NHB CREDIT GUARANTEE FUND TRUST FOR LOW INCOME

NHB “CREDIT GUARANTEE FUND TRUST FOR LOW INCOME HOUSING (CGFTLIH)” 1

CGFTLIH NHB The Budget Proposal – Financial Year 2011 -12 Hon’ble Finance Minister in his Budget speech for the FY 2011 -12 has proposed to create a Mortgage Risk Guarantee Fund under Rajiv Awas Yojana (RAY) to enable provision of credit to Economically Weaker Sections (EWS) and LIG households. 2

CGFTLIH. . contd. NHB Credit Guarantee Scheme for Low Income Housing Mo. HUPA, Go. I in consultation with DFS, MOF and NHB has formulated the Credit Guarantee Scheme to provide credit guarantee support to Collateral free/third-party guarantee free individual housing loans upto Rs. 5 lakhs extended by banks and HFIs (registered with NHB) for Low Income Housing. Objective of Credit Guarantee Scheme Ø Default guarantee as Risk Mitigant Ø To enable availability of bank collaterals/third party guarantee. credit without Ø To strengthen credit delivery system and facilitate flow of credit to low income housing. 3

CGFTLIH. . Contd. NHB Setting Up of Trust The Government of India will set up the Fund Trust under the Credit Guarantee Scheme by execution of the Trust Deed either through Mo. HUPA and /or specifically authorising NHB to set up such Fund Trust Settlors of the Trust Ministry of Housing & Urban Poverty Alleviation, Government of India will be the settlors of the Trust. Fund of the Trust As per the draft proposal, the initial corpus fund of the Trust is expected to be Rs. 1000 crores to be contributed by Go. I. State Governments may contribute in accordance with their slum population. Further contribution to the corpus will be decided by Mo. HUPA from time to time. 4

Proposed Features of CGFTLIH NHB 1. Objectives • To provide default guarantee for housing loans upto 5 lakhs sanctioned and disbursed by the lending institutions without any collateral security and/or third party guarantees to the new or existing borrowers in the EWS/LIG categories. • To undertake securitisation of the guaranteed loans and to do all other acts or things as may be necessary, either directly or otherwise, in such manner as may be decided by the Board of Trustees. • To do such other acts and things as may be incidental to or consequential to the objectives. 5

Features of CGFTLIH. . . Contd. NHB 2. Eligible Housing Loans: Housing loans for construction/ acquisition/purchase of new/old Home/Flat involving an amount not exceeding Rs. 5 lakhs per loan with housing unit of size upto 430 sqft (40 sqm) carpet area. 3. Eligible Lending Institutions: Scheduled commercial banks, Regional Rural Banks, Urban Cooperative Banks as specified by the Trust, Housing Finance Institutions registered with NHB or any other institution as directed by Go. I 4. Agreement by the Lending Institution: Lending institution will have to enter into an agreement with the Trust in such form as may be required by the Trust to be entitled to a guarantee in respect of any eligible housing loan granted by it. 6

Features of CGFTLIH. . . Contd. NHB 5. Guarantee Fee One-time guarantee fee at specified rate of 2. 00% of the total loan amount shall be paid upfront by lending institutions to the Trust for Availing the guarantee cover. However, the lending institution can collect a premium of 0. 25% for loans above Rs. 2 lakhs and upto Rs. 5 lakhs from the borrowers to recover part of guarantee fees paid to the Trust. 6. Extent of Guarantee: Category Maximum extent of Guarantee where Housing Loan is Upto Rs. 2 lakhs or such amount as decided by the Trust from time to time Housing loans by Individual borrowers Above Rs. 2 lakhs & upto Rs. 5 lakhs or such amount as decided by the Trust from time to time 90% of the amount in default 85% of the amount in default 7

Features of CGFTLIH. . . Contd. NHB 7. Invocation of Guarantee The conditionalities for invocation of guarantee stipulates invoking the guarantee in respect of housing loans within a maximum period of 1 year from the date of NPA and/or within the time frame as specified by the Trust etc. 8. Responsibilities of Lending Institutions The responsibilities of the lending institutions inter-alia, specifies use of prudent banking judgement, conduct of account, safeguarding by obtaining primary security, close monitoring of the account, due diligence and necessary actions for recovery of the account, ensuring collection of premium from the borrower to cover part of the guarantee fee payable to the Trust etc. 8

Benefits of CGFTLIH NHB Benefits to Lenders • Credit Risk transferred to the Trust. • Capital Relief: Reduction in credit risk leads to reduction in risk weighted assets and hence lesser capital requirement for CRAR. • Mobilization of Funds through Securitization Benefits to EWS/LIG Households • Credit enhancement EWS and LIG households will result in increased credit flow from lenders for this segment • Increased availability and accessibility of institutional loan/credit. • Affordable interest rates due to reduced risk & lesser capital requirements for lenders. 9

NHB’s Role NHB Pre-incorporation stage Setting up of Trust Office NHB will set up Trust Office/Cell and will manage the Fund & implement the Scheme. Infrastructure NHB will provide the necessary infrastructure like Staff, IT support, & other related support to the Trust. 10

NHB’s Role. . . Contd. NHB Post- Incorporation Stage • Draft all legal and other documents required for functioning of the Trust e. g. registration by PLIs, lodging and settlement of claims. • Draft Investment Policy for the Trust. • To design the customised financial products, marketing of the Scheme and its effective implementation. • To build sound and healthy liasoning with eligible PLIs. • To organise seminars and conferences for addressing the related issues • To recommend to Board of Trustees the name of probable CEO for consideration • To depute required staff for management of the Trust. • To maintain separate accounts for the Fund Trust. 11

NHB Thank You Visit us at : www. nhb. org. in 12