New Delhi: The Pension Fund Regulatory and Development Authority (PFRDA) is exploring a proposal to extend housing loans to subscribers, using their future pension as collateral. The idea, if successful, could be a major enabler for people with low incomes to buy their own houses.

At present, the Employees’ Provident Fund (EPF) allows withdrawals from the corpus for various purposes, including house building. But PFRDA is looking to go a step further and explore the possibility of using these funds to extend home loans to subscribers.

“We will first bring out a thought paper on this. The government is serious about affordable housing, ensuring housing for the lower strata of the population. But till now, the approach was that pension funds should go into housing and infrastructure, but through the capital market. But what if we have a direct connect with housing for the unorganized sector and even formal sector subscribers?" asked R.V. Verma, member, PFRDA.

“For low-income segment borrowers, margin money and collateral is a major problem. If we use the pension funds, then you already have the subscription amount that can act as margin money and the pension money that they will draw later can be collateralized," he said. “That will become another USP (unique selling point) of NPS (National Pension System)," he added.

The National Democratic Alliance government announced plans to provide housing for all by 2022 in its first budget in 2014. But funding and affordability of houses to cater to people on low incomes remains a major challenge to the ambitious target. Typically, houses costing around 20 lakh come under the affordable housing segment.

As per the 2011 census, India only had 330 million housing units, with 244 million households occupying them. However, more than 47% of these household dwelling units were made of mud, wood or bamboo.

PFRDA is considering the scheme to make NPS more attractive for subscribers. At present, NPS is at a disadvantage vis-à-vis other competing savings schemes such as the EPF and the Public Provident Fund (PPF) because of tax reasons. While the NPS corpus is taxable on maturity, proceeds from EPF and PPF are tax free.

“NPS trust should have the mandate or flexibility to undertake this activity through a separate institutional arrangement," Verma said.

He pointed out that given the long-term nature of pension funds, subscribers will be able to take loans and the problem of asset-liability mismatch will be addressed through the scheme. Asset-liability mismatch occurs when the loans given by financial institutions are long term in nature, but the funds held by them are short term.

Also, with agencies such as the Central Registry of Securitisation, Asset Reconstruction and Security Interest of India, the problem of KYC (know your customer) and multiple loans on the same property will be taken care of.

“The government has announced its intention to provide housing for all by 2022 for which affordable housing will be key. But the problem is that there is no clear-cut incentive for developers to invest in such projects," said Neeraj Sharma, a partner with auditor Walker Chandiok and Co. Llp.

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