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Housing finance firms may get Rs 80 bn more to lend

Parul Gupta

Housing finance companies might soon have Rs 80 billion more in their kitty to lend. The National Housing Bank, in association with the Reserve Bank of India, is considering a possibility of bringing down the risk weight associated with the mortgage assets from 100 per cent to 75 per cent.

"The housing finance companies wanted us to bring down the risk weight to 50 per cent in accordance with the international standards but we feel that India is still not prepared for 50 per cent levels because of the lack of foreclosure norms and also the lack of mortgage insurance companies. We, therefore, in association with RBI, are considering to bring the risk weight down to 75 per cent from the current 100 per cent. The HFCs would thus be able to lend Rs 80 billion more in the medium term without a need to raise additional capital," NHB chairman and managing director PP Vora said.

In simple terms, the initiative would mean that the HFCs would, after the proposed reduction, be able to lend 12 times more than its net worth compared to 10 times now.

"The 25 per cent reduction in risk weightage will enable the HFCs to increase their business by another 25 per cent without a need to raise fresh additional capital," said PNB Housing Finance Ltd managing director R Nambirajan.

The HFCs' contention was that since the mortgage assets do not depreciate and are, therefore, secure, the risk weight should be brought down from 100 per cent to 50 per cent in accordance with international standards. Housing loans internationally are, however, backed by insurance whereby the insurance company underwrites the risk arising out of non-payment of loans.

Vora said that in order to introduce mortgage insurance in India, NHB is getting technical assistance from the Canada International Development Agency. Under the arrangement, NHB had recently gone to Canada to study the mortgage insurance model in Canada. The Canadian team is expected to visit India next month.

"Detailed presentations would be made after that in order to decide upon the final model to be introduced in India," he said.

NHB had amended the NHB Act so as to put foreclosure laws in place on June 12, 2000. The changes have been sent to the government for notification through the gazette and the notification is expected to come out soon, Vora added.

In order to solve the problem of long term availability of funds in the sector, NHB is also contemplating setting up of a mortgage backed securitisation fund which will take care of the HFCs problem of asset-liability mismatch, he felt. The reduction in stamp duties by five state governments including Tamil Nadu, Karnataka, Gujarat, Maharashtra and West Bengal to 0.1 per cent will further enhance funds available for securitisation, Vora said.

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