National Housing Bank (NHB)

The National Housing Bank (NHB) is the apex institution for housing finance in India. It was established on 9 July 1988 under the National Housing Bank Act, 1987 to promote a sound and stable housing finance system catering to all sections of the population. NHB was initially set up as a wholly owned subsidiary of the Reserve Bank of India (RBI). In 2019, RBI transferred its entire stake to the Government of India, making NHB fully government-owned under the Ministry of Finance. NHB is headquartered in New Delhi.
NHB was created to address the shortage of long-term housing finance and to support housing and real estate development, which is both a major social requirement and an important driver of economic activity through employment and demand for construction materials.

Background and Rationale

At the time of NHB’s establishment, India’s housing finance system was underdeveloped. Only a limited number of Housing Finance Companies (HFCs) existed, and banks’ exposure to home loans was relatively small. There was a clear need for an apex institution that could expand credit availability, strengthen specialized housing finance institutions, and guide the orderly growth of the sector.
The government envisioned NHB as both a refinance institution and a regulatory body for housing finance companies. Its broader objective aligned with the idea of “Housing for All” by increasing the flow of institutional credit to the housing sector, especially for low- and middle-income households.

Mandate and Objectives

The National Housing Bank Act assigns NHB a wide developmental role, which includes the following core objectives:

Promotion and Development of Housing Finance Institutions

NHB is tasked with developing and strengthening a network of housing finance institutions across the country. It supports both large and small HFCs, including regional players, to ensure wider access to housing loans, particularly in underserved areas.

Refinance for Housing Loans

NHB acts as the principal agency for providing refinance to banks and HFCs against their housing loan portfolios. By lending to these intermediaries, NHB enables them to extend more housing loans to individuals and developers, thereby expanding the housing credit market.

Regulation and Supervision (till 2019)

Until 2019, NHB regulated and supervised Housing Finance Companies. It licensed HFCs, issued prudential norms, conducted inspections, and ensured borrower protection. In 2019, regulatory powers over HFCs were transferred to RBI to ensure uniform regulation of all lending institutions. After this change, NHB ceased to be the regulator but continued its developmental and refinance functions.

Credit Enhancement and Resource Mobilization

NHB works to improve housing affordability and access to finance by supporting credit enhancement measures such as guarantees and market development initiatives. It mobilizes resources through bonds and debentures to fund its operations and on-lending activities.

Focus on Affordable Housing

A key objective of NHB is to promote housing finance for economically weaker sections (EWS) and low- and middle-income groups (LIG/MIG). Many of its schemes and refinance policies are designed to encourage lenders to prioritize affordable housing.

Key Functions of NHB

Refinance Operations

NHB provides refinance against housing loans extended by:

• Scheduled Commercial Banks
• Housing Finance Companies
• Regional Rural Banks and cooperative housing institutions (on a limited scale)

Refinance is often available at relatively lower costs or longer tenures, enabling lenders to offer more affordable housing loans to borrowers through lower interest rates or extended repayment periods.

Direct Financial Assistance

Although refinance is its primary activity, NHB also provides direct financial assistance on a limited and selective basis. This includes project finance or loans for affordable housing projects, slum redevelopment, and housing-linked urban infrastructure. Such lending is typically routed through public agencies, state housing boards, or specific government-backed schemes.

Nodal Agency for Housing Schemes

NHB frequently acts as a nodal agency for government housing initiatives. A key role is its function as a central nodal agency for the Credit Linked Subsidy Scheme (CLSS) under the Pradhan Mantri Awas Yojana (PMAY). Under CLSS, NHB channels interest subsidies to eligible borrowers in EWS, LIG, and MIG categories through their lending institutions, thereby reducing the effective cost of housing loans.
NHB has also managed various urban and rural housing funds, including refinance funded through priority sector shortfall contributions from banks.

Training and Capacity Building

NHB strengthens the housing finance ecosystem through training and research. It operates the Centre for Housing Finance, which provides training programs for officials of banks, HFCs, and housing boards on topics such as mortgage finance, securitization, and risk management.

Research and Policy Support

NHB undertakes research on housing shortages, housing market trends, and affordability issues. It developed RESIDEX, India’s first official residential housing price index, which tracks property price movements across cities. NHB also provides policy inputs to the government on housing finance and market development.

Market Development and Innovation

As part of its developmental role, NHB has promoted new housing finance products and instruments. These include initiatives such as reverse mortgage loans for senior citizens and the promotion of mortgage-backed securitization, which helps lenders free up capital and manage risk.

Impact on Housing Finance and Development

NHB has played a significant role in transforming housing finance in India. Since its establishment, housing loans have expanded rapidly, with banks and HFCs emerging as major lenders. Institutional housing finance, once limited, has become widely accessible.
NHB’s targeted schemes have improved access to housing credit for lower-income groups. Programs such as the Golden Jubilee Rural Housing Refinance Scheme (1997) supported rural housing, while urban housing funds and PMAY-CLSS have reduced borrowing costs for millions of households.
Through regulation (until 2019) and continued financial support, NHB helped build confidence in the HFC sector. Even during periods of stress in the housing finance market—such as after the IL&FS-related liquidity crisis—NHB stepped up refinance support to maintain credit flow.
NHB’s initiatives have also encouraged innovation in housing finance, improved consumer protection standards, and increased transparency in housing markets through data and research.

Financial Instruments and Operations

To mobilise resources and support housing finance, NHB employs various financial instruments such as:

• Bonds and debentures issued in the domestic and international markets.
• Lines of credit from multilateral institutions such as the World Bank, Asian Development Bank, and KfW Bank.
• Refinance assistance to banks and housing finance companies at concessional rates.
• Funding for housing microfinance institutions serving small borrowers.

These operations strengthen the housing finance ecosystem by ensuring consistent liquidity and affordable lending rates for both institutions and end-users.

Developmental and Research Initiatives

Beyond finance, NHB also engages in research, capacity building, and knowledge dissemination related to the housing sector. It publishes the Report on Trends and Progress of Housing in India, conducts training programmes for housing finance professionals, and develops housing price indices such as the NHB RESIDEX, which tracks residential property prices across Indian cities.
The NHB has also been instrumental in promoting credit risk management, mortgage-backed securitisation, and standardisation of housing finance documentation.

Challenges

Despite its achievements, the National Housing Bank faces certain challenges:

• High Urban Housing Demand: Rapid urbanisation has created a large gap between housing demand and supply.
• Affordability Issues: Rising property prices often make housing unaffordable for lower and middle-income groups.
• Limited Penetration in Rural Areas: Rural housing finance remains underdeveloped due to low income levels and inadequate collateral.
• Non-performing Assets (NPAs): Housing finance companies occasionally face asset quality issues, particularly in economically weaker segments.

Recent Developments

After 2019, NHB has increasingly focused on its role as a development finance institution for housing. It has scaled up financing for affordable housing, supported government infrastructure and housing missions, and raised additional resources to expand lending capacity. NHB also collaborates with international institutions such as the World Bank and Asian Development Bank for targeted housing programs.