The Reserve Bank of India has suggested that housing finance companies in India must diversify their fundraising, and has proposed to establish a new intermediary to create a mortgage-backed securities market. Housing finance in India is a highly concentrated business, with the top five housing finance companies (HFCs) accounting for over 85 per cent of the loans. While the large HFCs have access to bond markets in addition to banks borrowing and refinance as their source of funding, smaller HFCs, which play a critical role in providing home loans to economically weaker sections in India, almost entirely rely on banks and NHB refinance for funding. A deep and vibrant market for mortgage-backed securities will help accelerate the growth of smaller HFCs, RBI proposed in a recent report.
The HFCs have outstanding home loans of Rs 8.5 lakh crore, which is around 42 per cent of the total home loans and since they address around 40 per cent of the mortgage market, the recent liquidity crisis in the NBFCs are likely to create a temporary blip. The government has operationalised a partial guarantee scheme for non-banking and housing finance companies (NBFCs and HFCs), which will allow PSU banks to purchase their assets. The move aimed to provide liquidity support to avoid distress sale of assets in a sector facing a shortage of cash due to asset-liability mismatch.
HFCs are the backbone of the Indian housing market and among the low and middle-income group houses, the proportion of loans from HFCs significantly increases. Thus, to achieve the Narendra Modi government’s ambitious target of providing housing for all Indians by 2022, the HFCs need to remain healthy. The target of housing for all needs an investment of Rs 100 lakh crore to build 10 crores more houses, going by the RBI report.