145;We will increase coverage and make property index more robust146;

NHB has proposed independent counsellors who will help customers understand the fine print of loan agreements and make right choices

National Housing Bank8217;s NHB efforts to introduce reverse mortgage into the Indian market have borne fruit. Three banks/housing finance companies 8212; Punjab National Bank, Allahabad Bank, and Dewan Housing 8212; are already offering this product while six more are preparing to do so. Last week the Residex, NHB8217;s residential property index, was launched. In this interview to Sanjay Kr Singh, NHB chairman and managing director S Sridhar talks about the property index and NHB8217;s other initiatives.

NHB8217;s residential price index, the Residex, has just been launched. What has been done here so far?

The pilot project involving five cities 8212; Delhi, Mumbai, Bangalore, Bhopal, and Calcutta 8212; has been completed. Data was collected on purchase transactions for 2001 to 2005 for three housing categories: lower, middle and higher-income. Statistical techniques were then employed to create a representative weighted-average index. We now have an index for the city, and we also have indices for different localities all the tax zones in the city.

What remains to be done?

We will extend the index to all the 63 cities covered under Jawaharlal Nehru National Urban Renewal Mission. We are also working on making the index more robust and representative.

You8217;ve also been talking about 8220;mortgage counsellors8221;. What8217;s this?

We have received feedback that during the past couple of years people took home loans without fully understanding their implications. And these are not illiterate people. The maximum number of complaints the RBI receives these days against lenders pertain to home loans and credit cards. So we have proposed independent counsellors who will help customers understand the fine print of the loan agreement and make the right choices.

By when will we see the first counsellors?

Mumbai-based Indian Institute of Banking and Finance IIBF will conduct a certification programme. Candidates will have to pass an online test. The institute has prepared the syllabus, and is now preparing the study material, which should be ready by the end of this month. We will hold the first exam in October. Anyone with some financial background can pass the test and can then begin advising customers for a fee.

Story continues below this ad

In March 2005, NHB had launched residential mortgage backed securities MBS. But since then MBS have not taken off. Why?

Till recently, liquidity was a problem. If anyone bought this product, he had to keep it till maturity as there was no secondary market for MBS. Partly through NHB8217;s efforts, the Securities Contract and Regulation Act SCRA has been amended to make MBS an eligible security. This means it can now be listed on a stock exchange. In future, if an investor buys MBS, he will be able to sell it off even before maturity.

Why is there need for a mortgage guarantee organisation?

This outfit will protect banks and HFCs against default risk in home loans. It is a risk mitigation measure. In any expanding market, adequate risk mitigation measures will encourage more credit to flow into the housing sector.

By when will one come into existence?

RBI has prepared the draft guidelines after which a lot of consultation took place. The final guidelines will be announced very soon.