Budget 2018: Finance minister Arun Jaitley in the Union Budget has announced setting up of a dedicated Affordable Housing Fund (AHF) with the National Housing Bank. This is to be funded through a shortfall in the priority sector lending by the banks. However, the allocated amount under this fund has not been indicated in the Budget 2018 as used to be the case earlier in respect of rural housing fund (RHF) and urban housing fund (UHF) in the past. It is most likely that the new AHF will subsume both RHF and UHF since they were also funded by the shortfall in the priority sector lending. The focus is certainly now on the affordable housing market, both in urban and rural areas, and will constitute an integral part of the PMAY – Grameen and Urban.
The AHF will be a critical supplement to the interest subvention scheme under the CLSS and the two together will have significant implications for affordability. The AHF will help channelise funding to the financing institutions at lower rates through the refinance scheme of NHB (expectedly, the rates will be much lower, both refinance and on-lending rates, making the loans more affordable to the borrowers). Thus, the complementaries between the CLSS and the AHF will result in higher synergies, better integration and more active participation of the lending institutions, and all these resulting in higher cycle of remonetisation of the sector and leveraged affordability.
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This is, however, predicated on reformulation of the refinance scheme of the NHB, combining the elements of interest subsidy under CLSS and cheaper loans through the AHF. The combined effect of interest subsidy and cheaper loans will considerably improve the outcome on the ground in terms of both flow of funds as well as affordability. Since the institutional mechanism for implementing both CLSS and the housing fund schemes (RHF and UHF) are already in place there should be no time lost in building up on the existing programme and giving it a big thrust. One caveat, however, is the rate at which the NHB will operate its refinance scheme under the AHF, and whether the funds could also be used for lending to projects as supply side intervention.
However, NHB will need to reformulate its refinance schemes keeping in view the goals and objectives under the PMAY programme, viz “Housing for All by 2022”. Speedier mechanism and smooth implementation with adequate interest and participation of all intermediary institutions, particularly public sector banks, will be really “key” in the success of the scheme. Given the performance under the programme so far, it will be critical for the entire banking industry, particularly the PSBs, to actively participate in its implementation. The other key factor for NHB is to determine the onlending rate for the HFCs/banks, so as to allow them enough incentive to be in the game. And this will also depend on the rate at which the funds are made available to NHB out of the banks’ priority sector shortfall, which is determined by the RBI.
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The involvement of PSBs and RRBs will be particularly critical in the rural areas as the HFCs have limited reach and penetration in the rural areas. Besides, the HFCs’ lending will also need adequate due diligence and supervision. Given the thrust on the rural and agricultural sector, the implementation of rural housing component under the PMAY should be a natural and integral part of the rural credit ecosystem which will also generate economic activities and create better job and employment opportunities in the rural areas.
–RV Verma (Former NHB Chairman)