The National Housing Bank (NHB) is planning a five-fold increase in the initial capital requirement for new housing finance companies (HFCs). The regulator for HFCs will also introduce more flexibility in provisioning to encourage more lenders for low and middle-income home buyers.
To ensure only serious companies enter the sector, the initial capital requirement would be raised from the current Rs 2 crore to Rs 10 crore. This, NHB hopes, would promote better risk absorption capacity and increase the depth of the mortgage finance market in India, said a senior NHB official.
“Most of the new entrants are bringing in more capital to start HFCs. This shows corporates are looking at it as a viable business. There is a definite case for increasing the initial capital. It would attract serious players and ensure stability in the sector,” said NHB chairman, R V Verma.
Verma said NHB would also encourage more entrants to ensure greater competition in the market. “There are a lot of queries from different quarters like corporates, private equity players and foreign institutional investors. This is an encouraging sign,” he said.
Home mortgage advances in the country during 2010-11 is estimated to rise 30 per cent to about Rs 1.5 lakh crore, compared with Rs 1.15 lakh crore in 2009-10. Banks account for 70 per cent of these loans, Verma said.
“There is a huge untapped demand in the low and middle-income segment — basically people who are self employed but don't have a documented income flow. Companies that are willing to cater to this segment can be eligible for some regulatory relaxation,” Verma said. “We are working on how to be more flexible to develop this segment, of course, without diluting the regulatory standards,” Verma told Business Standard.
Recently, many financial sector entities have either begun operations or have evinced interest in entering the low and middle-income housing space. Muthoot Housing Finance, part of Muthoot Papachen group, and Swarna Pragati Microfin have already commenced operations. The Rajasthan government and the International Finance Corporation are also setting up a housing finance company.
