ceiling of Rs.5 lakhs of loan amount per housing unit.
- Assistance given to a non-governmental agency, approved by the National Housing Bank, for the purpose of refinance for construction of houses or for slum clearance and rehabilitation of slum dwellers subject to ceiling of loan component of Rs.5 lakhs per housing unit.
- All the investments in bonds issued by NHB and HUDCO exclusively for financing of housing irrespective of the loan size per dwelling unit.
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