1.1.1 As a part of the strategy to overcome the colossal housing shortage, the Central Government has adopted a comprehensive National Housing Policy which, among other things, envisages -

1.1.2 Banks, with their vast branch network throughout the length and breadth of the country, occupy a very strategic position in the financial system and have an important role to play in providing credit to the housing sector in consonance with the National Housing Policy. Therefore, the banks should gear up to deliver the requisite ‘housing finance’.

1.2.1 Keeping in view the objectives of the National Housing Finance Policy, RBI announces policy relating to housing finance allocation and other related matters, annually.

1.2.2 Every year, banks will need to achieve the prescribed target of ‘housing finance’ fixed on the basis of their growth of deposits recorded during the previous year.

Banks may deploy their funds under the housing finance allocation in any of the three categories, i.e.,

(i) direct finance,

(ii) indirect finance, or

(iii) investment in bonds of NHB/HUDCO, or combination thereof.

(i) Categories of construction activities eligible for bank credit as ‘housing finance’ and inclusion in the yearly allocation.

(ii) Categories of construction activities eligible for bank credit but not to be included in the ‘housing finance’ allocation.

(iii) Categories of construction activities not eligible for bank credit.

(i) Direct housing finance up to Rs. 5 lakh provided per dwelling in semi-urban/rural areas and up to Rs. 10 lakh provided in urban/ metropolitan areas.

(ii) Finance provided for construction of residential houses to be constructed by public housing agencies like HUDCO, Housing Boards, local bodies, individuals, co-operative societies, employers, etc., excepting the housing finance of the nature mentioned in paragraph 2.3 below, priority being accorded for financing construction of houses meant for economically weaker sections, low income group and middle income group.

(iii) Finance for construction of educational, health, social, cultural or other institutions/ centres, which are part of a housing project and which are necessary for the development of settlements or townships;

(iv) Finance for shopping complexes, markets and such other centres catering to the day to day needs of the residents of the housing colonies and forming part of a housing project;

(v) Finance for construction meant for improving the conditions in slum areas for which credit may be extended directly to the slum-dwellers on the guarantee of the Government, or indirectly to them through the State Government agencies;

(vi) Bank credit given for slum improvement schemes to be implemented by Slum Clearance Boards and other public agencies;

(vii) Finance provided to -

(viii) Housing finance provided by banks for which refinance is availed of from National Housing Bank (NHB);

(ix) Investment in the guaranteed/non-guaranteed bonds and debentures of NHB/HUDCO in the primary market, provided investment in non-guaranteed bonds is made only if guaranteed bonds are not available.

(i) Housing finance granted by banks to their own employees.

(ii) Housing finance granted to non-resident Indians (NRIs) direct or through Housing Finance Institutions.

(iii) Direct housing loans in excess of Rs. 5 lakh and Rs. 10 lakh provided in semi-urban/rural areas and Urban/Metropolitan centres, respectively.

(iv) Housing loans taken over by banks from other banks.

(v) Industries manufacturing building material for construction.

(vi) Construction of warehouses, including those to be constructed for Food Corporation of India, godowns and cold storages.

(vii) Buildings which do not form a part of housing project like hospitals, clinics, schools, colleges, markets, shopping centres and cinema houses.

(viii) Construction of hotels and accommodation for tourist and commercial offices.

(ix) Construction of hostels.

(i) Semi-urban/Rural areas - Rs. 5 lakh

(ii) Urban/Metropolitan centres - Rs. 10 lakh

The following types of bank finance may be included under Direct Housing Finance:

(i) Bank finance extended to a person who is already owning a house in the town/village where he resides, for buying/ constructing a second house in the same or other town/ village for the purpose of self occupation.

(ii) Bank finance extended for purchase of a house by a borrower who proposes to let it out on rental basis on account of his posting outside the headquarters or because he has been provided accommodation by his employer.

(iii) Bank finance extended to a person who proposes to buy an old house where he is presently residing as a tenant.

(iv) Bank finance granted only for purchase of a plot, provided a declaration is obtained from the borrower that he intends to construct a house on the said plot, with the help of bank finance or otherwise, within a period of two years from the availment of the said finance.

Banks should ensure that their indirect housing finance is channelled by way of term loans to housing finance institutions, housing boards, other public housing agencies, etc., primarily for augmenting the supply of serviced land and constructed units. It should also be ensured that the supply of plots/houses is time bound and public agencies do not utilise the bank loans merely for acquisition of land. Similarly, serviced plots should be sold by these agencies to co-operative societies, professional developers and individuals with a stipulation that the houses should be constructed thereon within a reasonable time, not exceeding three years. For this purpose, the banks may take advantage of various guidelines issued by NHB for augmenting the supply of serviced land and constructed units.

In view of the important role played by professional builders as providers of construction services in the housing field, especially where land is acquired and developed by State Housing Boards and other public agencies, commercial banks may extend credit to private builders on commercial terms by way of loans linked to each specific project. The period of credit for loans extended by banks to private builders may be decided by banks themselves based on their commercial judgement subject to usual safeguards and after obtaining such security as banks may deem appropriate. Such credit may be extended to builders of repute, employing professionally qualified personnel. It should be ensured, through close monitoring, that no part of such funds is used for any speculation in land. Care should also be taken to see that prices charged from the ultimate beneficiaries do not include any speculative element, that is, prices should be based only on the documented price of land, the actual cost of construction and a reasonable profit margin.

Finance provided by the banks would not be eligible for refinance from Reserve Bank.

8.2.1 The housing finance branch of a bank should be in any of the districts for which the bank has lead responsibility or, in the case of banks having very nominal lead responsibility, in districts where they have a large presence.

8.2.2 Banks should avoid opening of such housing finance branches at metropolitan centres which are served by quite a few specialised housing finance companies like HDFC or housing finance subsidiaries of the commercial banks.

8.2.3 The housing finance branches may be set up in areas where there is a concentration of branches of the same bank designated to handle housing finance business so that the expertise available in the specialised branch could be used for servicing the other designated branches.

8.2.4 While formulating their proposals, banks should, as far as possible, give preference to smaller urban and semi-urban centres where there is enough potential for opening of such branches.

8.2.5 The proposals should cover all the states to ensure a wider geographical dispersion of housing finance branches.

8.2.6 The applicant bank should also explore the feasibility of converting any of its loss-making branches at the centre into a proposed housing finance branch. Apart from this, banks could designate one of their branches in each district for the purpose of housing finance in addition to their normal banking functions.

The availability of housing finance services at specialised branches should also be widely publicised.

8.2.7 In the interest of effecting economy in expenditure, the proposed housing finance branches, as far as possible, may be accommodated in any of the existing premises of the bank at the centre.

8.2.8 Banks may also indicate the existing construction activities, likely development in the business, their involvement in financing such projects/ construction work (whether in consortium or individual basis) at the centre.

8.2.9 National Housing Bank will be prepared to take up the task of training the staff to be posted in the specialised housing finance branches so that they are equipped with the necessary skills for the work.

9.1.1 Under the HLAS, a member of HLAS is eligible for a loan after subscription to the scheme for a minimum period of 5 years.

9.1.2 There is no objection to bank loans under HLAS being utilised for foreclosing loans secured earlier from other sources, as a special case.

Under HLAS, the participating bank is required to accept deposits on behalf of NHB and make use of these deposits by way of refinance under any scheme approved by NHB from time to time. The surplus funds, if any, not so utilised (i.e. excess of deposits over refinance) can either be remitted by the participating bank to NHB or retained by it, subject to compliance with the statutory reserve requirements as under:

(i) The deposits under the HLA Scheme are on a recurring basis; and they should be treated as ‘time’ liabilities, subject to reserve requirements under Section 42(1) of the Reserve Bank of India Act, 1934 as also under Section 24 of the Banking Regulation Act, 1949 and included under item II (a) (ii) of Form ‘A’.

(ii) In terms of sub-clause (ii) of clause (c) of the Explanation to Sub-Section (1) of Section 42 of the RBI Act, as amended by clause 3 of the Second Schedule to the National Housing Bank Act, 1987, ‘liabilities’ will not include any loan taken from NHB.

Hence, the deposits utilised as refinance from NHB should be deducted from the total deposits received under the HLA Scheme while including the amount under item II (a) (ii) of Form ‘A’.