‘There is a huge pent-up demand for affordable housing’, says S Sridhar, NHB chief  

July 21, 2010

S Sridhar, CMD, Central Bank of India and chairman of the National Housing Bank, talks to Sucheta Dalal on reverse mortgage, the changing role of NHB and rejuvenating CBI. In the second part of a three-part series, we explore the revamped functioning of the National Housing Bank 

Sucheta Dalal (ML): Do you see NHB’s role evolving to a more regulatory function for realty?

S Sridhar (SS): No, I don’t think NHB should become the urban regulator. That should be an independent regulatory body set up by the government. There the focus has got to be more on technical issues — that zoning is done properly, that builders have a clear set of regulations etc. But in the housing finance space, there is a lot that needs to be done, especially in low-income housing. The urge to own a house is universal. Everybody wants a house; it is especially a strong feeling among women. We have to find instruments and policies, whereby we are able to provide houses — if not to the entire population, at least to those who can afford it, among the lower income group. It is here that NHB has got its role cut out. During my tenure I have tried to shift the focus away from the normal refinance function that we do and get the organisation to play a sort of lead role in encouraging housing finance for the poor. NHB’s role in doing this is now well recognised, even in parts of Asia.

ML: Specifically, what are the various things that have worked well in the rural finance area?

SS: Well, we created a Rural Housing Fund for financing housing for rural areas for weaker sections — women, minorities and people who owned small land holdings. This fund was carved out of the shortfall of ‘weaker section funding’ by banks. As you know, banks have to earmark 10% for lending to weaker sections. The shortfall in meeting this target goes into this fund as a deposit. We pay to the banks an interest which is a little lower than the normal lending rate and pass on that benefit to the borrowers.

ML: How big is this fund?

SS: It is Rs2,000 crore. We set it up in 2008-09 and I believe it can be enhanced. We have used the money to bring in entities that are not otherwise involved in financing rural banking, like RRBs (Regional Rural Banks). RRBs were natural candidates for this but they were not doing it, but in the last three years we have been working with them at capacity building and now 15 RRBs are in. Similarly, some of the co-operative finance institutions are getting involved. Even housing finance companies have been largely an urban phenomenon. Through this fund, we have been able to incentivise them, fairly successfully, to move into rural areas. Things are moving on this front.

We are also operating the Golden Jubilee Rural Housing Scheme, where also we have managed to persuade people to lend. We can move forward well in that area if we take a holistic approach to finance and are able to combine our resources with other State government institutions to ensure better construction and better modelling. We are also negotiating with the World Bank for a $500 million line of credit for financing urban low-income housing. We are trying to get the soft loan component to help incentivise builders to provide affordable housing. The term ‘affordable housing’ itself has become a bit of a joke today, but there is a huge pent-up demand for affordable housing and once there is supply, there is bound to be a price correction. The role of public agencies is important in promoting affordable housing, as has been done in Andhra Pradesh and Rajasthan.

ML: What has been done in Andhra Pradesh and Rajasthan?

SS: These State governments have separate institutions to promote affordable housing. Andhra Pradesh has even tiered it — there is one institution for the very low-income group, one for the middle income and one company for rural affordable homes. This ensures there is a clear focus and the amount of indirect subsidy that they get on the land is also graduated, depending upon the income segment. They are also moving to smaller town such as Rajahmundry, Guntur, Tirupati etc where also there is a big demand. These are the things that need to be encouraged.

ML: Won’t recovery be an issue in these cases, especially with the RRBs?

SS: I don’t think so. Our experience is that non-performing assets in these segments is significantly lower. In fact, even in regular housing loans, the experience is that recovery rate in loans below Rs5 lakh is higher. So I don’t think it is about the size of loan, but about procedure and selection.

That is why NHB has been trying to set up a mortgage guarantee company. We are talking to a partner. We were on the verge of partnering with AIG (American International Group), but it fell through when AIG itself went belly-up. We want to partner with an expert, who comes in with equity, not just advice. Hopefully something will be finalised in the next couple of months, leading to a fresh interest in low-income housing. This company will have four partners — NHB will be the single largest shareholder; but we will also have IFCI, ADB (Asian Development Bank) and a fourth partner. This institution is part of the market infrastructure that we are trying to develop—in effect, an institution that bears the risk.

There is a whole host of other infrastructure that is important. For instance, pricing is important and that is where we have started the NHB Index. It is the first housing price index in India, to fill the price-information gap and streamline the property development process in major cities. There is very little data property available in the country. In this year’s Budget, NHB has been able to push the concept of a Central Electronic Registry (CER), which will be a reality in the next few months. It will be in the form of an SPV (special purpose vehicle) based in Mumbai; we are in the process of finalising the technical support company. We are working with the Indian Banks’ Association to ensure that the top 10 banks will take up equity. The SPV will act on behalf of the registrar. The idea is that every single mortgage by every single bank will get on to the registry.  All this was part of a committee under my chairmanship. The government has agreed to the structure and to invest Rs25 crore in it and we are in the process of finalising the technical services provider.

Once this happens, anyone buying the property will just have to log on to the registry and check if the property is mortgaged. We will encourage a set of service providers to give this information for a small fee. In the next phase, we want to link the registry to the registration offices in each State. Even here, some States are ahead of others. There is a lot of money coming in from the ministry of rural development to finance States to update their rural land records. There is also money under JNNURM (Jawaharlal Nehru National Urban Renewal Mission) for building the urban registry. So it should click. These funds have to be used by 2012, so many States are working on it. Once we have that, we will electronically link the land records to the loan disbursal so that the registrar (who currently accepts any registration without any checks) can check if the records are in order before registering the property and is able to eliminate fraud right there. This will eliminate a lot of fraud that is happening in the form of double and triple registrations of the same asset. NHB is currently focussed on getting together the registry of existing live mortgages and all new ones.

ML: Will there be an option for people who don’t have a mortgage to also register their property at the registry to make it safe?

SS: We can do that, it won’t be a problem. In the third phase, we want to demat the whole system. This will ensure seamless property transactions. If you want to upgrade from one property to a bigger one, it is extremely cumbersome today. You need so many documents and transfers… all that will happen instantly today. I think we are in for some exciting times in the housing industry, like we were in the capital market in the early 1990s. Just as we created infrastructure in the capital market, by bringing more players, better infrastructure, similarly, housing market infrastructure has to be created.

The next thing we have done in the NHB under my chairmanship is to draft the valuation standards. Today, each valuer does what he likes — the value is high when you are granting a loan and sinks when you try to enforce the repayment and the valuer himself is untraceable. We want some accountability for the valuers based on some standards that we have drafted. Initially the banks will enforce these standards, but finally the government will have to create statutory standards just as you have them for cost accountants and chartered accountants. It is when these things happen that you begin to have a full market infrastructure — you will have a price index, you have valuation standards, you have a risk mitigating agency in the guarantee company — it is when all these are in place that the realty market will look better and safer. Today, for anyone, buying property is a scary and risky business.

ML: Do you have a set of people reporting prices for the index?

SS: We were hoping to get the government on board — the National Sample Survey Organisation. So far, they have said that their hands are too full to take this on. So we have employed NCAER (National Council of Applied Economic Research) who in turn has appointed a field force. We are collecting this information on a half-yearly basis; later we will collect it on a quarterly basis. At the moment we get data from 15 cities, but different localities in each city. The plan is to increase the cities to 35. The vision is to cover all cities with a population of 10 lakh by 2012. But getting accurate data is a challenge. Today we are collecting data from housing finance companies, brokers, resident welfare associations and developers. There is a National Association of Realtors that is coming up; we are encouraging them to get data from their members and report it.

ML: That is indeed pioneering work.

SS: When I took over at NHB, I was shocked at the absence of data — if we wanted to do any analysis, there was simply no data available. I have always been saying that monetary policy must take into account asset values — it is very important, but has been ignored. Luckily, even the RBI has got interested and they are setting up a housing starts index. Therefore I think that there is a lot of work that has to be done at the NHB before its obituary can be written.