For thirty-one years, one institution both regulated housing finance companies and lent them money. In 2019, the government finally decided that was a conflict worth ending.
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Indian Economy · IndEco0238
National Housing Bank (NHB)
Apex refinancer for housing finance, since 1988
28 Feb 1987
Announced in the Union Budget
The Prime Minister announces the plan for an apex housing-finance institution.
9 Jul 1988
NHB is set up
Under the National Housing Bank Act, 1987. The Reserve Bank of India contributes the entire paid-up capital.
9 Aug 2019
Regulatory powers move to RBI
NHB’s power to register and regulate Housing Finance Companies transfers to the RBI.
2019 onward
Ownership shifts to government
NHB becomes wholly owned by the Government of India, and continues purely as a refinancer.
One institution, two roles, one conflict
For 31 years, NHB both regulated Housing Finance Companies and lent them money. The 2019 reform split these roles, to remove that conflict of interest.
Must Know
- The National Housing Bank (NHB) was set up on 9 July 1988, under the National Housing Bank Act, 1987.
- The Prime Minister first announced the plan while presenting the Union Budget for 1987-88, on 28 February 1987. The Bill received presidential assent on 23 December 1987.
- NHB’s founding idea traces to a High Level Group, chaired by Dr. C. Rangarajan, then Deputy Governor of the RBI.
- The Reserve Bank of India originally contributed the entire paid-up capital of NHB.
- NHB’s core role, under its own founding Act, is to act as the principal agency promoting housing finance institutions. It provides them financial and other support.
Good to Know
- Following the Union Budget 2019-20 announcement, NHB’s regulatory powers over Housing Finance Companies (HFCs) transferred to the RBI. This included the power to register HFCs. The transfer took effect on 9 August 2019.
- That same year, ownership of NHB itself also transferred, from the RBI to the Government of India.
- NHB’s authorised capital currently stands at ₹1,450 crore, fully subscribed by the Government of India.
- NHB is headquartered in New Delhi.
- Even after losing its regulatory powers, NHB continues to function as the apex refinancing institution for India’s housing finance sector.
Test Yourself
Great to Know
- Before 2019, NHB was both regulator and refinancer for Housing Finance Companies, for 31 straight years. Being both a company’s regulator and its lender is a structural conflict of interest, one regulators generally try to avoid.
- The 2019 reform ended this by moving HFC regulation to the RBI. HFCs are, in effect, a specialised category of NBFC, so this also ended a separate dual-regulation problem between HFCs and other NBFCs.
- This pattern, separating a promotional or financing role from a regulatory role, recurs elsewhere in Indian financial regulation. It reflects a broader preference for keeping the two functions apart.
- SIDBI plays a similar apex-refinancer role for a different sector: small industries, rather than housing.
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