‘Low Cost Long-term Fund Is The Biggest Challenge’

National Housing Bank (NHB) is the agency that handles all issues related to finance for the Housing for All mission. On the third anniversary of this mission, BW Businessworld caught up with Sriram Kalyanaraman, MD & CEO of NHB, to get a perspective on the mission. 

Excerpts of the interview: 

Basic and systematic infrastructure is the first step in realising the larger vision of Housing for All. How do you define it in financial terms? 
Under the Smart Cities Mission, 100 cities across the country have been selected with a total project cost of Rs 2.03 lakh crore ($31 billion), with nearly 10 crore urban population being impacted. Further, the Swachh Bharat Mission, Atal Mission for Rejuvenation and Urban Transformation (AMRUT), and Heritage City Development and Augmentation Yojana (HRIDAY) will help address some of the major infrastructure issues affecting the urban landscape. Development of transportation infrastructure like Metro rail in many cities is also helping in houses coming up a little away from the industrial hubs as commuting becomes easier and comfortable. This is basic infra development.

What are your views on housing finance?
The housing sector in the country is heading for a higher growth trajectory. With the grant of infrastructure status to affordable housing and the implementation of RERA and GST to bring in more transparency to the sector, we foresee a higher intent to buy a house, which would spur the demand for home loans since the affordable segment is quite underserved.

NHB has reduced the risk weightage for individual housing loans given by housing finance companies (HFC) thereby increasing the funds available with them to lend. This move will also reduce the gap in the cost of funds to HFCs vis-à-vis banks. To make available more funds to HFCs, NHB has come out with two measures: It has rationalised the risk-weightage of some categories of loans and, two, allowed HFCs to calculate the risk weightage on the basis of outstanding loans instead of the loan amount initially lent. As a result, 75 percent of the new accounts booked for individual housing loans in FY2017-18 were under Rs 25 Lakh.

Under PMAY, the credit-linked subsidy scheme has outperformed all the previously implemented government schemes put together on affordable housing for the weaker sections.

How do agencies identify the real beneficiary? Do they have their own identification mechanism?
The in situ Slum Redevelopment, Affordable Housing Through Partnership, and the Beneficiary Led Construction verticals of PMAY are centrally-sponsored schemes and are being implemented through the respective state governments, who also do beneficiary identification. NHB, which has won the Digital India Award for the implementation of the CLSS online portal, has conducted 24 regional workshops and 101 outreach programmes with all stakeholders including financial institutions, state government officers and borrowers.

What are the legacy issues, if any, faced by NHB?
Availability of low cost long-term funds is a big challenge for the housing sector. NHB is examining new mechanisms which could be used to raise funds for the housing sector.

On the retail front, inadequate income documentation, particularly in the case of lower income and informal income segment borrowers, is an issue. In these cases, the underwriting practices of the lenders are key to controlling credit risk. Companies have started using online verification through eKYC to help minimize the risk of identify fraud and document forgery.

The bank had entered into a partnership with the World Bank through the GoI for supporting the cause of urban LIG which is dependent on the informal sector for its livelihood. Under this programme 55 percent of the lending would be under formal income and 45 percent under alternately secured. Loans to PLIs are given at fixed rates, so that they are spared the perils of rate fluctuation and can lend at lower rates for long tenors to the LIG segments of the society.
Additionally, a line of credit of €50 million was provided by Kreditanstalt fuer Wiederaufbau (KfW) to NHB for extending refinance assistance to PLIs in respect of their individual housing loans for energy efficient units. NHB has also tied up with AFD of France for a line of credit of €100 million for promoting green housing in India. Furthermore, the lender has revised refinance eligibility for extending loans and advances to new HFCs.

How will the government cover the deficits created by huge budgets to such a mighty scheme ?
Housing is a very important component of the economy, with backward and forward linkages to more than 250 industries. Therefore, a huge surge in housing construction activity will provide a big boost to the whole ecosystem for years to come.

The housing finance to GDP ratio in India is at 9.7 percent in 2016-17, up from 1.8 percent in 1996-97. Even though this represents phenomenal growth for the sector, it is still low when compared with other developing and developed countries. According to a 2014 study by the National Council of Applied Economic Research, every additional rupee of capital invested in the housing sector adds Rs 1.54 to the GDP and every Rs 1 lakh invested in residential housing creates 2.69 new jobs in the economy.

Also, with the successful implementation of RERA and GST along with effective collection mechanism in place, the government can look to further narrow the deficit created by funding such flagship schemes.

Can you share some numbers for the Housing For All project? 
The Housing For All by 2022 is a holistic mission of the government of India in which supply side and demand side interventions are being addressed through technological and IT interventions to reduce the time taken for approvals, construction and financing.

Under PMAY (Urban), the Ministry of Housing and Urban Development as of 16 July 2018 approved construction of 53.79 lakh affordable houses for urban poor with an investment of Rs 2,96,169 crore, and central assistance of Rs 81,952 crore. The Prime Minister announced that under PMAY (Rural), more than a crore houses have been provided to the poor in villages.

Is the Housing For All scheme too ambitious? How is it different from schemes in previous regimes? 
The government is comprehensively addressing the affordable housing issue on supply side by enabling tax and fiscal incentives to various stakeholders, and on demand side by enabling tax incentives and/or providing interest subsidy to consumers so as to achieve the overall objective of the Housing for All by 2022 mission.

Besides, meeting the long-pending demand of the industry to grant infrastructure status by including affordable housing in the updated harmonised master list of infrastructure sub-sectors is another step in the direction. Apart from these, various state governments are taking initiatives in speeding up approvals or online approvals. Moreover, many government bodies are also coming up with their own supply of affordable houses.