Financial assistance of NHB consists mainly of operating guidelines to housing finance companies as to the manner in which they should provide housing finance. Before funding the housing finance companies, NHB imposes certain conditions to be fulfilled by them.
1. Conditions regarding Share capital:
Every housing finance company should have net owned funds of Rs. 25 lakhs. This consists of paid up equity capital, free reserves, less accumulated balance of loss, deferred revenue expenditure, value of debentures, bonds, etc.
2. Financial Assistance:
The National Housing Bank assists housing finance companies by contributing to their share capital, provided the shares are listed in the Stock Exchange. There are certain conditions stipulated which are the same as applicable for refinance which are given below.
National Housing Bank has issued some guidelines for refinancing facility by Home finance companies. These are
- NFCs should be a public limited company.
- The NFCs should provide long-term finance for construction or purchase of houses in India.
- They should invest 75% of its capital for housing purposes.
- In the case of companies listed in the stock market, the minimum paid up capital should be not less than Rs. 10 crores; and
- Application has to be submitted by the housing finance company with details of directors, promoters, etc.
Long-term finance is provided by NHB after the transfer of assets by the borrowing company or after making the NHB as a trustee for the security held by the borrowing concern. In the case of specific loans, any security held by borrowing concern is automatically transferred to NHB, so that in case of any default by the borrowing company, NHB can directly proceed against the security towards the recovery of loan.
4. Activity norms:
The housing finance company should maintain its accounts as per to the norms prescribed by Institute of Chartered Accountants of India, especially in lease accounting, depreciation, income recognition, etc. Prudential norms have to be maintained with less non-performing assets and with due provisions for bad and doubtful debts. There is a ceiling on non performing assets (An asset becomes a non performing asset when it does not yield any income).
5. Lending norms with regard to target group:
The main objective of the HFCs should be to enable the home seekers to have an easy access to institutional finance. The bulk of the lending should therefore be directed to individuals and groups of individuals. So, the motto should be to render quality service to individual households. The different target groups consist of the economically weaker sections (EWS), low income group (LIG), middle income group (MIG), and higher income group (HIG) people.
6. Rates of interest and other charges:
The interest rate on housing loans charged by HFCs should be as prescribed by NHB.
Front end charges: Front end charges consisting of application, registration fee, processing fee, administrative fee, etc., should not exceed 2% of the sanctioned amount.
7. Ceiling on Administrative costs:
The administrative costs of the HFCs should be as low as possible and it should not be more than 1.5% of outstanding loans.
8. Quarterly returns:
The HFCs shall submit quarterly returns to NHB, consisting details of the various loans disbursed and securities obtained for these loans. A classification of assets such as standard, sub standard, doubtful and bad assets must also be mentioned in the returns.