Dynamics of housing finance changing in India

February 27th, 2008 - 3:00 pm ICT by admin  

New Delhi, Feb 27 (IANS) Despite housing being the state’s responsibility, the share of public sector housing finance companies has dipped from 10.19 percent in 2001-02 to 2.63 percent in 2005-06, says India’s official auditor. The share of private sector finance companies has also declined, with commercial banks cornering this lucrative and growing market, says the Comptroller and Auditor General of India (CAG) in a report tabled in parliament.

The report says the share of private housing finance companies registered a fall to 29.23 percent in 2005-06, from 51.06 per cent in 2001-02, the report adds.

In the process, scheduled commercial banks increased their share from 35.90 percent to 68.14 percent - a factor that has come as a blow to traditional housing finance companies, says the report.

“The growth of 584.37 percent in disbursements of housing loans by the scheduled commercial banks is slowly driving the small housing finance companies out of the market,” says the report.

“The phenomenal growth recorded is attributable to their large network and access to low-cost deposits, which have helped them to offer home loans at competitive rates.”

An official estimate says that over 73 million dwelling units would be required during the 11th plan period. The existing gap is of over 20 million units - seven million more than what was needed a decade ago.

The report is based on the review of the performance of five state-run agencies - Housing and Urban Development Corp (Hudco), Bank of Baroda Finance, Central Bank Home Finance, IDBI Home Finance and PNB Housing Finance.

As per the report, Hudco’s ‘Two Million Housing Programme’ was not performing well. Against the target of constructing 600,000 rural and 400,000 urban units in 2005-06, only 7,600 and 184,597 houses were actually built.

The reason stated by Hudco was the non-availability of government guarantee and the lack of budgetary support for repayment of loans, says the report.

State agencies, however, have better access to cheaper funds from the state-run National Bank for Agriculture and Rural Development (Nabard), the Life Insurance Corp (LIC), and the small savings schemes, Hudco told CAG.

The report recommends that housing finance companies should review their rural lending portfolio to establish effective strategies to increase their reach, especially in rural and semi-urban areas.

“They should also draw up time bound plans to take immediate legal steps for recovering the overdues.”

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