The implementation of housing finance policies presupposes efficient institutional arrangements. Although there were a large number of agencies providing direct finance to individuals for house construction, there was no well established finance system till the mid eighties in as much as it had not been integrated with the main financial system of the country. The setting up of the National Housing Bank as a fully owned subsidiary of the RBI as an apex institution was the culmination of the fulfillment of a long overdue need of the housing finance industry in the country. The system has been characterized by the emergence of several specialized financial institutions which have considerably strengthened the organization of the housing finance system in the country. In last few years, various companies have jumped into the field of housing finance, but major business is with few well recognized companies only.
Now let us look into the system of housing finance and discuss few of the important organizations in the system.
Central and State Government
Till the mid-eighties, the responsibility to provide housing finance rested by and large with the government. The Central and State governments support the housing / building efforts indirectly. The Central government has introduced, from time to time, various social housing schemes. The role of the Central government vis a vis these schemes is confined to laying down broad principles, providing necessary advice and rendering financial assistance in the form of loans and subsidies to the state governments and union territories. The Central government has set up the Housing and Urban Development Corporation (HUDCO) to finance and undertake housing and urban development programme, development of land for satellite towns, besides setting up of building material industry.
The Central government provided equity support to HUDCO and guarantees the bonds issued by it. Apart from this, both Central and State governments provide due house building advances to their employees. While the Central Government formulates the housing schemes, the state governments are the actual implementing agencies.
Housing and Urban Development Corporation (HUDCO):
HUDCO was established on 25th April 1970 as a fully owned government enterprise with following objectives:
To provide long-term finance for construction of houses for residential purposes or finance or undertake housing and urban development programmes in the country.
To finance or undertake the setting up of building materials industries.
To finance or undertake the setting up of new satellite towns.
Administer the moneys received, from Government of India or other such grants for purposes of financing or undertaking housing and urban development programmes.
To subscribe to the debentures and bonds to be issued by the state housing boards, improvement trusts, development authorities and so on, specifically for the purpose of financing housing and urban development programmes.
The HUDCO was established with an equity base of Rs. 2 crore. Over the years, the Government has expanded the equity base. It has further been able to mobilize resources from institutional agencies like LIC, GIC, UTI, commercial banks, international assistance as well as through public deposits.
The HUDCO provided assistance benefiting masses in urban and rural areas under a broad spectrum of programmes like rural & cooperative housing, urban employment through housing and shelter development, land acquisition, basic sanitation and environmental improvement of slums, consultancy for technology transfer, building material industry and building technology.
The HUDCO has also been entrusted with the responsibility to finance urban infrastructure projects with additional equity support provided by the Ministry of Urban Development, Government of India. The infrastructure projects cover sectors of water supply, sewerage, drainage, solid waste management, transport nagars/ terminals, commercial – social infrastructure, road, bridges and are development projects and so on.
Insurance Organizations / Corporations:
The LIC and GIC support housing activity both directly and indirectly. The LIC is statutorily required to invest 25 percent of the net accretion of funds in socially oriented housing, electrification, water supply and so on. Besides subscribing to bonds of the HUDCO and state housing boards, LIC grants loans to state governments for their rural housing programmes and to public sector companies for construction of staff quarters. Though LIC has been granting loans to individuals, directly, the thrust to housing finance was provided when, in 1989, the LIC promoted a subsidiary for the purpose, namely the LIC Home Finance Ltd.
The GIC and its subsidiaries are required to invest 35% of their annual accretions by way of loans to socially oriented schemes such as housing. It supports housing almost exclusively indirectly by subscribing to bonds/debentures floated by the HUDCO and state housing boards. It has also set up a housing finance subsidiary called the GIC Housing Finance Ltd., in July 1990 to enable it to lend directly to individuals.
Commercial banks lending to individuals for housing emerged in the wake of the report of the working group on Role of Banking System in Providing Finance for Housing Schemes. They have been lending to the housing-sector based on annual credit allocations made by the RBI.
The cooperative banking sector consists of State Cooperative Banks, district central cooperative banks and primary urban cooperative banks. The RBI issued the first set of comprehensive guidelines, for these cooperative banks, in 1984. Cooperative banks finance individuals, cooperative group housing societies, housing boards and others who undertake housing projects for EWS, LIGs and MIGs.
Specialized Housing Finance Institutions:
There are certain institutions termed as ‘Specialized HFI’, which cater only to the needs of the housing sector. They can further be classified as housing finance companies promoted in the public / private / joint sectors and cooperative housing finance societies. A lead player in HFC category is the HDFC Ltd. It lends, mainly for new residential housing to individuals, groups of individuals, and individual members of cooperative societies.Besides the HDFC, a number of HFCs have been sponsored by banks such as SBI Home Finance Ltd, Canfin Homes Ltd, IndBank Housing Finance Ltd, Citihomes etc.