The National Housing Bank (NHB) Explained

The National Housing Bank (NHB) is the apex institution for housing finance in India, set up in 1988 under the National Housing Bank Act, 1987 to promote, refinance and support housing finance companies and other lenders that fund home construction and purchase. It began as a wholly owned subsidiary of the Reserve Bank of India (RBI), and its ownership was fully transferred to the Government of India in 2019, when most of its regulatory powers over housing finance companies were moved to the RBI.

Today the National Housing Bank works mainly as a development finance and promotional institution: it provides refinance to banks and housing finance companies, runs credit-guarantee and housing-fund schemes, and publishes housing-market data. This explainer covers its history, its functions, the 2019 change in its regulatory role, its main schemes and how it fits with real-estate regulation.

Key Takeaways

• The National Housing Bank was established on 9 July 1988 under the National Housing Bank Act, 1987 as the apex institution for housing finance in India.
• The National Housing Bank began as a wholly owned subsidiary of the Reserve Bank of India and became fully owned by the Government of India in 2019.
• Until 2019 the National Housing Bank both regulated housing finance companies (HFCs) and refinanced them; since August 2019 the Reserve Bank of India is the regulator and supervisor of HFCs.
• The National Housing Bank continues to provide refinance, run housing funds and credit-guarantee schemes, and support affordable housing through lenders.
• The National Housing Bank is a development finance institution and does not lend directly to ordinary home buyers in the way a retail bank does.
• The National Housing Bank is separate from the real-estate regulators created under the Real Estate (Regulation and Development) Act, 2016, which oversee projects and developers rather than lenders.

What is the National Housing Bank?

The National Housing Bank is a statutory financial institution in India that acts as the apex body for the housing finance sector. It was created by an Act of Parliament so that housing, which needs long-term funds that traditional banks were not always set up to provide, would have a dedicated institution to guide and support it.

The National Housing Bank Act, 1987 describes the institution as a bank in name only in the sense of an apex agency: it is not a commercial bank that opens savings accounts for the public. Its customers are other institutions, such as scheduled commercial banks, regional rural banks, cooperative banks and housing finance companies, which in turn lend to households and builders.

Why the word “bank” can mislead

The National Housing Bank is closer to a refinancing and development institution than to a retail lender. In this respect it resembles bodies such as the National Bank for Agriculture and Rural Development (NABARD) for agriculture or the Small Industries Development Bank of India (SIDBI) for small enterprises, each of which supports a sector by funding and guiding the institutions that serve it.

Why was the National Housing Bank set up in 1988?

The National Housing Bank was set up in 1988 because India lacked a specialised institution to mobilise long-term resources for housing and to develop a network of housing finance lenders. Before then, formal housing finance was thin: a few public institutions such as the Life Insurance Corporation and the Housing and Urban Development Corporation (HUDCO, set up in 1970) funded housing, and the Housing Development Finance Corporation (HDFC), founded in 1977, was the pioneer of private housing finance.

The wider policy context was the National Housing Policy of 1988 and the United Nations’ International Year of Shelter for the Homeless in 1987. Policymakers recognised that a large share of Indian housing was built incrementally by households using savings and informal loans, and that a formal mortgage market could expand access to credit.

Why the RBI was the first owner

The Reserve Bank of India, as the central bank and the regulator of banks and non-banking finance, held the initial capital of the National Housing Bank. This gave the new institution credibility with depositors and lenders during its early years, and it allowed the RBI to hand over its own housing-finance-related functions to a specialised subsidiary.

What are the main functions of the National Housing Bank?

The main functions of the National Housing Bank are to promote housing finance institutions, to provide refinance and financial support to them, and to encourage the flow of long-term funds into housing. Its statutory objects also include supporting the development of the housing finance sector, helping address shortages in housing supply and promoting savings for housing.

• Promotion: the National Housing Bank encourages the creation and growth of housing finance companies and other lenders in regions that are underserved.
• Refinance: the National Housing Bank lends to banks and housing finance companies against their portfolios of housing loans so that those institutions can lend more.
• Development schemes: the National Housing Bank manages funds and guarantee schemes meant to widen access for low-income households and rural areas.
• Information and research: the National Housing Bank collects data on housing finance and publishes price indices and sector reports.
• Capacity building: the National Housing Bank supports training and technical assistance for housing lenders.

How did the National Housing Bank regulate housing finance companies?

Before 2019 the National Housing Bank regulated housing finance companies by registering them, issuing directions on deposits, capital and asset quality, and inspecting their books. Under Section 29A of the National Housing Bank Act, 1987, an HFC needed a certificate of registration from the National Housing Bank to carry on housing finance business.

The directions covered matters such as capital adequacy, provisioning for bad loans, limits on lending to a single borrower or group, norms for accepting public deposits and the maintenance of liquid assets. HFCs were thus a special category of lender, partly overlapping with non-banking financial companies (NBFCs) but supervised by a housing-sector regulator rather than by the central bank.

The dual-role concern

The arrangement combined two roles in one institution: the National Housing Bank was both the sector’s chief financier and its regulator. Commentators and committees noted that this could create a potential conflict of interest, since a body that lends to an HFC may also have to act against it as a regulator. The sector’s growth through the 2010s, including episodes of stress among some large non-bank lenders, increased attention on the question of who should supervise HFCs.

What changed in 2019 for the National Housing Bank?

In 2019, Parliament amended the National Housing Bank Act, 1987 through the Finance (No. 2) Act, 2019, and most regulatory and supervisory powers over housing finance companies passed from the National Housing Bank to the Reserve Bank of India with effect from 9 August 2019. In the same period the RBI’s shareholding in the National Housing Bank was transferred to the Government of India, making the Bank a government-owned entity.

After the change, HFCs are treated as a category of NBFC for regulatory purposes and are supervised by the RBI. The RBI issued directions for housing finance companies and later brought them within its scale-based framework for non-banking financial companies. The National Housing Bank retained its roles as refinancer, promoter and developer of the housing-finance market.

How does National Housing Bank refinance work?

National Housing Bank refinance works by giving banks and housing finance companies funds against the home loans they have already made, so that they can recycle that money into new loans. The institution lends for long periods, which matches the long tenure of housing loans, and it prices these funds at rates that are generally lower than what smaller lenders could raise on their own.

Refinance is therefore a tool of liquidity and of policy. By offering cheaper or longer funds for loans in particular segments, such as loans to low-income households, rural housing or affordable homes, the National Housing Bank steers lenders towards the segments the government wants to encourage.

Who can obtain refinance

• Scheduled commercial banks and regional rural banks that lend for housing.
• State cooperative banks and urban cooperative banks that have housing portfolios.
• Housing finance companies registered under the National Housing Bank Act, 1987.
• Other institutions that the Act permits, such as certain agencies concerned with housing.

Why refinance matters for access

Refinance matters because a small housing lender in a district town may not have a deposit base large enough to fund many loans. Access to apex funds enables such a lender to serve first-time borrowers, self-employed applicants and families whose income is irregular, who are the people formal mortgages historically reached least.

What schemes and funds does the National Housing Bank run?

The National Housing Bank runs a set of refinance schemes, dedicated funds and a credit-guarantee trust aimed at affordable housing, rural housing and low-income borrowers. The names and terms of schemes are revised from time to time, so the broad design matters more than any single product.

How is the National Housing Bank linked to affordable housing and PMAY?

The National Housing Bank is linked to affordable housing mainly as a funding and implementing partner for central housing missions such as the Pradhan Mantri Awas Yojana (PMAY), launched in 2015 with the aim of “Housing for All”. It acted as a central nodal agency for the Credit Linked Subsidy Scheme under the urban component, helping channel interest subsidies to eligible borrowers through banks and housing finance companies.

Affordable housing depends on three things: land and construction costs, the availability of credit, and the borrower’s ability to repay. The National Housing Bank mainly addresses the second, by widening the supply of funds and sharing risk through guarantees, while the ministry responsible for housing and urban affairs shapes the policy framework and subsidy design.

What is the difference between the National Housing Bank and RERA?

The National Housing Bank is a financial institution that supports housing lenders, whereas RERA, the Real Estate (Regulation and Development) Act, 2016, is a law that regulates real-estate projects, developers and agents. The two work at different points in the housing chain, and neither replaces the other.

RERA protects buyers by requiring registration of projects, disclosure of timelines and approvals, and the use of a designated account for project funds, with state-level Real Estate Regulatory Authorities and appellate tribunals as the enforcement bodies. The National Housing Bank, by contrast, concerns itself with the supply of mortgage funds. A more transparent real-estate sector under RERA can reduce risk for lenders, and healthy mortgage finance supports demand, so the two reinforce each other.

How is the National Housing Bank governed and funded?

The National Housing Bank is governed by a board of directors constituted under the National Housing Bank Act, 1987, with a chairperson and a managing director, and it reports to the Ministry of Finance as a government-owned institution. Board members include representatives of the government and the RBI as well as experts in finance, housing and related fields, though appointments change over time.

It raises its own resources from the market rather than relying only on budget support. Typical sources include bonds and debentures, borrowings from financial institutions, deposits placed by banks in specified funds, and lines from multilateral institutions. Funds mobilised in this manner are on-lent to housing finance lenders under the various schemes.

Its balance of public and commercial functions

The National Housing Bank carries out a blend of public-policy roles, such as managing subsidies and guarantees, and commercial roles, such as raising market borrowings and earning a spread on refinance. This balance explains why its work is reported both in terms of social outcomes, such as the number of low-income households reached, and in terms of financial indicators like asset quality.

Why does the National Housing Bank matter for India’s economy?

The National Housing Bank matters because housing is a large driver of employment, savings and investment, and a deep mortgage market depends on institutions that supply long-term finance. Residential construction employs many workers, uses products from cement and steel to paint and fittings, and is a major way in which households hold wealth.

India’s housing shortage, particularly in the lower-income segments, has been described in policy documents as running into tens of millions of units, though estimates vary with the definition used. Mortgage lending relative to the size of the economy has historically been lower in India than in many comparable countries, which indicates scope for further deepening. The National Housing Bank’s refinance, guarantees and data work are intended to support that deepening while keeping lenders sound.

Challenges that remain

• Informal incomes make it harder for many households to document repayment capacity.
• Unclear land titles and slow approvals raise costs and risks in the sector.
• Smaller housing lenders can face funding constraints when liquidity tightens in the wider financial system.
• Rental housing and slum redevelopment need different tools from standard mortgages.

Bottom Line

The National Housing Bank was created in 1988 to give India an apex institution for housing finance, and it has since moved from being both regulator and financier to being primarily a development and refinance body owned by the Government of India. Since August 2019 the Reserve Bank of India supervises housing finance companies, while the National Housing Bank continues to fund lenders, manage housing funds and publish sector data.

Frequently Asked Questions

What is the National Housing Bank in simple terms?

The National Housing Bank is India’s apex institution for housing finance, created in 1988 to promote and fund lenders that provide home loans. It supplies refinance and runs special funds rather than serving ordinary customers directly.

Who owns the National Housing Bank?

The Government of India owns the National Housing Bank. It began as a wholly owned subsidiary of the Reserve Bank of India, and the RBI’s shareholding was transferred to the government in 2019.

Does the National Housing Bank still regulate housing finance companies?

No, the Reserve Bank of India now regulates and supervises housing finance companies. The Finance (No. 2) Act, 2019 amended the National Housing Bank Act, 1987 and shifted these powers to the RBI with effect from August 2019, while the National Housing Bank kept its refinance and promotional roles.

Can an individual get a home loan from the National Housing Bank?

No, individuals generally cannot borrow directly from the National Housing Bank. It lends to banks and housing finance companies, which in turn make home loans to households and developers.

What is the Credit Risk Guarantee Fund Trust for Low Income Housing?

The Credit Risk Guarantee Fund Trust for Low Income Housing is a trust set up by the National Housing Bank in 2012 to guarantee housing loans to economically weaker sections and low-income groups. The guarantee lets lenders extend small loans without insisting on collateral or third-party security, which lowers their risk.

How is the National Housing Bank different from RERA?

The National Housing Bank supports housing lenders with refinance and housing funds, whereas RERA regulates real-estate projects, developers and agents under the Real Estate (Regulation and Development) Act, 2016. One concerns the supply of housing finance and the other concerns the protection of buyers in real-estate projects.

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