Page 38 - Banking Finance November 2021

ARTICLE

or 'housing finance' is not formally defined. However, implemented by Slum Clearance Boards and other
in general parlance, it can be treated as providing public agencies.
finance for residential housing purposes and should j) Lending to builders for construction of residential
ideally not include finance for non-residential purposes dwelling units.
like commercial real estate, etc. for this purpose, the
meaning of the term housing finance as indicated for All other loans including those given for furnishing
various purposes in circulars issued by RBI, NHB and also dwelling units, loans given against mortgage of property
for any purpose other than buying/ construction of a
under the Income Tax Act 1961 was examined. It is
new dwelling unit/s or renovation of the existing
proposed to have an inclusive definition of the terms
dwelling unit/s, will be treated as non-housing loans.
'providing finance for housing' or 'housing finance' as per
provisions of RBI's master circular on housing finance
addressed to banks and NHB's illustrative list of housing 3. HFC is required to have a 'Principal Business'
loans. Accordingly, 'Housing Finance" or "providing of providing housing finance.
finance for housing" means: Term 'Principal Business' is not defined under the NHB

Financing, for purchase/ construction/ reconstruction/ Act. RBI now proposes to define and extend the
renovation/ repairs of residential dwelling units, which definition of 'Principal Business' similar to that used for
includes: Non-Banking Financial Companies (NBFCs).
a) Loans to individuals for purchase of old dwelling The RBI has defined the term through its press release
units. dated April 08, 1999 saying that a company:
b) Loans to individuals for purchasing old/ new dwelling a) Required to have financial assets more than 50%
units by mortgaging existing dwelling units. of its total assets (netted off by intangible assets);
and
c) Loans to individuals for purchase of plots for
construction of residential dwelling units provided b) Its income from such financial assets should be more
a declaration is obtained from the borrower that than 50% of the gross income. It is imperative that
he intends to construct a house on the plot within both the above mentioned conditions are satisfied
a period of three years from the date of availing of in order to determine the constituents of 'Principal
the loan. Business'

d) Loans to individuals for renovation/ reconstruction
of existing dwelling units. 4. Along with the "Principal Business" as
defined above, it is also required to have
e) Lending to public agencies including state housing
boards for construction of residential dwelling units. "Qualifying Assets"
'Qualifying Assets' refers to 'housing finance' or
f) Loans to corporate/ Government agencies (through
loans for employee housing). 'providing finance for housing' and will be subject to the
following:
g) Loans for construction of educational, health, a) Qualifying assets should not be less than 50% of Net
social, cultural or other institutions/ centre, which assets, out of which at least 75% should be utilized
are part of housing project in the same complex and towards individual housing loans which are loans as
which are necessary for the development of stated above under the definition of "housing
settlements or townships. finance" or "providing finance for housing".
h) Loans for construction of houses and related b) "Net assets" means total assets other than cash and
infrastructure within the same area, meant for bank balances and money market instruments.
improving the conditions in slum areas for which
credit may be extended directly to the slum- Such HFCs which do not fulfil the above criteria will be
dwellers on the guarantee of the Government, or treated as NBFC - Investment and Credit Companies
(NBFC-ICCs) and will be required to approach RBI for
indirectly to them through the State Governments.
conversion of their Certificate of Registration from HFCs
i) Loans given for slum improvement schemes to be to NBFC-ICC. However, a phased timeline will be given

38 | 2021 | NOVEMBER | BANKING FINANCE