:- By Rishi Anand
Budget 2019 Expert Opinion on Budget Expectations: Affordable Housing Finance companies (AHFCs) and other Housing Finance Companies (HFCs) provide home loans to EWS/LIG/ MIG and particularly to informal segments. These HFCs actively participate in the ‘Housing for all by 2022’ mission and ultimately promote financial inclusion. All HFCs and NBFCs are passing through an acute liquidity crisis for last 4 months.
Only top rated NBFCs and HFCs are able to secure funds from the banks and capital markets. Smaller NBFCs and HFCs largely depend on banks. They do not have enough pool to sell to the banks under securitization. This has resulted in slowdown in flow of funds to low income housing (as well as other housing), retail sector and Micro Small & Medium Enterprises.
Liquidity support to HFCs and NBFCs need preferred attention of the government and Reserve Bank to ensure flow of funds to priority areas. Safeguards against systemic risk and better corporate governance, as thought fit, may be put in place. Four months of the second half are almost getting over with low disbursement of loans.
As per existing guidelines, direct home loans by banks to beneficiaries qualify as priority sector up to 25 lakhs loan amount with cost of property up to 30 lakhs in non-metro and 35 lakhs loan with cost of property up to 45 lakhs in metro locations having population of 10 lakh and above. Term loans given by banks to HFCs for onward lending are capped at 10 lakhs individual home loans under priority sector.
Pool of individual home loans sold by HFCs through assignment/PTCs under securitization prescribes same eligibility criteria of 25/35 lakhs mentioned above. This onward lending limit may be also increased from 10 lakhs to 25/35 lakhs to align with direct lending and securitization of pool. This will facilitate flow of funds from banks to HFCs particularly to affordable housing finance companies as this will contribute towards meeting PSL requirement of banks
The dependence on banking system can be reduced by encouraging eligible NBFCs/HFCs to mobilize funds directly from public through issuance of retail bonds. The existing stipulation of maintaining Debt Redemption Reserve (DRR) to the extent of 25 % of bond issuances is highly restrictive. This condition needs to be relaxed.
RBI has permitted banks to provide credit enhancement up to specified levels for bond issuances by NBFCs. In all probability, small HFCs/NBFCs of ‘A’ and above rating will be crowded out. Certain percentage within the overall eligibility of banks, should be earmarked for smaller NBFCs.
Present NHB refinance limit of Rs 30,000 crores needs to be substantially enhanced to support HFCs and AHFCs for getting at least 20 %-30% of the resources by the way of refinancing. NHB has the strong ability to raise resources from the market, banks and overseas. Refinance for small NBFCs may also be considered through SIDBI.
There is a well-operative credit guarantee fund scheme to provide guaranteed comfort to lenders for their home loans to small micro enterprises (SMEs).This scheme successfully supported the growth of loans to SME sector. Similarly a credit guarantee fund scheme was formulated by ministry of urban housing and poverty alleviation and is operated through National Housing Bank (NHB).According to this scheme, home loans given up to Rs 8 lakhs are guaranteed to the extent of Rs 5 lakhs.
This scheme could not take-off to support the home loan need of informal segment mainly due to the fact that home loans under the PMAY (Pradhan Mantri Awas Yojana) scheme are not eligible under this scheme. The credit linked subsidy under PMAY is meant to improve affordability of the low income segment while guarantee scheme is meant to encourage the AHFCs to provide loans to the huge informal segment for fulfilling their dream of owning a home. They both should sync together.
PMAY Scheme is big initiative launched by the government. This scheme thoughtfully stipulated the condition of joint ownership of property with female members to empower women but this causes exclusion of many beneficiaries under the Economically Weaker Sections (EWS) and Low Income Groups (LIG) category who own residential plot or home in self-name but require loan for construction or improvement in the existing house. This condition of joint ownership may be relaxed.
Small HFCs and NBFCs are playing a larger role in reaching out to the underserved informal customers. The government should consider some alternate mechanism for providing liquidity to these small HFCs and NBFCs who are solely depending on banks and promoter equity.
EWS beneficiaries, seeking home loan, are largely from the informal segment and are prone to volatility in cash flows.This, at times, without any fault of the customer, impacts his repayment of EMI which results in slipping of the account into Non-Performing Asset (NPA). Such genuine cases, upto 10 lakhs loans, should be allowed to be restructured by extension of loan period or deferment of defaulted installment without down-gradation of the status of the account.
The facility of restructuring should be restricted to 2 times only during entire period of loan with minimum gap of 3 years. No change in existing NPA norms is required except the requested restructuring facility on two occasions.
The recently announced co-origination policy by RBI currently applies only to non-deposit taking NBFCs, this may be extended to deposit taking NBFCs also.
The author is Chief Business Officer of Aadhar Housing Finance. The views expressed are author’s own.