The National Housing Bank (NHB) is a specialised financial institution established on 9 July 1988 under the National Housing Bank Act, 1987. It was created to promote and develop a sound and efficient housing-finance system in India. NHB plays an important role in strengthening housing finance institutions, encouraging wider availability of housing credit and supporting the development of the housing sector.
An important change took place in 2019, when the regulatory powers relating to Housing Finance Companies (HFCs) were transferred from NHB to the Reserve Bank of India (RBI). Consequently, NHB continues to perform important developmental and supervisory functions in the housing-finance sector, while the RBI is now the principal regulator of HFCs.
Functions of National Housing Bank
1. Promotion and Development of Housing Finance
One of the primary functions of NHB is to promote the growth and development of housing finance institutions in India. It works towards creating an adequate and efficient system through which individuals and organisations can obtain finance for housing.
NHB supports the expansion of housing finance, particularly for sections of society that may have limited access to formal housing credit.
2. Financing and Refinance
NHB provides refinance assistance to eligible housing finance institutions and other financial institutions. Refinance enables these institutions to obtain funds against eligible housing loans that they have provided to borrowers.
This helps housing finance institutions increase their lending capacity and provides greater availability of housing finance in the economy.
3. Regulation and Supervision of Housing Finance Institutions
Historically, NHB had the responsibility of regulating and supervising Housing Finance Companies under the National Housing Bank Act. It could issue directions, conduct inspections and monitor the financial soundness of housing finance institutions.
However, following amendments made in 2019, the RBI became responsible for regulating and supervising HFCs. NHB's role has therefore shifted more towards development, refinance and other housing-finance-related activities.
4. Supporting Affordable Housing
NHB contributes to the development of affordable housing by encouraging institutions to extend housing credit to economically weaker and lower-income sections. It supports initiatives designed to improve access to housing finance and increase the availability of affordable homes.
Through its refinance and developmental programmes, NHB helps channel funds towards segments where housing finance requirements are substantial.
5. Development of Housing Finance Institutions
NHB works towards strengthening housing finance institutions by encouraging sound financial practices, better risk management and improved institutional capacity.
It also promotes the development of a healthy housing-finance market by encouraging appropriate standards and practices among institutions involved in housing finance.
6. Collection and Dissemination of Housing Information
NHB collects and publishes information relating to housing finance and the housing sector. Such information helps financial institutions, policymakers, researchers and other stakeholders understand developments in the housing market.
The availability of reliable data is important for assessing housing demand, housing credit growth and other developments affecting the sector.
7. Research and Technical Assistance
NHB undertakes and supports research relating to housing finance and housing-sector development. It can also provide technical assistance and promote studies concerning housing finance policies, institutional development and related matters.
Such research helps in developing policies aimed at improving the availability and affordability of housing.
8. Promoting Financial Inclusion in Housing
Another important function is to encourage wider access to housing finance. NHB supports measures that help extend housing credit to underserved sections and geographical areas.
This contributes to financial inclusion by bringing more households into the formal housing-finance system.
Powers Relating to Regulation and Supervision of Housing Finance Companies
It is important to distinguish between the earlier powers of NHB and the current regulatory framework. Before 2019, NHB exercised significant regulatory and supervisory authority over HFCs. Since 2019, these powers have substantially shifted to the RBI.
1. Registration of Housing Finance Companies
Under the earlier framework, an HFC was required to obtain registration from NHB before commencing housing-finance activities. NHB had the authority to examine applications and determine whether the applicant satisfied the prescribed conditions.
After the transfer of regulatory powers, registration and regulation of HFCs are handled by the RBI under the applicable regulatory framework.
2. Inspection of HFCs
NHB historically had the power to inspect the books of accounts, records and other documents of housing finance companies. Inspections helped determine whether companies were complying with applicable legal and prudential requirements.
Inspection is an important supervisory mechanism because it enables the regulator to identify financial weaknesses and regulatory violations.
3. Calling for Information
NHB could require housing finance institutions to provide financial statements, returns, reports and other information considered necessary for supervision.
Such information helped the regulator assess the financial condition, lending practices and overall performance of an HFC.
4. Issuing Directions
NHB had powers to issue directions to housing finance companies regarding their functioning and financial practices. These directions could relate to matters such as financial discipline, lending operations, capital adequacy and other prudential requirements.
The purpose was to ensure that HFCs operated in a financially sound and responsible manner.
5. Control Over Deposits
The regulatory framework provided powers concerning the acceptance of public deposits by housing finance companies. Such controls were important because excessive or imprudent deposit mobilisation could create risks for depositors and the financial system.
Regulation of deposits helped ensure that HFCs maintained adequate financial discipline.
6. Protection of Depositors and Borrowers
Supervision of HFCs also aimed at protecting the interests of depositors and borrowers. Regulatory requirements encourage financial institutions to maintain transparency, follow appropriate lending practices and manage their financial risks effectively.
7. Action Against Non-Compliance
Where an HFC failed to comply with applicable regulatory requirements, the regulator could take appropriate supervisory or enforcement action. These powers were designed to maintain discipline and protect the stability of the housing-finance sector.
Present Position
The most important point to remember is that NHB is no longer the principal regulator of Housing Finance Companies. The Finance (No. 2) Act, 2019 transferred the regulatory powers over HFCs from NHB to the RBI. Therefore, the RBI now regulates HFCs with respect to matters such as prudential norms, registration, supervision, directions and enforcement.
NHB continues to play a significant developmental role, particularly through refinance, promotion of housing finance, research, institutional development and support for affordable housing.
Conclusion
The National Housing Bank has played a significant role in the development of India's housing-finance system since its establishment in 1988. Its major functions include providing refinance, promoting housing finance institutions, supporting affordable housing, conducting research and encouraging wider access to housing finance.
Historically, NHB also possessed extensive powers to regulate and supervise Housing Finance Companies, including registration, inspection, information collection, issuing directions and taking action for non-compliance. However, since 2019, the Reserve Bank of India has been responsible for the regulation and supervision of HFCs.
Thus, NHB today can best be understood as a major developmental and refinance institution for the housing sector, while the RBI serves as the principal regulatory and supervisory authority for Housing Finance Companies.
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