NHB Notes: The National Housing Bank Explained
by Yuvi K - December 16, 2023
Introduction to National Housing Bank (NHB)
The National Housing Bank (NHB) is India’s apex financial institution for housing. It was formed in 1988, through an act of the Parliament, with a mission to promote and provide long-term finance for housing. The National Housing Bank (NHB) is regulated by the Reserve Bank of India and is jointly owned by the Government of India and the Reserve Bank of India (RBI).
Understanding The Role of National Housing Bank (NHB)
The role of the National Housing Bank (NHB) is to promote and facilitate the flow of housing finance by providing necessary facilities, resources and services. It provides long-term finance for housing and related activities. NHB also regulates and supervises housing finance companies (HFCs). It provides refinance to HFCs, primary lenders and housing promoters through the National Housing Bank Refinance Scheme (NHBRS). NHB also provides technical assistance and training to housing finance companies.
NHB also provides soft loans to State Governments, Union Territories and other eligible entities through the NHB Soft Loan Scheme (NHBSLS). The National Housing Bank (NHB) also promotes the development of mortgage market through the issuance of long-term bonds, and also encourages the creation of mortgage guarantee companies.
Understanding NHB Notes
NHB Notes are securities issued by the National Housing Bank (NHB). They are issued for a period of 3 to 10 years and generally carry a coupon rate of around 6%. NHB Notes are typically secured by mortgages, and hence are one of the few instruments available for effective capital infusion into housing finance companies.
The NHB Notes are mainly issued to strengthen the capital adequacy of HFCs, especially those which have limited access to retail saving and have limited capital raising options. NHB Notes are generally subscribed by Banks, Insurance Companies, Mutual Funds, Asset Management Companies and Venture Capital Funds.
How NHB Notes Work
The procedure for issuance of the NHB Notes is as follows:
- The issuer (HFC) invites applications for subscription to the NHB Notes.
- The issuer determines the interest rate and the issue size. The interest rate is decided in consultation with NHB.
- The issuer appoints merchant bankers and other intermediaries related to the issue.
- The applications are accepted subject to the terms and conditions of the issuer.
- On the basis of the bids received, the issuer decides the subscription amount.
- The subscription amount is then paid by the investors to the issuer and the securities are issued.
- The issuer uses the proceeds of the issue to meet its capital adequacy requirements or to finance any of its business activities.
Conclusion
The National Housing Bank (NHB) is an important financial institution in India which plays a key role in the development of the housing finance sector in the country by providing long-term financial resources and infrastructure. NHB Notes are one of the important debt instruments issued by NHB and provide an important source of financing to HFCs. They are also an important tool for assessing the capital adequacy of HFCs.
