Special Urban Housing Refinance Plan (2012) For Low-Income Families

Policy Update
Sreedeep Bose

To support the financial needs of urban households, the National Housing Bank introduced a new refinance scheme to extend credit to this sector. The scheme aims to increase the available funds and support credit facilities for economically weaker sections of income groups residing in urban households. It uses indigenous data and loan information related to the monetary needs of weaker income groups. The scheme extends NHB refinancing to different types of Primary Lending Institutions (PLIs) based on their eligible loans to weaker sections of income groups in urban areas across the nation. The aim is to provide access to credit at affordable prices to economically weaker sections (EWS) and lower-income groups (LIG) of urban households.

Background

Housing is a concern for individuals because it provides physical security and psychological peace, enhances living standards, and stimulates economic growth. However, India is characterized by a massive housing shortage, particularly in urban areas. There was a deficit of 26.53 million homes in 2012The housing deficit data from 2012 (26.53 million homes) is outdated. Consider updating it with recent statistics to enhance the document’s relevance., and this disproportionately impacts low-income families.

Some of these families are unable to obtain official financing to purchase homes because they lack the means and have poor credit histories. This programme seeks to assist in this regard by offering affordable housing loans to individuals who need them. The scheme is urban-centric, but low-income families in peri-urban and semi-urban areas face similar challenges. Consider broadening the scope or explaining why urban areas are the primary focus.

Objective

The primary objective of the plan is to finance the housing requirements of EWS and LIG households in urban areas. Long-term refinancing assistance at reduced fixed interest rates is provided to financiers such as Housing Finance Companies (HFCs), Scheduled Commercial Banks (SCBs), Cooperative Banks, and Regional Rural Banks (RRBs). The overall objective is to improve the affordability of housing and enhance the creditworthiness of borrowers, in addition to bridging the housing shortage in urban areas.

Key Features

Long-term funding is offered at attractive, fixed interest rates.
Refinancing was provided to all the Indian cities.
Evidence in a diversified portfolio of PLIs.
Admissible Loans
Loans should fulfill these requirements for refinement under the scheme.
Direct residential loans of ₹5 lakhs maximum to construct, buy, or upgrade residential flats.
Loans issued after January 1, 2012.
Borrowers have a combined monthly household income of less than 15,000.
Protected by mortgageable property or land titles, like ‘patta’ documents given to city slum residents by state governments.
Qualifying as ‘standard assets’ according to the guidelines specified by the RBI/NHB.
Refinance Amount and Term
Refinancing is available against 100% of housing loans approved and disbursed by PLIs. The refinancing period is between 5 and 15 years in the case of HFCs, whereas in the case of other institutions, it is up to 10 years.

Rate of Interest

The scheme offers fixed interest rates as high as 150 basis points below the NHB’s benchmark rate. You can convert from fixed to floating rates after three years without any additional fees.

Beneficiary Criteria

Income: The annual household income of beneficiaries may not exceed ₹2 lakh and ₹15,000 monthly income threshold in one section and ₹2 lakh annual income in another. Clarify the difference or maintain a consistent income criterion throughout, as determined by PLIs based on creditworthiness and repayment capacity.
Informal Income: Individuals should make a living from the informal sector, such as
Self-employment in low-paid businesses or jobs.
Temporary, casual, irregular, or succession of employment.
Employment in the unorganized sector.
Prepayment
You can only prepay if it is the same as the loan amount received by the last beneficiary from the PLI.
Safety
Individual Borrowers: The loans may be secured against a mortgage over land or property or against other securities. Borrowers must have the basic right to avoid legal disputes.
Refinance Security: The refinance security facility is aligns with the NHB’s standard refinance policy.

Procedure for Sanction of Refinance Limit

Qualified PLIs can make refinance limits available for applications annually (July to June) in the specified format.
There are some limitations to each institution. Additional limits can be applied if the first is fully utilized.
You can request to roll over unused limits the next year.

Procedure for Disbursement 

Refinances are issued when the lending institution requests them, ensuring that the pool of loans complies with the rules of the scheme.
Funds are paid via the RTGS, based on the account details provided by the institution.

Repayment Process

Principal Repayment: Quarterly payments begin one clear calendar quarter after the release date.
Interest Payment: Interest is charged daily and paid every quarter. If payment is delayed for more than three working days, an extra interest of 2% per annum is charged at a regular rate.

Other Terms and Conditions 

Flagging: Refinanced loans under the scheme should be flagged and traceable in the borrowing institution’s records. Terms like “flagging” and “standard assets” are not explained adequately. Adding brief definitions or a glossary will make the document more accessible to non-specialist readers.
Proper Books: Institutions must maintain up-to-date records of housing loans and refinances availed.
Return Submission: Statutory and periodic returns are to be submitted by institutions to the NHB, and follow up on inspection/audit findings.
Loan Appraisal and Follow-Up: PLIs should have efficient systems, competent personnel, and training programs for reviewing and following up on housing loans.
Approvals and Compliance: Institutions must obtain the required approval and adhere to applicable legislation and regulations.
The loan repayment period must be less than the lifetime of the housing being financed.
Post-Disbursal Oversight: PLIs should ensure the end-use of funds in an appropriate manner and the timely repayment of loans.
The NHB may choose to refinance, and it is not the right to be claimed.
Inspection: The NHB is entitled to inspect records and funded property.
Recall of refinance: Refinances can be recalled by NHB in the case of fund diversion or concealment of material facts.
Change in Scheme: NHB can change the scheme as it deems fit. There is limited discussion on practical barriers such as verifying informal income or addressing property title issues, especially for slum residents. Highlight these challenges and propose feasible solutions.

Assisting in Financial Inclusion

This scheme aims to provide financial services to all citizens. By enabling PLIs to provide housing loans to EWS and LIG households, the plan enables these segments to become financially included. This enhancement enables them to access credit and build future financial assets and savings.

The scheme benefits the poor, similar to the NHB’s overall goal of encouraging inclusive housing. It is complementary to other schemes, such as the Interest Subsidy Scheme for the Urban Poor (ISHUP) and the Rural Housing Fund, which address the housing needs of various groups and locations.

Conclusion

The Special Urban Housing Refinance Scheme for Low-Income Families is a great scheme initiated by the National Housing Bank. It aimed to enable people to purchase homes and get more people into the Indian financial system. Through special refinance assistance to Primary Lending Institutions, the scheme enables economically weaker sections and low-income families to access formal housing loans. This enhances the quality of life and facilitates economic growth.

The project has the potential to make enormous changes, but it has to be done correctly. It also requires more awareness and cooperation from all sides. If the right strategies are adopted, the plan can be a major contributor to reducing housing deficits. The conclusion appears overly optimistic without acknowledging potential challenges or areas for improvement. Incorporate a balanced perspective by suggesting practical strategies to enhance the scheme’s effectiveness.

References

Desai, A. (2014). Financing Affordable Housing for the Low-Income in Urban India.
https://www.nhb.org.in/Financial/Scheme-Booklet.pdf
Mahadeva, M. (2024). Affordable Housing and Housing Amenities for India’s Poor. In Rural Social Infrastructure Development in India: An Inclusive Approach (pp. 67-105). Emerald Publishing Limited.

About the Contributor: Sreedeep Bose, who has qualified for the UGC NET in Ph. D, is dedicated to enhancing understanding in social science and public policy. With a focus on meaningful research, Sreedeep intends to provide creative solutions to current societal issues.

Acknowledgement: The author sincerely thanks Ms. Aasthaba Jadeja and the IMPRI fellows for their valuable contributions.

Disclaimer: All views expressed in the article belong solely to the author and not necessarily to the organisation.