The National Housing Bank Act, 1987

Summary of The National Housing Bank Act, 1987
Objective: Establish the National Housing Bank (NHB) to promote housing finance institutions, leveraging expertise from financial and scheduled banking sectors.
Key Provisions
Governance with Financial Sector Expertise
*Board of Directors:
• Includes directors from scheduled banks and financial institutions (clause ca), ensuring banking sector expertise.
• Representation from the Reserve Bank for regulatory alignment.
• Central and State Government officials for policy coordination.
Operations Aligned with Financial Institutions
*Business:
• Loan and Financial Assistance: Mechanisms for loans/advances to housing finance institutions, with terms that may mirror scheduled bank practices.
• Investment and Guarantee: Powers to invest in securities and guarantee obligations, akin to financial institution practices. *Powers:
• Credit Information Collection: Ability to gather credit information from financial institutions and individuals, similar to banking sector practices (Section Explanation).
• Regulatory Oversight: Provisions for the Reserve Bank to regulate HFIs, including deposit solicitations and asset management (Sections 29A, 30).
Regulatory and Financial Management
*Regulatory Compliance:
• Auditing: Oversight by the Comptroller and Auditor-General of India, ensuring transparency.
• Reporting: Regular information and returns to the Reserve Bank, aligning with banking sector reporting standards (Section 41). *Financial Prudence:
• Capital Structure: Initial and potential increased capital, with governance on ownership.
• Asset Management: Requirements for HFIs to maintain percentages of assets, reflecting prudent banking practices (Section 29B).
Housing Finance Institutions (HFIs) Regulation
*Stringent Regulations:
• Registration and Net Owned Fund: Mandatory for HFIs, ensuring capital adequacy.
• Reserve Fund: Requirement for HFIs to maintain reserve funds, paralleling banking sector reserve requirements (Section 29C).
• Power to Prohibit Deposits and Alienation of Assets: Regulatory control over HFIs (Section 33A).

Legislative History:

The National Housing Bank Act, 1987

Act Title - The National Housing Bank Act, 1987

Act Number/Year - 53 of 1987

Act ID (India Code) - 198753

Presidential Assent Date - December 23, 1987

Enforcement Date - July 9, 1988

Nodal Ministry - Ministry of Finance

Precedent & Historical Rationale

Acute Shortage of Long-Term Housing Finance:

During the formulation of the Seventh Five Year Plan (1985–1990), a dedicated Sub-Group on Housing Finance identified the severe non-availability of long-term finance for individual households as a major structural bottleneck hampering national development and urban/rural housing growth. To resolve this, a High-Level Group under the chairmanship of Dr. C. Rangarajan recommended the establishment of a specialized, apex-level financial institution.

Establishment of an Apex Housing Bank:

Announced during the Union Budget of 1987–88, the government sought to create a statutory body to promote, develop, and support local and regional housing finance institutions. The National Housing Bank Act, 1987 was consequently enacted to establish the National Housing Bank (NHB) as an autonomous apex institution—initially owned wholly by the Reserve Bank of India before its equity was transferred fully to the Government of India—to expand housing credit availability, reduce accessibility hurdles, and regulate housing finance companies (HFCs). (Note: Regulatory oversight powers over HFCs were subsequently transitioned via statutory amendments to the Reserve Bank of India under the Finance Act, 2019).

Parliamentary Trajectory & Enactment

Formulation:

Drafted by the Ministry of Finance to provide a statutory framework for incorporating the National Housing Bank, defining its capital structure, board governance, specialized funds, and supervisory powers over housing finance entities.

Parliamentary Passage:

Introduced, debated, and passed by both Houses of Parliament (Lok Sabha and Rajya Sabha) during the winter session of December 1987.

Presidential Assent: Received Presidential Assent on December 23, 1987.

Enforcement: Enforced on July 9, 1988.

Source: Official Records of Parliament, India Code, and Ministry of Finance.