‘With e-registry in place, cases of fraud will reduce’

The National Housing Bank (NHB), which regulates housing finance companies (HFCs), has been trying to form the first reverse mortgage company in the country. NHB chairman RV Verma spoke to DNA on various issues related to housing, including reverse mortgaging, central registry of property and on the steps the government can take to boost the sector. Excerpts:

NHB was looking to form a joint venture with a US-based bank for mortgaging. What’s happening on that front? Also, what’s happening with the central registration system?
Central registry is an initiative of the Ministry of Finance that NHB is very closely associated with. It is on a fast-forward mode and the equity contribution has been partially done by all the banks including NHB. The whole infrastructure is in the process of being set up and the IBA (Indian Banks’ Association) is also very closely associated with it. Documentation is through a committee selected by IBA. It’s a largely IT-driven initiative and it has to be set up as early as possible.

The  reverse mortgage guarantee company, which we are working on, is getting close to finalisation. I had earlier estimated the formation of the company around June, but it’s extending a little and going to August. So by end-July to August, the company should be operational. We have other international financial institutions —- IFC and ADB — and have tied up with a US-based technical partner which will probably be contributing to the equity. It’s a mortgage insurance company which has been doing business within the US and outside and has a good amount of knowledge and technical experience to run in India as we are doing it for the first time. The RBI’s mortgage guarantee guidelines are already in place and it is being worked out within the framework of the guidelines.

Your disbursals are up at Rs7,300 crore for the half-year period. Going forward, you were to spend Rs3,400 crore by the fiscal-end. Where do you stand now?
For June to December, we have disbursed around Rs7,300 crore. We have done about Rs8,000-8,500 crore so far and going forward over the next three months we will be reaching about Rs11,000 crore of disbursement. The commercial banks would get 60% of the portfolio and housing finance companies (HFCs) around 40%. Balance amount will be for the cooperative sector institutions.

Credit Information Bureau of India Ltd (Cibil) had launched the country’s first mortgage repository in consultation with NHB. Is it helping arrest frauds?
The setting up of a central registry will be a big initiative to mitigate events of fraud in the country, It will be major initiative and one that will have a very visible impact on the industry where all the lenders will be obligated to provide their information on the mortgages —- the property, the location, the proper address etc — on this portal and it will be shared amongst all the financial institutions. Normally, a fraudster takes multiple loans against the same property with documents and all are fraudulently made out, so it can be reduced to a large extent. Every lender would be forewarned about mortgage of the same property for a different loan. We think the Cibil thing is a good initiative where it’s more of borrower information, but central registry would be more security related with updated information and the combination of the two would be available to all the institutions in the lending industry, which will be a strong parameter to avoid any fraud.

As per the data on outstanding retail home loans, SBI has reached the top slot, but at the cost of rising non-performing assets (NPAs). Does this worry you with regards to HFC’s?
We have a systemic concern and we are very proactively regulating the HFCs, which are 55 in number, and getting all their data, especially of the top 21, on a regular basis. The NPA level has in fact come down by Rs200 crore from March 31, 2010. It was Rs1,400 crore as of March 31, 2010, which by December 31, 2010 had come down to Rs1,200 crore and is well within 1% —- at around 0.72%. This is comforting, but yes, banks have done some lending on an explosive way so their portfolios have grown very suddenly, while the HFCs’ portfolios have expanded very steadily and we are confident that their portfolio is healthy and sound.

What kind of sanctions do you have under NHB’s reverse mortgage loan-enabled annuity scheme?
This is a good product and there is a market appetite for this. But it’s a niche market. There is a segment for whom it is required, so it will not be fair to judge this product on the basis of current disbursement or sanctions. We do hope that people will by and large get more sensitised towards it and will have more information.

We are also tying up the banks with insurance companies. Earlier, we had two banks —- Indian Bank and Central Bank —- which tied up with Star Union Dai-ichi Life Insurance. But we are also now getting the interest of LIC which we had been pursuing for a long time and LIC also has shown a lot of interest and they are likely to tie up with Corporation Bank to start with for the product and then with other banks. With LIC coming into the field and with the continuing presence of Star Union Dai-ichi, the market will definitely experience a newer depth. We have set up about nine counselling centres.

After the LIC Housing scam, NHB had called a meeting with the HFCs and it was expected that some stringent guidelines would be in place for them with regards to the intermediaries. Have you chalked out the plan?
Yes, we did convene a meeting immediately after that and of course our concern was to take a fresh look at their internal processes, the corporate governance issues, the delegated powers for sanctioning loans, the board policies and the extent of exposures. So we had convened a meeting of all the CEOs of HFCs and we pressed on them the need for strengthening and streamlining their internal processes and particularly from the intermediary point of view, we cautioned them that they cannot be engaging with the intermediaries of their client institutions, which went on very well with the industry. Anyway, the feedback we had was that they really were not engaging as a matter of rule. We also advise them to send on a quarterly basis their ten largest exposures to builders and corporates, which they have started reporting so we will continue to analyse this.

While going through the books, have you found any discrepancy?
With respect to HFCs taken together, their overall exposure to the real estate builders and developers and corporates is very low. It’s just about 10% of their total portfolio. All their assets are performing and they are all getting their repayments from their clients, which is a comforting factor in all. Hence, NPA is very minimal. We have not seen any outright violation of the directions and internal requirements etc.

Following the RBI’s decision, NHB has stiffened its stance on loan-to-value (LTV) and teaser loans. Would you be comfortable with a 90-10 spread or are you planning to undertake some relaxations for teaser loans after the tightening you did in December?
We have already implemented 90% LTV for the HFCs. And in tune with the RBI policy, we have said that loans up to `20 lakh can have LTV up to 90%, but loans above `20 lakh cannot exceed 80%, so there we have a view that the market is more volatile and risky due to prices and interest rates, which can result in defaults so one way to protect the system against such potential defaults is to ensure higher equity of the borrower so the borrower’s equity is minimum 20% for loans above `20 lakh. Hence, this makes the performance of the loans that much safer. So, it was prudent to stipulate this measure. If we had prescribed only 80% LTV, then that segment would have found it very difficult to bring in equity up to 20%. So it went against the interests of the smaller income groups for whom it’s difficult to build up equity. And that segment of people are not very volatile and they are the ones who will always have the will to repay the loan so they actually use it as a house and not as an investor or a speculator. For loans above `20 lakh, we could cap the LTV at 80%. We will relax the teaser rate only if the interest rates are re-set at a higher rate, which is based on the company’s own requirements.

What are your expectations from the budget?
The expectation on top of our wish list is that housing should be recognised as a major and potential driver of the economy along with infrastructure. This has been recognised all over the world. Housing has been a major driver of the economy, so the fiscal and other measures should be supportive of investments in housing. Given the housing shortage in the country, we need to improve home ownership. It becomes important that funds are made available and fiscal benefits are available to the borrowers and lenders.

Also, long-term funds should be channelled into this sector (housing), like we have insurance, provident and pension funds. This will improve affordability and in case funds are available at cheaper rates in overseas markets, then there has to be a way to channel them into the Indian housing market. And all this can be facilitated if housing is declared as infrastructure. Housing, wherever we are developing new infrastructure —- whether township or new cities —- it is habitation. Unless the houses are also planned along side, it becomes a very unwieldy growth or development. Hence, housing should be recognised as a major driver of the economy as it would also entail many other facilitating and supportive policies for housing.

Lastly, focus on low and moderate income housing. That is important as we have to build in some incentives and fiscal incentives will be a big support for lending institutions.

Real estate prices have shot up so much that sales in at least Mumbai and Delhi have started slowing down. Have you seen any impact on the loan book?
Yes, it is all demand-driven. If the demand for housing is going up, and if that is happening because of increase in credit expansion, I don’t think that is a care really. But it’s more because of distortions in the market and as a result of it the prices go up. If the sector is allowed to be market-oriented, which it should be, then even if the prices come down there shouldn’t be any inventory pile-up. The builders or construction agencies should respond to the market prices —- if prices are high, then it may be also because of certain distortions from the supply side, where people are holding back the supply so that the prices go up and there could also be a situation because of high demand. Increase in prices could be on account of higher demand or on the basis of lower supply. So if there is a price, then we expect that more supply would come into the market, which will bring about a better equilibrium and we should bring down the prices. So, the expectation is that though the property cycle goes through its own motions in different times, depending on how the financial sector development is, it has to respond to the market conditions. That is a requirement and it should not be artificially driven by vested or cartelised interest.