The refinance assistance provided by NHB could enable small finance banks to get a cash-support window, and ultimately help them increase their operations
The National Housing Bank (NHB) is planning to get a credit rating model for small finance banks (SFBs), as the housing finance regulator in future aims to lend to these new entities which were created with a vision of deepening financial inclusion. Once the rating model is in place, the NHB can provide refinancing facility to SFBs and help them pass on the benefits to housing finance customers.
In order to augment resources for the housing sector and channelise funds for housing, NHB extends long term funds to Primary Lending Institutions (PLIs) which are active in the housing finance sector in India. The PLIs provide finance to individual borrowers, builders, corporate houses etc. for purchase /construction, repair/upgradation of houses. NHB extends refinance in respect of loan extended by them.
"The NHB currently does not have a credit rating model for small finance banks (SFBs). To enable lending to SFBs in future, NHB plans to get developed a rating model for SFBs...," said an official document.
At present, NHB has exposure to scheduled commercial banks, housing finance companies, regional rural banks and urban co-operative banks. The bank also has a small exposure in project financing. The NHB has credit rating models in place for assessing different sets of PLIs against their eligibility for such funding.
"To develop credit rating model for small finance banks which is in line with their regulatory requirements/guidelines and is based on parameters/characteristics unique/pertaining to SFBs...," the NHB document said.
At the moment, some SFBs provide home construction and home purchase loan with ticket size of Rs 2 lakh to Rs 50 lakh. The interest rate ranges from 12.75% to 15.75% per annum, with repayment tenures of 36 months to 240 months. These interest rates are much higher than banks or housing finance firms, who have access to refinancing.
Commenting on the NHB move, Samit Ghosh, CEO and MD, Ujjivan Small Finance Bank said: "This is an excellent initiative, as providing affordable housing finance is a big part of our goal for financial inclusion. We, however, require long-term finance, which this will facilitate."
The refinance assistance provided by NHB could enable SFBs to get a cash-support window, and ultimately help them increase their operations and cover a larger section of the population.
Baskar Babu, CEO, Suryoday Small Finance Bank said: "This is indeed a positive development. This will help SFBs obtain refinancing facility and enable us to pass on the benefits to our customers."
Apart from affordable housing, SFBs can play an important role in the credit-linked subsidy scheme (CLSS) of the Pradhan Mantri Awas Yojana (PMAY). The CLSS is aimed at benefiting people belonging to the economically weaker section (EWS), low income group (LIG), middle income group-I (MIG-I), and middle income group-II (MIG-II) by providing interest subsidy on the purchase or construction of a house.
The NHB also lends to projects undertaken by public housing agencies for housing construction and development of housing-related infrastructure. Besides, it is into guaranteeing the repayment of principal and payment of interest on bonds issued by housing finance companies and acting as special purpose vehicle for securitising the housing loan receivables.
Broader Vision
Once the rating model is in place, the NHB can provide refinancing facility to SFBs and help them pass on the benefits to housing finance customers
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