International Journal of Research in Social Sciences

Vol. 8 Issue 8, August 2018,

ISSN: 2249-2496 Impact Factor: 7.081
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HOUSING FINANCE EVOLUTION AND REACH IN

INDIA
Y. Saritha*

Dr.P.V.Narsaiah**

Abstract-

Housing being one of the three basic needs of life always remains in the top priorities of any
person, society and economy. As a human being, an individual needs his own space and privacy,
which can be provided by the ownership of a house. The home is the basic unit of the society.
Home provides a platform to the family and the family is the most important social institution,
which leaves its imprint on an individual for whole life. Thus housing deserves significant
attention in the context of developing policies and strategies for human development. But still the
majority of human populace lives in slums, shanties and temporary shabby shelters in rural areas.
The shortage of housing is a big impediment in the healthy development of an individual and
consequently the society, and the nation. The problem of space, privacy, security and sanitation
leads to social, economic and environmental degeneration. The perpetual strife for space and
house-ownership leads to personal and social disorganization, which is detrimental for the society
and the economy. A developing nation like India has to focus more on housing sector to cater to
the housing needs of burgeoning population and to accelerate the economic growth. The housing
sector has been globally used as an engine to propel the economic growth as it generates
employment and demand in the market. Last one decade has witnessed the authorities giving
significant focus on the housing sector in India.

Key words- housing finance, market and impediment.

*
Research Scholar, Sri Venkateswara University, Tirupati,
**
Professor, Dept. Of Commerce, Sri Venkateswara University, Tirupati

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schemes for rural and urban population. The first

INTRODUCTION attempt in this regard was the National Housing
Policy (NHP), which was introduced in 1988. The
Housing is an important component and a measure of National Housing Bank (NHB) was set up in 1988 as
socio–economic status of the people. It is regarded as an apex institution for housing finance and a wholly-
a critical sector in terms of policy initiatives and owned subsidiary of Reserve Bank of India (RBI).
interventions. A large portion of our population is still The main objective of the bank is to promote and
lacking proper housing facility. The housing problem establish the housing financial institutions in the
in India is an upsetting problem both in the rural and country as well as to provide refinance facilities to
urban areas. One of the main reasons of the problem housing finance corporations and scheduled
of housing shortage is its size of population. It is said commercial banks. Moreover, for the salaried section,
that one among the every six persons in the world is the tax rebates on housing loans have been
an Indian. India stands second among the world‟s introduced. The paper is based on the case study of
largely populated countries. LIC Housing Finance Ltd., which analyzes region-
wise disbursements of individual house loans, their
REVIEW OF LITERATURE portfolio amounts and the defaults for the last ten
Bandyopadhyay Arindam and Saha Asish (2011), years, i.e., from 1995-96 to 2004-05 by working out
in their article studied they focused that the relevant ratios in terms of percentages and the
importance of borrower-specific characteristics as compound annual growth rates. The authors have said
well as local situation factors in determining the that there is a need for designing the special schemes
demand prospect as well as the risk of credit loss on for financing of LIC Housing Finance Limited to
residential housing loan repayment behavior in India. meet its prime goal.
They used 13,487 housing loan accounts (sanctioned
Joydip Dasgupta (2015), in his paper he focused on
Interest Rate Risk Management of HDFC which
started off in 1977 as a new mortgage bank and
operated like S&Ls in the first few years and raised
from 1993-2007) data from Banks and Housing retail deposits. This did not create much problem for
Finance Cos (HFCs) in India. This paper made an the entity in the administered interest rate regime. The
attempt to find out the crucial factors that drive study offered a new paradigm shift in the financing
demand for housing and its correlation with borrower pattern of HDFC for development of housing
characteristics by using a panel regression method industry. The shift of financial strategy is suited to
and logistic regression. counter-shift risk profiles in the housing finance
business in India and thus HDFC managed to create a
Anand Kumar T.S and others (2008), in their paper niche in the industry. The author strongly felt that
they examined the practical guidance to MFIs there is a need for extending liberal rate of interest to
adopting the housing programme in addition to the housing industry. The author strongly felt that there is
existing line of micro-finance services and inputs a need for extending liberal rate of interest to housing
about any market study, profiling the customers, industry.
product design, pricing of the product, affordability of
the clients, income assessment, loan assessment, SCOPE OF THE STUDY
operational procedures, risk coping mechanisms and
technical backup guidance. They found that MFIs The study is focused on the housing loan borrowers
should also ensure that housing micro-finance suits of HDFC in the Nellore division Andhra Pradesh. The
their strategy from institutional and financial study is mainly intended to assess the perception of
perspectives. borrowers regarding the housing finance of HDFC.
The various factors influencing awareness and
Singh, et.al, (2006) in his article described the
satisfaction of borrowers are also studied.
housing sector by introducing various housing loan

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OBJECTIVES OF THE STUDY The Government of India had recently made the
development of the housing sector.
 To analyse the housing finance in India in
general and Andhra Pradesh in a particular; STRUCTURE OF THE HOUSING FINANCE
 To examine the perceptions of customers of SYSTEM IN INDIA:
HDFCL, Nellore division, Nellore district
 Identifying the major factors determining the
home loan beneficiaries in Nellore division.
 To identify the problems in HDFC housing
finance in Nellore division.
RESEARCH METHODOLOGY

A structured questionnaire was prepared to

collect data from users. Survey method used data
collection. For this purpose a total of
100questionniares were distributed amoung users and
86 filled in questionnaires were received, and then
data was analyzed, tabulated, interpreted and
presented.

HOUSING FINANCE IN BRIEF

Housing being one of the three basic needs
of life always remains in the top priorities of any
person, society and economy. As a human being, an
individual needs his own space and privacy, which In 1985, the RBI made many
can be provided by the ownership of a house. The recommendations for liberalization in the housing
home is the basic unit of the society. Home provides a finance system based on the report of Chakraborthy
platform to the family and the family is the most Committee. In 1987, HFC's amended the Insurance
important social institution, which leaves its imprint Act of India to allow the Life Insurance Corporation
on an individual for whole life. Thus housing (LIC) and the General Insurance Corporation (GIC)
deserves significant attention in the context of to enter the housing finance business. 47 In 1988, the
developing policies and strategies for human National Housing Bank was set up as a subsidiary of
development. But still the majority of human the RBI to act as an apex regulatory and promotional
populace lives in slums, shanties and temporary agency. In 1989, the RBI allowed Commercial banks
shabby shelters in rural areas. The shortage of to issue large loans for housing without imposing
housing is a big impediment in the healthy rigid restrictions on interest rate or loan quantity
development of an individual and consequently the ceiling.
society, and the nation. The problem of space,
National Housing Bank (NHB) was set up in
privacy, security and sanitation leads to social,
July 1988 with the equity support from the RBI and is
economic and environmental degeneration. The
intended to act as the apex institution for coordinating
perpetual strife for space and house-ownership leads
and developing the housing finance schemes. Later,
to personal and social disorganization, which is
the UTI set up in 1989, a Housing Construction
detrimental for the society and the economy. A
Investment fund for direct investment in construction
developing nation like India has to focus more on
projects and real estate development. The entry of
housing sector to cater to the housing needs of
LIC and GIC and many banks like SBI and Canara
burgeoning population and to accelerate the economic
Bank through their subsidiaries has been started to be
growth.
another landmark in the promotion of housing

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 ISSN: 2249-2496 Impact Factor: 7.081

industry. The setting up of National Housing Bank as shifting of rural population to the urban areas, the
a fully owned subsidiary of the RBI, and as an apex need for development of housing sector has been
institution was the culmination of the fulfillment of a emphasized. It is always a dream to own a house
long overdue need of the housing finance industry in however a majority of the population does not have
India. The system has also been characterized by the the required financial assistance to own a house.
emergence of several specialized financial Eyeing this as an opportunity, many firms have opted
institutions, which have considerably strengthened for extending housing loans not only to boost their
the organization of the housing finance system in the bottom lines but also to reduce the prevailing demand
country. In 1990's the pace set in the earlier decades and supply gap. The genuine demand arising out of
was carried forward. Many HFCs were set up under the individual need for housing, together with the
the directions of the NHB. The process of present boom in the housing sector it is all set to
liberalization covered the retail housing finance provide a platform for the housing finance companies
sector substantially. The most significant 48 change to carve out a piece of fortune.
was the enhancement of the amount set aside by the What remained as a very low-profile sector
commercial banks for their lending to the housing in India is suddenly witnessing activity that is
sector from 1.5 per cent to 3 per cent (Union budget promising a bright future. Out of India‟s new housing
1999-2000). Chart is given to reflect on the units, 20 percent are financed through the housing
classification of housing finance in India. financing institutions. With the gap between the
required number of houses and the actual,
government identified housing sector as a core and it
is only with the timely in intervention of the
government that housing finance has become a major
industry in India. With the establishment of National
Housing Bank, the government has provided the
much-needed boost to this sector. At present out of
380 odd HFIs in India, 42 housing finance companies
are registered with the National Housing Bank out of
them 20 are valid for acceptance of public deposits
and remains are not. This number is going to increase
in the near future with the industrial growth.
Throughout the second part of the last decade, this
sector has witnessed a growth of over 30 percent and
promises to grow the same rate in the next couple of
years. Recognizing the growing need of housing
Traditionally in India, most people depend finance in India, the government has emphasized on
on their provident fund and gratuity amounts received housing and housing finance in the ninth five year
after retirement for buying a home. However, with plan to know that there is a short fall of more than 20
the emergence of housing finance as a major business mission house units. This is the first time that India
in the country, an increasingly large number of people has emphasized on the housing sector.
are going in for home loans. Socially too, India has Even the Asian development Bank has
changed, and there is no stigma attached today for embarked on a two-fold strategy for India‟s housing
borrowing funds. Five-year plans have been sector. One is focusing on providing funds to
emphasizing on the need for promoting housing financial intermediaries who in turn, lend to
finance schemes particularly for the poor and weaker individual borrowers at the household level. The
sections of the society. second objective is combining slum upgrading and
HOUSING FINANCE IN INDIA: micro credit schemes for lower income groups in its
In the first 25 years of post-independence, state level specific integrated urban development
India has concentrated on agricultural development projects. These latest development in the housing
only after the industrial revolution and the continuous sector has made housing finance one of the growth

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 ISSN: 2249-2496 Impact Factor: 7.081

drivers for the Indian economy in the last decade companies, other financial institutions and budgetary
what earlier remained as an isolated segment has now allocations. From the available data it has observed
transformed itself into a core sector. Housing finance that the banks, housing finance companies, and
in India is getting recognition as a specialized finance cooperative sector institutions had disbursed an
product, thanks to the efforts of housing finance amount of Rs. 1.73 lacs crores during the period
companies and the subsidiary outfits of banks, 2002-05. Overall contribution of these three
specializing in this area. institutions i.e. banks, HFCs and cooperative sector
institutions, would be around Rs. 3.60 lacs crores
LOAN DISBURSEMENT BY NHB during the 10th plan period 2002-07 as shown in Table
Cumulative 2.
Year Disbursement Disbursement Co-op.
Commerc-
2006 – 07 5,500 31,425 Year
ial Banks
HFCs Instituti RRB’S Total
ons
2007 – 08 8,587 40,012
2006-07 4,250 1,085 10 0 5345
2008 – 09 10,854 50,866
2009 – 10 8,108 58,974 2007-08 7,328 1,189 0
0
8517
2010 – 11 11,723 70,697
2008-09 3,447 7,055 0 202 10704
2011 – 12 14,390 85,087
185
2012 – 13 17,542 102,629 2009-10 4,150 3,543.8 40 7918

2013 – 14 17,856 120,485 2010-11 8,112 3,308.6 0 134 11555

2014 – 15 21,847 138,917 143

2011-12 8,851 5,302 93 14389
2015 – 16 26,216 166,700
2012-13 9,459 7,694 0 389 17542
2016 – 17 31,842 189,560
Table 1: depicts the picture of housing finance disbursement by 2013-14 7,443 9,633 280 17356
NHB during 2006-07 to 2016-17.
2014-15 14,114 7,390 90 253 21847
Source: Report of NHB Trend & Progress Report
2015-16 17643 8868 93 270 26874
FLOW OF FUNDS FOR HOUSING FROM
2016-17 21354 9242 102 312 31010
FORMAL SECTOR INSTITUTIONS:
Table 2: Loan Disbursement by HFC’s during 2006-07 to 2016-
17(Rs. In Crore)
The flow of funds for housing sector during
Source: Report of the 11th five year plan, working
the X plan period and estimates the expected flow of
group on urban housing, Govt. of India, Ministry
funds to the urban housing sector from the formal
of Housing and urban poverty alleviation, New
sector
Gender Number Percentage Delhi.
Male 57 66.27
Female 29 33.72
DATA ANALYSIS:
TOTAL 86 100 Gender Wise Analysis
institutions for the XI plan period. During the 10 th
Plan period, the total urban housing requirement was
22.44 million units for which the investment
requirement was more than Rs. 4.27 lacs crores. Of
this total fund requirement more than 50% was the Table 3: Gender wise Analysis
expected contribution from the formal sector
institutions including banks, housing finance

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The gender wise breakup of beneficiaries Interest rate on the loan taken by the
given in Table3 reveals that 66.27 per cent are males beneficiaries from HDFC. Interest rate are awareness
and 33.72 per cent are females. of users. The floating rates may change from change
from time to time.

Main Occupation
Main Occupation Number Percentage %
The occupation of the beneficiaries also
influences the habit of taking loan from HDFC.
Mainly permanently occupied people may go for
Govt. Employee 32 37.20
loans to own a house.
Table 4: Main Occupation
Private Employee 18 20.93
Table 4 manifests that 47.20 per cent of the
beneficiaries of HDFC are government employee.
23.25 per cent are in business/profession and 20.93
Business 20 23.25
per cent are in private employment. Meanwhile only
18.60 per cent of the samples are agriculturists. Agriculture 16 18.60

Educational Qualification and Total 86 100

Awareness
Interest Rates Number Percentage
The education of the beneficiaries is a crucial
of HDFC
factor in choosing the source of loans. Uneducated
persons often choose non-institutional source and Aware 48 41.28
land themselves in trouble later on. On the other
hand, educated persons compare the different sources Partially aware 24 27.90
and select the most reasonable one.
Educational Number Percentage Unaware 14 16.27

Qualification
TOTAL 86 100

Graduates 19 22.09
Table 5: Awareness of Rate of Interest

Post Graduates 44 51.16

Table 6 shows the different rates of interest
for the loan at different periods of time. The
Professionals 23 26.74
maximum number of beneficiaries falls in the
Total 86 100
category. 41.28 percent respondents Interest rates are
aware of HDFC out of the 86 samples, 27.90 per cent
Table 4: Education Qualification are partially aware and 16.27 per cent are unaware.

As shown in beneficiaries of HDFC who Method of charging Interest

were having professional qualification were the most
Interest rate on the loan taken by the
aware group as they had the highest mean awareness.
beneficiaries from HDFC falls in two categories i.e.
It is evident from Table 5 that the beneficiaries of
one is the fixed rate and the other floating rate. The
HDFC are highly educated. Out of the 86 samples,
floating rates may change from change from time to
51.16 per cent are post graduates. 26.74 per cent are
time.
technical or professional category and 22.09 per cent
Rate of Interest Number Percentage
are graduates.
Fixed rate interest 57 66.27
Awareness of Rate of Interest

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Floating rate interest 29 33.72 beneficiaries. Lack of income and other family
problems compel the beneficiaries to make default
TOTAL 86 100 with the repayment.

Table 6: Method of Charging Interest Rate

Table 7 shows the different rates of interest Difficulties Number Percentage

for the loan at different periods of time. The
Frequent charges in EMI 21 24.41
maximum number of beneficiaries falls in the
category. 66.27 per cent respondents Interest rates are
High Penal Interest 14 16.27
fixed rate interest HDFC out of the 86 samples, 33.27
per cent are floating rate interest. Insufficient Income 28 32.55

Reasons for Availing Loan from Tight repayment Schedule 23 26.74

HDFC Total 86 100

There are different reasons for taking housing Table 8: Difficulties for repayment of Loan
loans from HDFC by the beneficiaries. The main
reason for availing loan from HDFC is the easy Table 9 reveals the difficulties for repaying
accessibility. the loan taken by beneficiaries. The main difficulty
faced by them is the 32.55 per cent insufficient
Reason Number Percentage income to remit the monthly installment. Next to it is
the tight repayment schedule 26.74 percent, 24.41 per
Law rate of interest 24 27.90
cent frequently charges in EMI and 16.27 percent
HDFC will charge high p
No loan limit 15 17.44

Difficulty in getting loan 18 20.93 CONCLUSIONS

from other
The housing finance business in India is
Simple loan procedure 12 13.95 under rapid reforms since the inception of NHB. The
fundamental areas of housing business are rapidly
Low EMI 17 19.76
observing rapid reforms. The structural reforms that
Total 86 100 system initiated were giving results slowly. But the
market demand and supply are still with gaps.
Table 7: Reasons for Availing Loan From HDFC

REFERENCES:
Table 8 shows categorization of beneficiaries on
[1]Tenth five year plan documents 2002-2007
the basis of reason for availing loan from HDFC.
Majority of them have taken loan from HDFC [2] Bedi, H.L., Haridikar, „V.K., Housing and Urban
because of its 27.90 percent of low rate of interest, Development Corporation‟, Practical Banking Advances,
9th Edition, 1997.
followed by 20.93 per cent Difficulty in getting loan
from other, 19.76 percent Low EMI, 17.44 percent [3] “Report of the Task Force on Cooperative Housing,
No loan limit and 13.95 percent Simple loan Third Draft”, 2005.
procedure for the borrowers from HDFC.
[4] Charles Abrams, „Housing in the Modern World-Man‟s
Difficulties for Repayment of the Struggle for Shelter in an Urbanizing World‟, Faber,
London, 1969, p. 106
Loan [5]‟The Function and working of the reserve Bank of
There are various types of difficulties for the India‟, July,1970.
timely repayment of the loan availed by the [6] Ibid.

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