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									Completion Report




Project Number: IND 30204
Loan Number: 1759-IND and 1761-IND
October 2008




India: Housing Finance II Project
                             CURRENCY EQUIVALENTS

                         Currency Unit – Indian rupee/s (Re/Rs)

                          At Appraisal                At Project Completion
National Housing Bank
                          31 August 2000              30 June 2007
Re1.00         =          $0.02179                    $0.02455
$1.00          =          Rs45.9                      Rs40.7

ICICI Bank Limited
                          31 August 2000              10 October 2007
Re1.00         =          $0.02179                    $0.02534
$1.00          =          Rs45.9                      Rs39.5

                                  ABBREVIATIONS

  ADB                –      Asian Development Bank
  ADS                –      area development society
  BME                –      benefit monitoring and evaluation
  CDS                –      community development society
  CFI                –      community-based financial institution
  DSCR               –      debt service coverage ratio
  HDFC               –      Housing Development Finance Corporation Limited
  HF I               –      Housing Finance Project
  HF II              –      Housing Finance II Project
  HFC                –      housing finance company
  HFI                –      housing finance institution
  HUDCO              –      Housing and Urban Development Corporation Limited
  ICICI Bank         –      ICICI Bank Limited
  JLG                –      joint liability group
  LIH                –      low income household
  MBS                –      mortgage-backed securitization
  MFI                –      microfinance institution
  NGO                –      non-government organization
  NHB                –      National Housing Bank
  NHG                –      neighborhood group
  PCR                –      project completion report
  RBI                –      Reserve Bank of India
  RRP                –      report and recommendation of the President
  SHG                –      self help group
  SML                –      Share Microfin Limited
  SPARC              –      Society for Promotion of Area Resource Centre
  SPMS               –      Sri Padmavathy Mahila Abyudaya Sangam
  SSNS               –      SPARC Samudaya Nirman Sahayak
  TA                 –      technical assistance
  UEIF               –      Urban and Environmental Infrastructure Facility
  USAID              –      United States Agency for International Development
                                               NOTES

    (i)    The fiscal year (FY) of NHB ends on 30 June, and of the ICICI Bank ends on 31
           March. FY before a calendar year denotes the year in which the fiscal year ends,
           e.g., FY2007 ends on 30 June 2007 for NHB and 31 March 2007 for ICICI Bank.

    (ii)   In this report, “$” refers to US dollars.

Vice President                  X. Zhao, Operations 1
Director General                K. Senga, South Asia Department (SARD)
Director                        T. Kondo, Country Director, India Resident Mission, SARD
Team leader                     S. Singh, Financial Officer, SARD
Team members                    R. Pande, Associate Financial Analyst, SARD
                                N. Saini, Administrative Assistant, SARD
                                       CONTENTS

                                                                   Page

BASIC DATA                                                           i
I.     BACKGROUND                                                    1
       A.  History                                                   1
       B.  Scope of Operations                                       1
       C.  Relationship with ADB and Other lenders                   2
       D.  Relevance of Design and Formulation                       3
       E.  Related Technical Assistance                              5
II.    IMPLEMENTATION                                                5
       A.   Lending Policies                                         5
       B.   Characteristics of Subloans                              6
       C.   Implementation and Internal Operation of Subprojects     8
       D.   Operational Performance of the Borrowers                12
       E.   Borrower’s Financial Performance                        13
       F.   Financial Statements and Ratios                         13
       G.   Covenants                                               14
       H.   Performance of the Asian Development Bank               14
III.   EVALUATION                                                   15
       A.  Loan Appraisal                                           15
       B.  Implementation                                           16
IV.    ASSESSMENT AND RECOMMENDATIONS                               16
       A.  Evaluation Criteria                                      16
       B.  Relevance                                                17
       C.  Effectiveness in Achieving Outcome                       17
       D.  Efficiency in Achieving Outcome and Outputs              18
       E.  Preliminary Assessment of Sustainability                 18
       F.  Overall Assessment                                       18
       G.  Impact                                                   19
       H.  Lessons                                                  20
       I.  Recommendations                                          20
APPENDIXES
1.   Project Framework                                              21
2.   Community-based Financial Institution and Non-Government
     Organization Subproject Profiles                               28
3.   Details of Refinance and Direct Finance under the Project      35
4.   Policy and Institutional Action Plan                           37
5.   Financial Statements of National Housing Bank                  40
6.   Financial Statements of ICICI Bank Limited                     43
7.   Status of Compliance with Key Loan Covenants                   46
                                     BASIC DATA

A.   Loan Identification

     1.    Country                          India
     2.    Loan Numbers                     1759-IND, 1761-IND
     3.    Loan Title                       Housing Finance II Project
     4.    Borrowers                        National Housing Bank (NHB) and ICICI
                                            Bank Limited (ICICI Bank), the successor of
                                            ICICI Limited
     5.    Amount of Loan                   $40 million to NHB and $80 million to ICICI
                                            Bank
     6.    Project Completion Report Number PCR:IND 1057

B.   Loan Data

     1.    Appraisal
           Date Started                      5 June 2000
           Date Completed                    15 June 2000

     2.    Loan Negotiations
           Date Started                      22 August 2000
           Date Completed                    25 August 2000

     3.    Date of Board Approval            21 September 2000

     4.    Date of Loan Agreements           18 December 2001

     5.    Date of Loan Effectiveness
           In Loan Agreements                18 March 2002
           Actual
                  NHB                        15 February 2002
                  ICICI Bank                 20 December 2002
           Number of Extensions for          Four
           ICICI Bank

     6.    Terminal Date for Commitments
           In Loan Agreement
                   NHB                       14 February 2006
                   ICICI Bank                19 December 2006
           Actual
                   NHB                       30 June 2007
                   ICICI Bank                30 June 2007
           Number of Extensions              One
            for NHB and ICICI Bank

     7.    Closing Date
           In Loan Agreements                30 June 2007
           Revised for ICICI Bank            10 October 2007
           Number of Extensions              None
ii


     8.    Terms to the Borrower
           Interest Rate                             As per the Asian Development Bank’s
                                                     (ADB’s) market-based loan facility for US
                                                     dollar loans.
            Maturity (number of years)               25 years
            Grace Period (number of years)           5 years
            Free Limit                               $2 million
            Repayment Terms                          Amortized in semiannual installments over
                                                     20 years.

     9.     Interest Rate for Subloans               Project envisaged market-based
                                                     interest rates. Actual interest rates varied
                                                     across lending channels.

     10.    Disbursements

            a.     Dates

             Borrower        Initial Disbursement         Final Disbursement        Time
                                                                                  Interval

                NHB             27 March 2002                30 June 2007          5 years
             ICICI Bank       23 December 2002              10 October 2007        5 years

                                 Effective Date             Original Closing        Time
                                                                  Date            Interval

                NHB            15 February 2002               30 June 2007         5 years
             ICICI Bank       20 December 2002                30 June 2007        4.5 years


            b.     Amount ($ million)

            Name                                          Last
            of the                       Original       Revised       Amount   Amount
           Borrower       Category      Allocation     Allocation    Canceled Disbursed
             NHB          Project         40.00           40.00        32.60        7.40
                        Expenditure

           ICICI Bank     Project         80.00           80.00         0.00        80.00
                        Expenditure
           Total                         120.00           87.40         0.00        87.40
                                                                                                                    iii


C.        Implementation Data

          1.       Number of Subloans
                   NHB                                                  2,8301
                   ICICI Bank                                           25,730 (Approximately)

          2.       Sectoral Distribution of Subloans

                   Housing Finance II Project, National Housing Bank Loan (Loan 1759–IND)

               Component               Sector                   Projected                       Actual
                                                           Amount          %             Amounta                %
                                                          ($ million)                    ($ million)
            Part B(ii)           Refinancing HFIb        Up to $32 No
                                 loans to LIHs           million        more
                                                                                            6.22            88.86
                                                                        than
                                                                        80%
            Part B(iii)          Supporting     the
                                 CFI      refinance
                                 scheme           to
                                                                                            0.00
                                 refinance     HFC
                                 loans to CFIs for
                                 housing subloans
                                                     At least $8 At                                         11.14
            Part A (i)c          Support lending million         least                      0.78
                                 to     LIHs     for             20%
                                 qualified housing
                                 proposals
                                 through
                                 intermediaries
                                 consisting of (i)
                                 CFIs and NGOs
          CFI = community-based financial institution, HFC = housing finance company, HFI = housing finance
          institution, LIH = low income household, NGO = non-government organization.
          a
            This amount excludes front-end fees of $0.4 million.
          b
            HFI is a housing finance institution as defined in the NHB Act with the objective of providing finance for
            housing.
          c
            This component was incorporated vide amendment to the loan agreement dated 8 September 2006 and
            included together with Part B (iii) for satisfying the subloan distribution criteria.

                  Housing Finance II Project, ICICI Bank Limited Loan (Loan 1761–IND)

               Component                          Sector                         Projected             Actual
                                                                                  Amount              Amounta
                                                                                 ($ million)         ($ million)
            Part A(i)b          Lending directly to LIHs that are                    10                 8.38
                                beneficiaries of CFIs or NGOs, or
                                indirectly to LIHs through CFIs or
                                NGOs as intermediaries
            Part A(ii)c         Lending directly to LIHs that are                     20                 2.47

1
    This figure corresponds to the loan of $7 million, which was originally disbursed under part B(ii). Subsequently,
    $0.78 million was reallocated from part B(ii) to part A(i), under which 576 loans were made.
iv


          Component                        Sector                            Projected            Actual
                           employees of public and private
                           enterprises, or indirectly to LIHs
                           through     public     and   private
                           enterprises
      Part A(iii)          Lending indirectly to LIHs through                    10                0.00
                           state and local bodies
      Part B(i)            Lending directly to LIHs                              40               68.35

     CFI = community-based financial institution, LIH = low income household, NGO = non-government
     organization.
     a
       This amount excludes front-end fees of $0.8 million.
     b
       This component was revised to include direct lending to beneficiaries of CFIs or NGOs (loan agreement
       amendment of 3 November 2004).
     c
       The condition in the loan agreement restricting direct lending under part A(ii) to $10 million was removed
       (loan agreement amendment of 3 November 2004).

     3.       Subloans Above Free Limit ($2 million):                  Nil

     4.       Project Performance Report Ratings

     NHB                                                                           Ratings
                                                                       Development Implementation
               Implementation Period                                    Objectives       Progress
      (i)      From December 2000 to May 2001                                S               S
      (ii)     From June 2001 to February 2002                               S               U
      (iii)    From March 2002 to December 2005                              S               S
      (iv)     From January 2006 to April 2006                               S              PS
      (v)      From May 2006 to August 2006                                 PS               S
      (vi)     From September 2006 to January 2008                           S               S
     PS = Partly Satisfactory, S = Satisfactory, U = Unsatisfactory.

     ICICI                                                                            Ratings
     Bank
                                                                       Development        Implementation
               Implementation Period                                    Objectives           Progress
      (i)      From December 2000 to May 2001                                S                   S
      (ii)     From June 2001 to November 2002                               S                   U
      (iii)    From December 2002 to February 2003                           S                  PS
      (iv)     From March 2003 to December 2007                              S                   S
     PS = Partly Satisfactory, S = Satisfactory, U = Unsatisfactory.
                                                                                                                        v


D.   Data on Asian Development Bank Missionsa

             Housing Finance II Project, National Housing Bank Loan (Loan 1759–IND)


                                                                   No. of          No. of              Specialization
         Name of Mission                      Date                                                                  b
                                                                  Persons       Person-Days             of Members


         Fact-Finding Mission      18 April–2 May 2000                6               90           c, j, k,

         Appraisal Mission          5-15 June 2000                    3               33           c, j, k

         Inception Mission         29 April 2002                      2                2           b, f

         Review Mission (1)        7 February 2003                    3                3           b, f, k

         Review Mission (2)        24 April 2003                      3                3           b, f, k

         Review Mission (3)        4 August 2003                      2                2           b, f

         Disbursement              1–2 September and 15               1                3           f
         Mission                   September 2003

         Review Mission (4)        21–23 October 2003                 1                3           b

         Disbursement              18 and 26–30 October               1                5           f
         Mission                   2003

         Review Mission (5)        7 and 13 April 2004                4                8           b, d, f, k

         Disbursement              22–28 July 2004                    1                7           f
         Mission

         Mid-term Review           30 June–8 November                 4                7           b, d, f, k
         Mission                   2004

         Review Mission (6)        2 February 2006                    3                3           b, f, k

         Review Mission (7)        13 September 2006                  2                2           b, f

         Review Mission (8)        11 April–14 May 2007               4               32           b, h, i, k

         Project Completion        9–27 May 2008                      2                6           b, k
                 c
         Review
     a
          The mission details provided here are based on the review of project files.
     b
          a - engineer, b - financial analyst, c - counsel, d - economist, e - procurement or consultant specialist, f -
          control officer, g - programs officer, h - resettlement specialist , i - environment specialist, j - urban
          development specialist, k - onward for other categories.
     c
          The project completion review mission comprised T        etsu Ito, Senior Economist (Financial Sector) and
          Mission Leader; and Shalini Singh, Financial Officer. Ruchira Pande, Associate Financial Analyst, and
          Neha Saini, Administrative Assistant, assisted the mission.
vi


               Housing Finance II Project, ICICI Bank Limited Loan (Loan 1761–IND)


                                                                   No. of          No. of             Specialization
         Name of Mission                      Date                                                                 a
                                                                  Persons       Person-Days            of Members


         Fact-Finding Mission      18 April–2 May 2000                6               90          c, j, k

         Loan Appraisal             5–15 June 2000                    3               33          c, j, k
         Mission

         Loan Inception            13–16 February 2002                3               12          b, f, g
         Mission

         Review Mission (1)        19 February 2003                   4                4          b, k

         Review Mission (2)        9–19 June 2003                     2               22          b, k


         Disbursement              9–19 June 2003                     2               22          f, k
         Mission

         Mid-term Review           24June–18 August                   3               24          b, k
         Mission                   2004

         Review Mission (3)        30 November–3                      3               12          b, k
                                   December 2004

         Review Mission (4)        25 May 2006                        1                1          k

         Special Loan              4–5 December 2006                  2                4          b, k
         Administration
         Mission

         Review Mission (5)        11 April–14 May 2007               4               16          b, h, i, k

         Project Completion        8–21 May 2008                      2                8          b, k
                      b
         Review (PCR)
     a
          a - engineer, b - financial analyst, c - counsel, d - economist, e - procurement or consultant specialist, f -
          control officer, g - programs officer, h - resettlement specialist , i - environment specialist, j - urban
          developm ent specialist, k - onward for other categories.
     b
          The project completion review mission comprised T        etsu Ito, Senior Economist (Financial Sector) and
          Mission Leader; and Shalini Singh, Financial Officer. Ruchira Pande, Associate Financial Analyst, and
          Neha Saini, Administrative Assistant, assisted the Mission.
                                                                                                vii


E.   Related Loans

             Housing Finance II Project, National Housing Bank Loan (Loan 1759–IND)

     Item                                    Loan No.       Date of signing of    Amount
                                                            Loan Agreement
     Housing Finance (National               1549-IND       25 September 1997    $100 million
     Housing Bank)
     IND = India.
     Source: Asian Development Bank, Loan Financial Information System.

             Housing Finance II Project, ICICI Bank Limited Loan (Loan 1761–IND)

     Item                                    Loan No.       Date of signing of    Amount
                                                            Loan Agreement
     Industrial Credit and Investment         778-IND           2 May 1986       $100 million
     Corporation of India Limited
     Second Loan to Industrial               1072-IND        15 January 1991     $120 million
     Credit and Investment
     Corporation of India Limited
     Private Sector Infrastructure           1480-IND         14 August 1997     $150 million
     Facility Project
     Urban Environment and                   1720-IND          19 May 2000       $80 million
     Infrastructure Facility
     IND = India.
     Source: Asian Development Bank, Loan Financial Information System .
                                          I.      BACKGROUND

A.       History

1.      National Housing Bank. The National Housing Bank (NHB) was established in July
1988 under the NHB Act, 1987, to function as the apex body for housing finance. NHB is wholly
owned by the Reserve Bank of India (RBI). Its three primary responsibilities are regulating and
supervising housing finance companies (HFCs),1 mobilizing resources for housing finance
operations in the form of refinance and direct finance, and promoting development of HFCs. A
major amendment to the NHB Act was made in 2000, which aimed to strengthen the regulatory
and supervisory functions of NHB with respect to HFCs, including registration of HFCs with
NHB. The amendment also included provisions to enable NHB (i) to directly finance housing
finance projects, and (ii) to undertake mortgage-backed securitization (MBS) of housing loans.

2.      ICICI Bank. The Government of India and the World Bank, among others, formed the
Industrial Credit and Investment Corporation of India Limited (subsequently renamed ICICI
Limited) in 1955 as a development finance institution to provide medium- and long-term project
financing to Indian businesses. In the 1990s, ICICI Limited broadened its business scope by
creating subsidiaries covering the complete spectrum of banking products and services . In
2002, in response to the challenges and opportunities resulting from liberalization of the
financial sector, ICICI Limited merged with its commercial banking subsidiary, ICICI Bank
Limited (ICICI Bank). For further details, refer to the project completion report (PCR) of the
Urban and Environmental Infrastructure Facility (UEIF). 2

B.       Scope of Operations

3.       National Housing Bank. In its role as a housing finance provider, NHB refinances
HFCs, commercial banks and cooperative sector institutions. NHB also directly finances
housing projects of public housing and development agencies. In addition, it has extended
financial support to housing schemes of community-based financial institutions (CFIs) and non-
government organizations (NGOs). As a regulator, NHB regulates the deposit acceptance
activities of HFCs, and sets prudential norms regarding their capital adequacy, asset
classification, concentration of credit, income recognition, provisioning for bad and doubtful
debts, etc. NHB supervises the operations of HFCs through on-site inspection and off-site
surveillance. NHB has played a role in the development of a secondary mortgage market in the
country. It launched the pilot MBS issues in India in August 2000, followed by 13 other MBS
issues (with a total value of Rs8,630 million). NHB is also in the process of promoting a
mortgage credit guarantee company.

4.       ICICI Bank. At the time of approval of the Housing Finance II Project (HF II), the
principal business of ICICI Limited comprised medium- and long-term project finance, corporate
finance, leasing, and other types of financial and advisory services. Following the 2002 merger
of ICICI Limited with ICICI Bank, the latter, as the surviving entity, became a universal bank
providing a range of services, including retail banking (lending, deposits, and money-
transmission services), corporate finance, project finance, rural finance, microfinance, and fee-
based services. For further details, refer to the UEIF PCR (footnote 2).


1
    HFCs are companies that are registered with NHB, and whose primary business (directly or indirectly) is the
    provision of housing finance.
2
    ADB. 2007. Completion Report on Urban and Environmental Infrastructure Facility Project. Manila.
2


C.        Relationship with ADB and Other Lenders

          1.       National Housing Bank

5.     ADB operations with NHB. In 1997, prior to HF II, ADB provided a government-
guaranteed loan of $100 million to NHB under the Housing Finance Project (HF I), 3 for lending
through government cooperatives, HFCs, CFIs and NGOs to individuals, with an emphasis on
low income households (LIHs). ADB also provided advisory technical assistance (TA)4 to
evaluate NHB’s operational effectiveness, develop benchmarks in key NHB operational areas,
and develop NHB’s medium-term business strategy. ADB also a     pproved two TAs related to
            5          6
MBS in 2001 and 2005, and investment in a mortgage credit guarantee company. 7

6.      Funding structure of NHB. Rupee borrowings comprise the bulk of NHB’s resources,
with borrowings from outside India constituting about 2.3% of total debt in 2007 (ADB loans
constituted 2.1%). The main sources for rupee resources include domestic bonds and
debentures, some of which enjoy fiscal and/or regulatory incentives (e.g., priority sector and
capital gains bonds), and borrowings from banks. The fiscal and regulatory benefits have
decreased in recent years (for instance, the capital gains bonds scheme and priority sector
status for bonds were withdrawn in 2006), and NHB is increasingly relying on commercial
borrowings.

7.    Other development partners. The United States Agency for International Development
(USAID) is among NHB’s other development partners. NHB borrowed $25 million under
USAID’s Housing Guarantee Program in 1990–91 to expand its refinancing operations.

          2.        ICICI Bank

8.       In addition to the UEIF, ADB provided four other loans to ICICI Limited for various
purposes, all of which were guaranteed by the Government. Following the 2002 merger, ICICI
Bank’s resources have shifted predominantly to public deposits, but it continues to raise funds
through (i) issuance of rupee and foreign-currency bonds; (ii) equity from global and domestic
markets; and (iii) external borrowings in international markets, including from multilateral
lenders. Borrowings from multilateral and bilateral agencies have been r   elatively small, and
have declined in recent years. The World Bank, USAID, and Kreditanstalt fur Wiederaufbau
(KfW) are among the other multi- and bilateral agencies that ICICI Bank has partnered with. For
further details, refer to the UEIF PCR (footnote 2).




3
    ADB. 1997. Report and Recommendation of the President to the Board of Directors on proposed loans for the
    Housing Finance Project in India. Manila.
4
    ADB. 1997. Technical Assistance to India for Strengthening Housing Finance Institutions. Manila (TA No. 2833-
    IND, approved July 1997).
5
    ADB. 2001. Technical Assistance to India for Assessing the Role of Mortgage Backed Securities. Manila.
6
    ADB. 2005. Technical Assistance to the National Housing Bank and the Housing Development Finance
    Corporation of India for a Study on the Development of an Agency to Facilitate Issuance of Residential Mortgage-
    Backed Securities. Manila.
7
    ADB. 2002. India Mortgage Guarantee Company. Manila. The proposed investment was for $10 million under the
    private sector window. This was not implemented as the RBI did not introduce the required regulatory framework
    at that time. ADB is now in the process of resubmitting the proposal to the Board, with a proposed investment of up
    to $15 million, following improvements in the regulatory environment.
                                                                                                            3


D.        Relevance of Design and Formulation

9.       Project design. According to the project framework (Appendix 1), the impact of HF II
was to support human development by increasing the availability and affordability of housing
finance to LIHs.8 The expected outcome of HF II was to improve the living standards and quality
of life of LIHs that lack access to affordable credit for housing and home-based income-
generating activities. The project comprised four separate loans to the Housing and Urban
Development Corporation Limited (HUDCO) ($100 million), Housing Development Finance
Corporation (HDFC) ($80 million), ICICI Limited ($80 million) and NHB ($40 million). HF II
consisted of three parts (A, B and C). Part A was designed to support lending to LIHs through
intermediaries consisting of (i) CFIs and NGOs, (ii) public and private enterprises, and (iii) state
and local bodies. Part B was designed to support lending to LIHs through slum networking and
home-workplace schemes, leading to poverty reduction. Part C was designed to support lending
to LIHs by (i) expanding the housing finance operations of HDFC and ICICI Limited to lend
directly to LIHs through mortgage loans at market interest rates; (ii) expanding the refinance
operations of NHB to housing finance institutions (HFIs) other than HDFC and HUDCO, thus
enabling HFIs to increase their lending to LIHs; and (iii) supporting refinancing of HFC loans to
CFIs through CFI refinance scheme of NHB. The outputs of HF II, as contained in the project
framework, corresponded to these components. HF II further envisaged different lending targets
for each of the Borrowers under the various components. HUDCO was solely responsible for
the elements under part B above, and its withdrawal from the project resulted in these elements
not being implemented. 9 The parts and components relevant to NHB and ICICI are indicated in
paras. 20–21 and 25 respectively.

10.    HF II also incorporated a policy and institutional action plan, with some actions
covenanted in the loan agreement. Actions related to raising the corporate governance standard
and implementing foreclosure regulations were covenanted for NHB; making improvements to
the mortgage registration system was covenanted for both NHB and ICICI.

11.       Rationale for the loan. The report and recommendation of the President (RRP) for HF
  10
II noted that the housing shortage in India remained critical, especially for LIHs, despite policy
and regulatory reforms to promote increased participation in housing finance and development.
The absence of affordable credit for housing was identified as the principal constraint preventing
low income families from improving their housing and living conditions. Although various CFIs
and NGOs have helped low income families mobilize their savings and have extended housing
loans, these efforts were insufficient in light of total LIH demand for housing finance. HF II
sought to increase access by LIHs to market-based housing finance from formal and informal
institutions in the housing finance sector.

12.     Consistency with ADB’s strategy. HF II was consistent with ADB’s Urban Sector
Strategy, 11 which sought to (i) strengthen linkages between formal and informal housing finance
as a means to increase availability and affordability of housing loans to LIHs; (ii) promote
microcredit programs for housing loans and home-based, income-generating activities, and
support low-income shelter schemes; and (iii) provide technical advice and expertise in

8
     LIH was defined as a household below a threshold income (Rs7,000 in June 2002, revised annually with the
     changes in the consumer price index as specified in para. 14 of the Minutes of the Loan Negotiations).
9
     Part C was accordingly redesignated as part B in the loan agreements for ICICI and NHB.
10
     ADB. 2000. Report And Recommendation of the President to the Board of Directors on Four Proposed Loans to
     the Housing and Urban Development Corporation, National Housing Bank, Housing Development Finance
     Corporation, and ICICI for the Housing Finance II Project in India. Manila.
11
     Asian Development Bank. 1998. India: Urban Sector Strategy. Manila.
4


establishment of a secondary mortgage market as a means to increase the availability of capital
for housing finance.

13.      Consistency with India’s development objectives. HF II was consistent with the
Government’s increasing priority on housing as reflected in the 1994 national housing plan, and
subsequently in the 1998 national housing and habitat policy. HF II was also consistent with
targets of India’s 9th Five Year Plan, which included construction of 2 million housing units
(700,000 in urban areas) annually over 5 years. The RRP noted that this target was short of the
total estimated housing shortage of 40 million units at the time of appraisal. The purpose of HF
II continues to be relevant today. The 2007 national urban housing & habitat policy, which was
tabled in Parliament in December 2007, has affordable housing for all as its goal, with an
emphasis on the urban poor. A technical group estimated the magnitude of the urban housing
shortage to be around 25 million at the close of the 10th Five Year Plan (2002–2007), with 99%
of the shortage pertaining to “economically weaker section” and “low income group”. The
working group on rural housing for the 11th Five Year Plan estimated a rural housing shortage in
2007 of 47 million houses; families living below the poverty line accounted for at least 90% of
the housing shortage.

14.      Adequacy of appraisal. ADB approved project preparatory TA12 on 8 November 1999
to identify sustainable, market-based channels and institutional arrangements for the delivery of
housing finance to LIHs. Building on experience and lessons from HF I, the TA consultant report
proposed a project with greater emphasis on strengthening linkages between formal housing
finance institutions and the informal sector, including CFIs and NGOs, to down-market housing
finance to LIHs and support innovative slum improvement subprojects. In contrast to HF I, which
allowed some lending to middle- and upper-income households, HF II solely targeted LIHs.
Moreover, lending targets were specified in the RRP to encourage lending through more
innovative channels, which would require more time for implementation. The consultant report
also identified a number of policy reform measures aimed at meeting the long-term objectives of
the 1998 national housing and habitat policy, which emphasizes the need for the Government to
adopt the role of a facilitator, rather than a provider, of housing. The project brief was prepared
based on the consultant’s report, and two loan processing missions were conducted between
April 2000 and June 2000.

15.     The project formulation process appears to have been deficient in some respects. For
instance, the success of NHB’s CFI refinance scheme13 (launched in January 1999) was limited
by capacity constraints among CFIs and NGOs, and the high intermediation cost of HFI lending
through these institutions. These issues were subsequently highlighted in the HF I PCR.14 The
processing mission failed to address these issues in the project design; doing so might have
resulted in more rapid implementation and better achievement of outcomes of components
involving CFIs and NGOs. Furthermore, the appraisal mission carried out a financial review of
the Borrowers, but did not address the fact that the refinance operations of NHB lacked a
system to track detailed end-borrower data (including income levels). This emerged as a major
implementation bottleneck. In addition, an appropriate definition of what constitutes a LIH should
have been determined at appraisal, and the income threshold adjusted appropriately for inflation
from year to year (footnote 8). Moreover, in the case of the HF II ICICI Bank loan (Loan 1761-

12
     ADB. 1999. Technical Assistance to India for Preparing the Housing Finance II Project. Manila (TA No. 3288-IND,
     approved November 1999).
13
     The CFI Refinance Scheme was developed under ADB TA for Strengthening Housing Finance Institutions
     (footnote 4).
14
     ADB. 2003. Project Completion Report on the Housing Finance Project in India. Manila.
                                                                                                                       5


IND), this threshold should have applied to the income of the borrower instead of the household,
given the impracticality of assessing household income (footnote 22).

16.      The discussions on the prevailing market conditions at the time of appraisal highlighted
the issue of competitiveness of ADB’s dollar loans, given the decline in interest rates for rupee-
denominated loans in the domestic market. However, this risk was underestimated. HDFC and
HUDCO did not avail of the loan because of the cost of ADB’s funds compared to the interest
rates available in the market. The signing of NHB and ICICI loan agreements was delayed
because the cost of ADB funds, when swapped into rupees, appeared unattractive, particularly
for lending through t e CFI and NGO channel.15 Moreover, NHB’s partial cancellation of the
                      h
loan in 2003 (para. 23) was also due in part to market conditions.

E.         Related Technical Assistance

17.         ADB did not approve any TA in conjunction with HF II.

                                            II.      IMPLEMENTATION

A.         Lending Policies

18.     National Housing Bank. NHB’s refinance portfolio has undergone significant changes
during the last few years, with a shift in disbursements from HFCs to banks. HFCs accounted
for 75% of disbursements in FY2001, followed by cooperative institutions (14%) and banks
(10%); by FY2007 banks accounted for 80%, followed by HFCs (20%). The change in refinance
composition reflects the recent growth in the housing finance portfolio of commercial banks.
NHB’s refinance to commercial banks is mostly of 3-year tenure, which is shorter than refinance
to HFCs. NHB’s refinance terms have also changed over the years in response to changes in
market conditions. In addition to refinancing, NHB has also provided direct project finance to
public housing and development agencies over the past few years. In conjunction with the
implementation of HF II, NHB began exploring opportunities for direct lending to CFIs and
NGOs and has provided assistance to some CFI projects. The refinance and lending activities
of NHB underwent a major policy shift in 2003–2004 with the introduction of risk-based lending.
NHB rates clients using an in-house rating model, with exposure limits and pricing based on the
rating obtained. NHB is focused on the unserved and underserved segments of the society
through programs such as the Golden Jubilee Rural Housing Refinance Scheme, which aims to
increase housing stock in rural areas.

19.       ICICI Bank. ICICI Limited began diversifying its operations from project-based lending
to corporate financing at the time of appraisal. In addition, as a part of its housing finance
initiative, ICICI Limited set up ICICI Home Finance Company in 1999 as a wholly-owned
subsidiary for provision of housing loans. During implementation, based on opportunities in the
market, ICICI Limited merged with ICICI Bank and refocused its operations on retail and
commercial banking. The size of ICICI Bank’s housing finance portfolio as of 31 March 2008
was Rs585 billion, of which loans to the relatively lower income group (loans of less than Rs0.5
million) constituted 16%. The size of ICICI Home Finance Company’s housing portfolio was
Rs67 billion as of 31 March 2008. ICICI Home Finance Company has recently started focusing
on large ticket (non-priority sector) loans and home equity loans.

15
     The delay in signing of the loan agreements resulted in temporary unsatisfactory ratings in the project performance
     report for the two loans. Loan 1761-IND (to ICICI Limited) also received an unsatisfactory rating for the subsequent
     period due to a delay in declaration of loan effectiveness, as a result of ICICI Limited’s merger with ICICI Bank.
6



B.         Characteristics of Subloans

           1.       National Housing Bank Loan (Loan 1759-IND)

20.    Specified distribution of subloans. The allocation of the loan as envisaged in the
RRP is shown below.

                                 Table 1: Lending Targets by Project Parts
  Component                             Description                                         Amount
                                   a
 Part B(ii)         Refinancing HFI loans to LIHs                              Up to $32 million (80% of loan)
 Part B(iii)        Supporting the CFI refinance scheme to refinance           At least $8 million (20% of loan)
                    HFC loans to CFIs for housing subloans
CFI = community-based financial institution, HFC = housing finance company, HFI = housing finance institution, LIH =
low income household.
a
   HFI is a housing finance institution as defined in the NHB Act, which has as its objective provision of housing
   finance.
Source: ADB. 2000. Report And Recommendation of the President to the Board of Directors on Four Proposed Loans
to the Housing and Urban Development Corporation, National Housing Bank, Housing Development Finance
Corporation, and ICICI for the Housing Finance II Project in India. Manila.

21.      During implementation, the CFI refinance scheme—part B(iii)—was not successful, and
NHB actively explored opportunities for direct lending to CFIs and/or NGOs. Accordingly, ADB
amended the loan agreement on 8 September 2006 to include—in part A(i)—support for lending
by NHB to LIHs through CFIs or NGOs. Financing under part A(i) was included together with
that for the CFI refinance scheme to satisfy the subloan distribution criteria.

22.       Loan and subloan terms. The loan was guaranteed by the Government and was made
from ADB’s market-based US dollar lending window, with a maturity of 25 years, including a
grace period of 5 years. All the subloans were rupee-denominated, but the terms varied across
the lending channels, as discussed in the ensuing section C. As per the subloan financing
criteria in the loan agreement, ADB financed a maximum of 80% of the subloans except in the
case of lending by NHB to LIHs through CFIs and NGOs—part A(i)—which was eligible for
100% ADB financing.

23.      Loan utilization and subloan distribution. NHB cancelled $32.6 million 16 and utilized
$7.4 million of the $40 million facility. Prevailing market conditions rendered ADB loans relatively
uncompetitive, leading to cancellation of $19.6 million in 2003. NHB fixed 17 the rupee cost of
ADB funds through a structured swap that did not allow NHB to benefit from the falling domestic
rates. NHB also had to re-price and reduce the cost of its loans to HFIs in line with market
conditions. In addition, the lack of a system to track data on end-borrowers under NHB’s
refinance operations was an impediment to implementation of the HFI refinancing under part
B(ii). Of the amount availed, $13 million (comprising a $10 million imprest advance and $3
million statement of expenditure portion) was refunded in 2004 because ineligible cases18 were
found to be included (para. 31). This portion was cancelled in 2005 after NHB determined it was
unable to provide an adequate stock of eligible subloans.

16
     $19.6 million was cancelled effective 15 September 2003 and $ 13 million was cancelled effective 15 September
     2005.
17
     The interest rate was fixed for the first 5 years with some reset options thereafter.
18
     Some subloans were found to be ineligible because (i) the income of the LIH exceeded the threshold, (ii)
     disbursements made prior to the effective date of the loan, (iii) subloans were made towards land purchases, and
     (iv) the amount claimed by NHB was higher than the amount disbursed by the HFC concerned.
                                                                                                                        7



24.      Of the total amount disbursed, capitalization of the front-end fee was $0.4 million,
disbursement under part A(i) 19 was $781,981 and under part B(ii) was $6,218,019. The share of
part A(i) was thus 11.2%, and did not meet the 20% target as envisaged.

           2.       ICICI Bank Loan (Loan 1761-IND)

25.     Specified distribution of subloans. The allocation of the loan as envisaged in the
RRP20 is shown below. The loan agreement was amended on 3 November 2004 to (i) remove
the $10 million restriction in part A(ii) for direct lending to LIHs that are employees of public and
private enterprises, and (ii) include under part A(i) direct lending to LIHs that are beneficiaries of
CFI and/or NGOs.

                                  Table 2: Lending Targets by Project Parts
 Component                                      Description                                            Amount
 Part A(i)         Lending to LIHs through CFIs and/or NGOs                                      $10 million
 Part A(ii)        Lending directly to LIHs that are employees of public & private               Up to $10 million
                   enterprises
                   Lending indirectly to LIHs through public and private enterprises             At least $10 million
 Part A(iii)       Lending indirectly to LIHs through state and local bodies                     $10 million
 Part B(i)         Lending directly to LIHs                                                      $40 million
CFI = community-based financial institution, LIH = low income household, NGO = non-government organization.
Source: ADB. 2000. Report And Recommendation of the President to the Board of Directors on Four Proposed Loans
to the Housing and Urban Development Corporation, National Housing Bank, Housing Development Finance
Corporation, and ICICI for the Housing Finance II Project in India. Manila.

26.     Loan and subloan terms. The loan terms are as given in para. 22. As in the case of
the NHB loan (Loan 1759), all the subloans were rupee denominated, but the terms varied
across the lending channels, as discussed in the ensuing s       ection C. As per the subloan
financing criteria in the loan agreement, ADB financed a maximum of 80% of the subloans 21
under all parts except part A(i), which was eligible for 100% ADB financing.

27.       Loan utilization and subloan distribution. ICICI Bank utilized the entire $80 million
loan facility. The disbursements under various parts were part A(i): $8.38 million; part A(ii):
$2.47 million; part A(iii): nil; part B(i): $68.35 million. Additionally, $0.8 million was withdrawn for
capitalization of front-end fees. The difference between envisaged and actual distribution
resulted from the constraints faced under the lending components of part A (paras. 38–43). The
direct loans to LIHs under part B(i) were disbursed quickly, and this component enabled full
utilization of the loan.




19
     The entire $7 million was originally disbursed under part B(ii). Later in response to NHB’s request, ADB reallocated
     $781,981 towards three subloans under part A(i) from part B(ii) on 29 June 2007.
20
     The loan agreement did not specify the distribution among the four components. However, the loan agreement
     required ICICI to submit at least two qualified housing proposals under each of the four parts of the project.
21
     ICICI indicated in 2003 that, as per the prevalent market practice, it would be impractical to assess the income of
     the household. Based on ICICI’s request ADB redefined LIH as a subborrower instead of a household. As a result
     of this change, the extent of ADB reimbursement to ICICI was reduced from 80% to 72% of ICICI’s disbursements,
     to account for ineligible cases (household income more than the stipulated level), which were estimated at 10% of
     ICICI’s disbursements.
8


C.         Implementation and Internal Operation of Subprojects

           1.       National Housing Bank Loan (Loan 1759-IND)

28.      Overall. The expected outcome was 27,000 loans to LIHs for home purchase or
improvements; the expected impact was that 136,000 persons would benefit from the loans.
The actual outcome of the $7 million loan originally disbursed under part B(ii) for refinancing of
HFI loans to LIHs was 2,830 loans; the impact was that 14,000 persons benefited.22 The $0.78
million loan that was reallocated from part B(ii) to part A(i) to support direct lending to LIHs
through CFIs or NGOs, financed 576 loans benefiting 2,800 persons (footnote 23). The subloan
financing criteria ensured requisite leverage by NHB.

29.     Lending through CFIs and NGOs–part A(i). NHB began experimenting with direct
loans to CFIs and NGOs in 2004. The $0.78 million reallocated to part A(i) supported (i) Share
Microfin Limited (SML) for repairs or extensions of dwelling units of 307 women members in
Hyderabad; (ii) Sri Padmavathy Mahila Abyudaya Sangam (SPMS) for individual dwelling units
located in Tirupathi, Andhra Pradesh of 122 women members; and (iii) SPARC23 Samudaya
Nirman Sahayak (SSNS) for a slum rehabilitation project benefiting 147 slum dwellers in
Mumbai. The details of subprojects are in Appendix 2.

30.      Although the loan utilization targets under Part A(i) were not achieved, this component
made significant contributions by (i) bringing underserved segments of society, particularly
those with no regular incomes and lack of physical access to the banking system, into the
formal financial system; and (ii) establishing a linkage between formal and informal institutions
in the financial sector.

31.     Housing finance institution loan refinancing–part B(ii). Implementation of part B(ii),
based on the statement of expenditure procedure under free limit, proved to be challenging.
NHB disbursed the project funds to the ultimate borrowers through 11 HFCs, and subsequently
collected the subloan information. A number of discrepancies were found in the information
submitted by NHB and detailed reviews revealed that a number of cases were ineligible
(footnote 19), leading ultimately to a refund of a part of the disbursed amount. The HFCs that
are subborrowers under the loan and the ADB loan amount are shown in Appendix 3. LIC
Housing Finance Limited accounted for 34% of the refinancing under part B(ii).

32.      NHB’s refinance to the HFCs are at interest rates based on NHB’s cost of funds,
prevailing market interest rates and, after 2003–2004, also on the credit of the specific HFC.
The rates for refinance extended out of ADB funds were the same as the rates for other
refinancing. HFCs determined the rates of lending to the end-borrowers. Information on interest
rates on HFC subloans to the target segment could not be obtained.

33.    According to a benefit monitoring and evaluation (BME) study24 of the NHB loan
conducted in 2006, penetration of loans by HFCs to LIHs is generally poor. All LIH loans issued
by surveyed HFC branches were covered under the NHB refinance facility. LIHs accounted for
only about 2.2% of all loans and a mere 0.9% of overall approvals by the branches surveyed.
The study suggests that there is no targeted approach to include LIHs under the policies of

22
     As in the case of the expected impact, the assumption of 5 persons per household has been made.
23
     Society for Promotion of Area Resource Centre.
24
     ADB. 2006. Benefit Monitoring and Evaluation Report for the Housing Finance II Project. Manila (Loan 1759-IND).
                                                                                                               9


HFCs, and that credit quality considerations deter HFCs from substantive lending to LIHs. The
report indicates that 14% of sampled HF II beneficiaries had incomes higher than the stipulated
threshold, despite reviews by ADB and NHB to exclude ineligible borrowers.

34.     CFI refinance scheme –part B(iii). NHB’s CFI refinance scheme was not successful
due to the risks and constraints faced by the HFCs (i.e., higher credit risk, limited delivery
channels, inadequacy of collateral, discontinuous and uncertain income streams of the ultimate
beneficiaries, and high transaction costs).

35.     Policy and institutional action plan. The implementation status of the plan with
respect to NHB is in Appendix 4, Table A4.1. NHB generally undertook actions towards
achieving the policy objective, although actions were delayed in some cases . Although NHB
could not expand the refinance window for HFC lending to CFIs, it began direct lending to CFIs
and/or NGOs to build linkages with the informal sector. The NHB Act was amended in 2000 to
include provisions related to recovery of housing loan dues, but these provisions were not made
operational as a consequence of enactment of the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act 2002, which provided simple
procedures for mortgage foreclosure.

36.      To improve the mortgage registration system, NHB and ICICI Bank formed a working
group and submitted a draft report to the Government in 2006. The recommendations of the
draft report included that (i) states reduce the stamp duty for e      quitable mortgages, (ii) the
Government consider making registration of equitable mortgages compulsory, (iii) registration
charges be reduced to facilitate and encourage registration; and (iv) state governments notify
additional areas where equitable mortgage may be used. The project completion review mission
could not obtain information on the status of implementation of the draft report, however. With
respect to India’s MBS market, it may be noted that after the pilot securitization by NHB, there
have been several issuances by market participants. However, the MBS market has had limited
success and the number of issues has decreased in recent years, due in part to legal and
regulatory hurdles and a lack of long-term investors. In addition, MBS issues in In dia do not
typically meet the “true sale” criteria under the Basle II norms.25 A study is being undertaken as
part of ADB TA (footnote 6) to NHB and HDFC that will include recommendations for policy and
regulatory development and establishment of an agency to enable issuance of “true sale”
residential MBSs.

           2.      ICICI Bank Loan (Loan 1761-IND)

37.    Overall. The expected outcome was 58,600 loans to LIHs for home purchase or
improvements; the expected impact was that 293,000 persons would benefit from the loans.
The actual outcome and impact were 25,730 loans benefiting 129,000 persons (footnote 23).
The subloan financing criteria ensured requisite leverage by ICICI Bank.

38.     Lending through CFIs and NGOs, and to their beneficiaries–Part A(i). Although
ICICI Bank had identified working through CFIs and/or NGOs as one of its strategies to achieve
financial inclusion, progress under this component was very slow. In the first 2 years of
                                                                                     l
implementation, ICICI Bank established a partnership model that involved direct ending to
members of CFIs and/or NGOs through a partnership arrangement, but did not envisage bulk
lending to CFIs and/or NGOs on its own books due to inherent scalability and sustainability

25
     The MBS issues would therefore not qualify for off-balance sheet treatment for capital adequacy purposes, as
     originators retain the junior tranches.
10


limitations.26 The partnership model separates the CFI risk from the risk of the portfolio, and
pricing is on the basis of the risk of the underlying assets rather than the intermediary’s rating.
Moreover, the exposure of ICICI Bank is not limited by the capital base of the CFIs and/or
NGOs.

39.     The loan was channeled through two subprojects, SML and Kerala government’s
Kudumbashree program. The subloans to members of SML for $0.455 million were approved in
June 2005. The subloans (totaling $7.93 million) to several community development societies
(CDSs) in Kerala organized under the Kudumbashree program were approved in November
2006. The CDSs acted as a channeling agency; security for the CDS subloans included a
guarantee and a mortgage over the land and property of individual CDS borrowers. The details
of subprojects are in Appendix 2. The subprojects covered 10,730 female subborrowers (2,830
in the case of SML, and 7,900 for Kudumbashree).

40.     As in the case of the NHB loan, this component made a significant contribution by
bringing an underserved segment of society into the formal financial system. Further, ICICI
Bank was the first to offer housing loans under the Kudumbashree program; subsequently other
banks also started lending to the target population.

41.      However, the interest rate of the subloans to the Kudumbashree subproject CDSs (fixed
at 7.25% for 80% of the loans and 8.75% for 20% of the loans, for a 10-year repayment
schedule, including a 6-months moratorium),27 does not appear to adequately factor in the risk
premium and subproject cost of operations. The CDSs retained a margin of 1% or less, which is
insufficient to cover their cost of operations. The present subloan terms call into question the
subproject’s long-term financial viability. ICICI Bank began lending for housing finance under the
Kudumbashree program in FY2005, with the bulk of the lending occurring in FY2006 and
FY2007, with a slowdown in the last year. ICICI Bank is now concentrating on strengthening the
financial management capacity of the CDSs, implementing data tracking systems for individual
borrowers, and improving collections.28

42.      Lending through public and private enterprises, and to their employees–Part A(ii).
From the time of project approval, the demand for bulk loans by employers had decreased
significantly, with employees preferring to borrow directly from commercial lenders. The reasons
for this included a reduction in market interest rates, changes in the tax treatment of employee
loans,29 increased mobility of employees, and expansion of mortgage finance markets. ICICI
Bank consequently partnered with companies to provide direct individual loans to employees
under its “work-site arrangement”, wherein employers provided employee information, access to
their premises for holding spot camps, and sometimes an agreement for repayment via monthly
salary debits. ADB disbursed only $2.47 million (against an RRP target of $20 million) under this
component, with participation by 1,040 LIHs.

43.     Lending through state and local bodies–Part A(iii). During loan appraisal, HUDCO
was lending to state and local bodies to finance construction of low-cost dwelling units. HF II
therefore included state and local bodies as another credit delivery channel. ICICI Bank worked

26
     ADB accordingly amended the loan agreement in November 2004 to include direct loans to beneficiaries of CFIs
     and NGOs under part A(i).
27
     Other banks offered similar rates, although some were floating interest rates, with current rates of up to 9%.
28
     As of March 2007 overdues under the Kudumbashree program were Rs4.55 million (against a total outstanding of
     Rs369.66 million); in March 2008, overdues were Rs21.71 million (against a total outstanding of Rs363.33 million).
29
     Since the time of project processing, subsidized interest rates on employers’ loans have been subject to taxes,
     making it unattractive for employers to provide subsidized staff loans.
                                                                                                               11


on several proposals for assistance to housing board and state housing corporations in Andhra
Pradesh, Karnataka, Rajasthan and Tamil Nadu, and attempted to develop good bankable
structures to meet the housing needs of LIHs. However, ICICI Bank did not lend any funds
under this component, mainly due to the poor financial track record of these entities.30
Moreover, during the implementation period, the states ceased to borrow for the purpose of
providing housing finance.

44.    Lending directly–Part B(i). Disbursement under this component was rapid, and ICICI
Bank met the RRP component target of $40 million in about 2 years of implementation. Total
disbursement under this component was $68.35 million.

45.     Disbursements under the direct lending components—parts A(ii) and B(i)—totaled
$70.82 million, and benefited over 15,000 LIHs. Details of these components a given inre
Appendix 3. Most of the subloans were on a floating rate basis, with a current interest rate on
59% of the subloans at 11%–13%. The subloans were generally of long tenure (61% had a
tenure of more than 16.7 years). The income distribution (Appendix 3) indicates that direct
lending did not reach households with incomes below Rs5,000 per month; 97% of the targeted
beneficiaries were salaried, and 3% self-employed. In most cases (77%), the primary applicant
was male but co-applicant was female; only 10% of primary applicants were female. Most of
ICICI Bank’s business in this segment is in the smaller cities or rural areas, because the house
prices are high in urban areas. The western states of Maharashtra and Gujarat accounted for
45% of loans, and southern states for 19%. Although some states with poorer socio-economic
indicators (such as Madhya Pradesh and Uttar Pradesh) accounted for 20% of the subloans, the
eastern and north-eastern states were not included.

46.     A constraint faced in distribution of subloans in this category was the assessment of
creditworthiness of the borrower due to the lack of banking practice and income documentation,
which is needed for underwriting. ICICI Bank has experienced high delinquency (about 2.5%)
among LIH borrowers, compared to its overall housing finance portfolio (delinquency of 1%).
This may be attributed to lower ability of LIHs to withstand income shocks, and their higher
vulnerability to inflation increases (LIH incomes have not kept pace with inflation). Interest rate
increases over the past few years have impacted floating rate loans, resulting in higher equated
monthly installments or longer loan tenures. The rise in delinquency in the lower income
                                                                    i
category over the last 2 years caused ICICI Bank to change ts credit norms to improve
borrower quality.

47.     Policy and institutional action plan. The status of implementation of the plan relevant
to ICICI Bank is in Appendix 4, Table A4.2. ICICI Bank took all the actions included in the plan.
ICICI Bank has set up systems and procedures for lending to members of CFIs and/or NGOs,
and is undertaking ongoing improvements (e.g., CDSs in Kerala). With respect to improving the
mortgage registration system, ICICI Bank established a working group as envisaged, outlined
the terms of reference and facilitated meetings. These efforts yielded a draft report that was
presented to the Government (para. 36).




30
     The project required that the subborrowers have an adequate financial position and financial control, so that
     operations are sustainable and there is a good audit trail for verification of end use.
12


D.         Operational Performance of the Borrowers

           1.       National Housing Bank

                    a.       Organization, Management, and Staffing

48.      NHB is managed by a board of directors comprising nominees from the RBI, central
government and state governments, and other professionals. According to the recent budget
announcement, RBI will transfer its holding in NHB to the Government. NHB’s activities are
divided into seven departments based on identifiable work areas. The functions of regulation
and supervision and HFC promotion and development are carried out by different departments
under different general managers, reducing the potential for conflict of interest.31 NHB had 67
staff (including professionals) as of 30 June 2007, a decline from 84 in 2004; the high attrition
may have resulted from the NHB salary structure, which is relatively uncompetitive with market
rates.

                    b.       Personnel Administration

49.     NHB staff includes professionals from diverse disciplines, including economics, finance,
law, civil engineering, urban and town planning, architecture, business administration, and
chartered accountancy. NHB conducts human resource development programs regularly to
upgrade staff skills to meet market needs.

                    c.       Lending Operations

50.     The operational framework for the activities under the NHB Act is determined by the
board of directors as per the provisions of the Act. For lending operations, NHB has developed
a refinance policy and project finance policy, detailed appraisal norms and mechanisms, an
internal credit rating model, and conducts on-site and off-site monitoring. The implementation
experience under HF II and discussions with senior management of NHB, however, suggests
that the information and data collection and management system of NHB, under projects such
as the HF II, is weak, and would require strengthening if NHB is to play an effective role in
meeting development objectives.

                    d.       Other Operations

51.      Other NHB operations include regulating and supervising 43 registered HFCs, and
promoting and developing the housing sector by guiding investment through close interactions
with the Government regarding policy. NHB’s promotional initiatives include development of the
MBS market. NHB also provides support to HFCs by way of equity participation in HFCs and
guaranteeing HFC bonds. NHB carries out training programs and capacity-building exercises for
officials in the housing finance sector. NHB has renewed its focus on inclusive financial delivery
for housing and is working on some initiatives in these areas (para. 90).




31
     However, HFC equity participation which is part of the HFC promotion and development activity is under the
     executive director in charge of regulation and supervision. TA for Strengthening Housing Finance Institutions (TA
     No. 2833–IND, footnote 4) suggested complete separation of activities in order to eliminate any perception of a
     conflict of interest.
                                                                                                 13


       2.     ICICI Bank

52.    ICICI Bank’s operational performance in terms of key aspects of organization, personnel
administration and operations are described in the UEIF PCR (footnote 2).

E.     Borrower’s Financial Performance

       1.     National Housing Bank

53.       NHB’s outstanding loans and advances increased from Rs45 billion in 2001 to Rs196
billion in 2007. The composition of loans and advances also changed: in 2001 refinance to
HFCs as a percent of total loans and advances outstanding was 83%, and to banks 3%; in 2008
the proportions were 25% and 71%, respectively. NHB consistently had no non-performing
assets. With respect to income recognition, asset classification, and debt provisioning, NHB
follows prudential norms prescribed by the RBI for commercial banks.

       2.     ICICI Bank

54.    A description of ICICI Bank’s loan portfolio is contained in the UEIF PCR (footnote 2).

F.     Financial Statements and Ratios

       1.     National Housing Bank

55.     Balance sheets. NHB’s assets grew from Rs75 billion in 2001 to Rs215 billion in 2007,
representing a compound annual growth rate of 19%. The growth in assets was driven by
opportunities in the refinance business created in particular by aggressive growth in commercial
bank housing finance. NHB’s borrowings in recent years have increasingly been on commercial
terms, with the reduction in fiscal and regulatory benefits. There has also been an increase in
the short-term borrowing in the form of commercial papers and borrowings from banks. As a
result, NHB’s short-term liquidity (less than 1 year) was affected in 2007, with liabilities
exceeding assets by Rs43,298 million, compared to Rs3,169 million in 2006 (Appendix 5, Table
A5.1).

56.      Income statements. NHB’s income increased consistently over the last few years as a
result of increased interest income (compound annual growth rate of 16% during 2001–2007). In
recent years, profitability has been adversely affected by a decrease in the interest spread
resulting from increased reliance on commercial borrowings. Profits have been variable during
the review period, although profits increased in the last 2 years as result of an increase in
income (Appendix 5, Table A5.2).

57.     Key ratios. The return on average equity and average assets of NHB showed a
declining trend until 2005, before increasing in subsequent years. The capital adequacy ratio of
NHB was 22.58% in 2007, while the debt–equity ratio increased from 4.00 in 2002 to 11.35 in
2005, before decreasing marginally to 10.14 in 2007 (Appendix 5, Table A5.3).

       2.     ICICI Bank

58.     Discussions regarding ICICI Bank’s financial statement and ratios for the period 2001 to
2006 are in UEIF PCR. Updated statements and ratios for the year 2007 are in Appendix 6.
ICICI Bank’s financial performance continues to be satisfactory.
14


G.         Covenants

59.     National Housing Bank loan (Loan 1759-IND). A statement describing the status of
compliance of covenants is in Appendix 7, Table A7.1. NHB is generally in compliance with the
covenants, subject to the following observations. There were delays in submission of auditors’
reports on the use of loan proceeds, the adequacy of accounting and internal control
procedures and the status of compliance with financial covenants. The debt–equity ratio, one of
the covenanted financial ratios, was within the stipulated limit during the review period. The debt
service coverage ratio (DSCR), the other covenanted financial ratio, was above the stipulated
threshold of 1.1 until FY2006. However, in FY2007, the DSCR was 0.70, indicating non-
compliance with respect to this ratio. A low DSCR resulted mainly from a higher consolidated
debt-service requirement. NHB has shifted towards short-term borrowings, such as commercial
papers, some of which were repayable during FY2007. In addition, NHB repaid a substantial
amount of outstanding capital gains bonds in FY2007, due to the exercise of a put option. 32

60.     ICICI Bank loan (Loan 1761-IND). A statement describing the status of compliance of
covenants is in Appendix 7, Table A7.2. ICICI Bank is generally in compliance with the
covenants, subject to the following observations. ICICI Bank did not meet the requirement that it
submit at least two qualified housing proposals under each of the four parts of the project, as it
did not submit any eligible projects under part A(iii) (para. 43). Further, there were delays in
submission of auditors’ reports on the use of loan proceeds and related matters, adequacy of
ICICI Bank’s accounting and internal control procedures, and compliance with financial
covenants. The covenanted financial ratios were, however, within the stipulated threshold.

H.         Performance of the Asian Development Bank

61.     ADB conducted regular review missions and participated in tripartite review meetings
with the Borrowers and the Department of Economic Affairs to review the performance of
commitments and disbursements and to suggest steps for improved utilization. Overall, ADB’s
performance was satisfactory.

62.      National Housing Bank loan (Loan 1759-IND). ADB responded to market realities by
making necessary changes in implementation arrangements to facilitate disbursements through
the CFI and NGO channel. HF II was complemented by the private sector operations of ADB
involving NHB, especially with respect to two TAs on MBS (paras. 5 and 36). NHB, however,
commented that HF II could have been used more flexibly. In addition, the ADB funds were too
costly to affordably meet the borrowing needs of LIHs. Moreover, the studies and documentary
requirements were burdensome.

63.     ICICI Bank loan (Loan 1761-IND). ADB responded adequately to market realities and
changes in market conditions by making necessary changes in implementation arrangements
that enabled full utilization of loan. ICICI Bank found that the ADB loan brought focus to and
showed opportunities in the LIH segment of the market, which may not have been realized
without the loan. Although the delinquencies were higher among LIHs, the ADB loan helped
supplement ICICI Bank’s resources. Moreover, ICICI Bank valued the learning that the ADB
loan brought in terms of the use of non-financial metrics—such as the socioeconomic impact of
the project—in evaluating loan performance.

32
     The capital gains bonds, issued during 2002–2006, had a maturity of 5 years with a put option at the end of 3
     years. Since no further tax benefit was available at the end of 3 years, investors exercised the put option to take
     advantage of other investment opportunities in the market at prevailing higher interest rates.
                                                                                                           15


                                           III.     EVALUATION

A.        Loan Appraisal

          1.       Distribution of Subloans

                   a.      National Housing Bank Loan (Loan 1759-IND)

64.     There were substantial differences between the distribution envisaged in the RRP and
the actual subloan distribution. The suitability of some components as lending channels, such
as the CFI refinance scheme, does not seem to have been realistically assessed at the time of
appraisal. NHB began experimenting with lending directly to CFIs and/or NGOs in conjunction
with HF II implementation, but utilization under this component was minimal, as the number of
viable CFI and NGO housing finance projects remains limited. NHB has thus far identified 4–5
CFIs and NGOs (in addition to SSNS, SML and SPMS) as possible borrowers. Capacity
building of the intermediaries, such as CFIs and NGOs, should perhaps have preceded or
accompanied lending through these channels, possibly through TA.

65.       NHB’s refinancing of HFI loans to LIHs under part B(ii) was solely through HFCs. At the
time of appraisal, HFCs constituted a large part of NHB’s refinance. However, the market
scenario changed during the project period, with an increasing share of commercial banks in
housing finance. If NHB had also directed refinance to LIHs through the commercial banks, then
utilization under part B(ii) might have been increased,33 leading to i proved achievement of
                                                                        m
development objectives.

                   b.      ICICI Bank Loan (Loan 1761-IND)

66.     There were substantial differences between the distribution envisaged in the RRP and
the actual subloan distribution. Despite ICICI Bank’s efforts, targets with respect to components
under part A were not met (paras. 38–43). The suitability of some components (such as state
and local bodies) as lending channels does not appear to have been realistically assessed at
appraisal. Also, capacity building of CFIs and/or NGOs should perhaps have preceded or
accompanied lending through these channels, possibly through TA.

67.     Higher-than-targeted lending under part B enabled full use of the loan and contributed to
the project’s goal of promoting market-based lending to LIHs. However, the project also sought
to reach underserved LIHs, which would have been best achieved through the underutilized CFI
and NGO component, which could reach borrowers without regular incomes. Nevertheless, the
Borrower’s experience with respect to building linkages with informal institutions may serve as a
useful foundation for devising future ADB interventions in the sector.

          2.       Covenants

68.     NHB and ICICI Bank complied with most of the covenants (paras. 59 and 60), although
there are some areas that required timely or better compliance. In particular, for FY2007, NHB
is in non-compliance with respect to the DSCR provision. ADB will continue to monitor this ratio
and seek suitable steps for NHB to ensure compliance with this provision.


33
     This would, however, be subject to overcoming any implementation problems due to the lack of systems for
     tracking data on end-borrowers.
16


       3.       Quality of Appraisal

69.       ADB adequately assessed the general economic situation and the housing finance
sector. The project impact was consistent with and relevant to the country’s and ADB’s
development objectives. Moreover, the design included various components and policy and
institutional action plans to achieve the project impact and outcome. However, some factors
were not suitably analyzed at appraisal (paras. 15 and 16), including (i) the prevailing market
interest rate vis-à-vis the cost of ADB’s funds, (ii) risks and constraints faced in lending through
some of the channels, and (iii) suitability of NHB’s refinance operations for directing credit to
LIHs.

B.     Implementation

70.     National Housing Bank loan (Loan 1759-IND). Part B(ii) of the loan was delivered by
NHB to LIHs through HFCs as a part of its refinance scheme, which does not specifically target
any income category, but is based on credit assessment of HFCs. Lack of an appropriate
information system on end-borrowers led to implementation problems. In order to avoid similar
problems in the lending of subloan repayments net of loan repayments, NHB may consider
measures to build the required database at the HFI level to facilitate better achievement of
project objectives. Although the volume of lending to LIHs through CFIs and NGOs under part
A(i) was small, this component constituted an important seed activity in NHB’s operations.

71.      ICICI Bank loan (Loan 1761-IND). ICICI Bank’s increased focus on home loans
coincided with the aim of HF II to expand market-based housing finance for LIHs. This was
reflected in rapid disbursement via direct lending. ICICI Bank has in place the necessary
infrastructure for loan sourcing, servicing and collection. Higher delinquencies among the LIHs
may, however, impact the future growth of this business. The partnership model developed by
ICICI Bank for linkages with the informal sector (CFIs and NGOs) is expected to address key
issues with respect to scalability and replicability. However, to expand lending in an orderly and
sustainable manner to CFI and NGO subprojects (such as the Kudumbashree project), the
capacity of the CDSs needs to be strengthened. Interest rates would also need to be more
closely aligned with market interest rates for housing loans, by factoring in the risk premium and
cost of operations for the targeted segment of borrowers, to ensure sustainability of operations.

                      IV.     ASSESSMENT AND RECOMMENDATIONS

A.     Evaluation Criteria

72.     The four core criteria and subcriteria adopted for assessment are as follows:

        (i)     Relevance: (a) adequacy of assessment of problems, opportunities and lessons;
                (b) consistency of the project’s impact, outcome, and outputs with the
                government’s development strategy; and (c) choice of modality, instruments and
                design.

        (ii)    Effectiveness: (a) achievement of outcome; (b) loan utilization and its catalytic
                role; and (c) contribution of policy and institutional reforms.

        (iii)   Efficiency: (a) subloans repayment performance; and (b) alignment of subloans’
                interest rate to market interest rate.
                                                                                                                        17


            (iv)     Sustainability: (a) availability of adequate demand for project’s services; (b)
                     prospect of the Borrower’s housing finance operations targeting LIHs; and (c)
                     presence of appropriate policy and institutional environment to mainstream the
                     activities supported under the project.

B.         Relevance

73.      National Housing Bank loan (Loan 1759-IND). The NHB loan is rated “partly
relevant”. The expected outcome was consistent with the Government’s development priority
and ADB’s country strategy. However, the assessment of the appropriateness of using NHB’s
refinance operations as a key channel for directing credit to LIHs was inadequate. Although the
problems with the CFI refinance scheme were also not envisaged at approval, the inclusion of
direct lending to CFIs during implementation improved the relevance of the design.

74.     ICICI Bank loan (Loan 1761-IND). The ICICI Bank loan is rated “relevant”. As in the
case of the NHB loan, the expected outcome was consistent with the strategies of India and
ADB. Further, the biggest component—lending directly to LIHs—was in line with ICICI Bank’s
growing emphasis on housing finance. Although the constraints in lending indirectly to LIHs
through CFIs and NGOs had not been adequately envisaged at approval, direct lending to
members of CFIs and NGOs during implementation enabled ICICI Bank to lend under the
partnership model. The design did include some components that were not relevant, such as
lending through state and local bodies, and public and private enterprises.

C.         Effectiveness in Achieving Outcome

75.       National Housing Bank loan (Loan 1759-IND). The NHB loan is rated “ineffective”.
Utilization was very poor (18%) and the outcome in terms of number of loans to LIHs was far
below the expected level. Moreover, BME shows that some of the subloans under this
component were not made to LIHs. Also, refinancing of HFC loans to LIHs was limited, and this
component also does not appear to have catalyzed lending to LIHs by HFCs. Inclusion of direct
lending to CFIs and NGOs constituted a key seed activity in building the linkages between the
formal and informal sector, as envisaged in the policy and institutional action plan. However, this
activity is currently small because of constraints in terms of the number of viable CFIs and
NGOs with the capacity for housing finance operations.

76.       ICICI Bank loan (Loan 1761-IND). The ICICI Bank loan is rated “effective”. The loan
was fully utilized, although only about half the target number of subloans were made, indicating
that the average subloan was double the envisaged size.34 The loan brought focus to ICICI
Bank’s direct lending operations to the LIH segment. Further, as envisaged in the policy and
institutional action plan, ICICI Bank built linkages with the informal sector. The Kudumbashree
program demonstrated the model, and also played a catalytic role, leading to other banks
entering the segment in Kerala. However, utilization under the CFI and NGO component was
lower than envisaged in the RRP.




34
     The larger average loan size is, due in part to the following (i) direct lending, which envisaged a larger loan amount
     as compared to other components, exceeded the RRP target; and (ii) increasing housing costs necessitated
     housing loans larger than the RRP estimate that did not incorporate any increases in housing costs during the
     implementation period.
18


D.         Efficiency in Achieving Outcome and Outputs

77.      National Housing Bank loan (Loan 1759-IND). The NHB loan is rated “less efficient”.
To the extent that the project completion review mission could verify, it appears that repayment
performance of the end-borrowers is satisfactory.35 The interest rates on the refinance to HFCs
reflect the rates of interest prevailing in the market. However, risk-based lending to HFCs was
introduced only in 2003–2004. Further, NHB’s lending policies with respect to CFIs and NGOs
have been evolving and the rates at which the loans were made to CFIs and NGOs in 2004–
2005 may not have adequately factored in the credit risk-premium for CFIs and NGOs.

78.      ICICI Bank loan (Loan 1761-IND). The ICICI Bank loan is rated “less efficient”. ICICI
Bank’s direct lending portfolio to LIHs showed higher delinquency compared to its overall
housing loan portfolio. Also, the overdues of the Kudumbashree program have been increasing.
The interest rates for direct lending were market-determined at origination. However, the
interest rates for Kudumbashree program, set in consultation with the Kerala government, did
not adequately factor in the risk-premium of lending to LIH segment and the cost of operations
of the CDS (para. 41).

E.         Preliminary Assessment of Sustainability

79.     National Housing Bank loan (Loan 1759-IND). This loan is rated “less likely” to be
sustainable. There is a huge housing shortage among LIHs. Moreover, a key constraint faced
by LIHs in improving their housing condition is access to affordable credit, indicating a large
unmet demand by LIHs for housing credit. However, uncertainties exist with respect to directing
credit to LIHs using NHB’s refinance operations, as (i) the decrease in subsidized funding
available to NHB is likely to impact the institution’s ability to offer refinance at competitive rates,
thereby potentially affecting the refinance business in the medium to long term;36 (ii) the
presence of HFCs in the LIH segment is limited; and (iii) the lack of information under refinance
operations on end-borrowers, makes it difficult to implement policies targeting LIHs.

80.      ICICI Bank loan (Loan 1761-IND). This loan is rated “likely” to be sustainable. There is
a large unmet demand by LIHs for housing credit. ICICI Bank’s strategy is to be present in all
asset classes since it imparts size and contributes to experience in different segments that may
lead to future opportunities. Accordingly, ICICI Bank plans to maintain or expand its existing LIH
portfolio. Although the higher delinquency of the LIH portfolio may impact future growth, ICICI
Bank has addressed this through tightening of credit norms and appropriate loan pricing. With
respect to the Kudumbashree subproject, ICICI Bank is currently undertaking steps to
strengthen CDS capacity, implement systems to track individual borrower-level data, and
improve collections. This is likely to assist the future operations of the subproject.

F.         Overall Assessment

81.      The overall rating reflects weighted averages of the individual ratings for four criteria:
relevance (20%), effectiveness (30%), efficiency (30%), and sustainability (20%). Individual
criterion ratings are in whole numbers from 0 to 3, in increasing order of project performance.

35
     According to NHB, unlike commercial bank portfolios, the portfolio of HFCs grew at a much slower pace and has a
     lower delinquency than do commercial banks. Specific data on the subloans of HFCs to LIHs was, however, not
     available. With respect to the CFI and NGO subprojects, NHB reported regular repayments by the CFIs and
     NGOs. However, in the case of SPMS, repayment by the members to the self help groups was 95%.
36
     NHB officials were, however, of the view that refinancing needs of the HFCs would continue.
                                                                                                                      19


82.    National Housing Bank loan (Loan 1759-IND).                           Overall, the NHB loan is rated
“unsuccessful”, as shown below.

                                Table 3: Overall Performance Assessment
    Criteria                          Weight (%)                  Rating Value                Weighted rating
    Relevance                            20                             1                          0.2
    Effectiveness                        30                             0                          0.0
    Efficiency                           30                             1                          0.3
    Sustainability                       20                             1                          0.2
                    a
            Overall                                                                                0.7
a
  Highly successful = 2.7; successful (S) 2.7 > S = 1.6; partly successful (PS) 1.6 > PS = 0.8; unsuccessful < 0.8.
Source: Asian Development Bank, Project Completion Review Mission .

83.    ICICI Bank loan (Loan 1761-IND). Overall, the ICICI Bank loan is rated “successful”,
as shown below.

                                Table 4: Overall Performance Assessment
    Criteria                          Weight (%)                  Rating Value                Weighted rating
    Relevance                            20                             2                          0.4
    Effectiveness                        30                             2                          0.6
    Efficiency                           30                             1                          0.3
    Sustainability                       20                             2                          0.4
                    a
            Overall                                                                                1.7
a
  Highly successful = 2.7; successful (S) 2.7 > S = 1.6; partly successful (PS) 1.6 > PS = 0.8; unsuccessful < 0.8.
Source: Asian Development Bank, Project Completion Review Mission .

G.         Impact

84.      National Housing Bank loan (Loan 1759-IND). A survey under the BME study
conducted by ADB for Part B(ii) of the NHB loan indicated that the subborrowers improved their
living conditions through doubling of per capita living space, and better water and toilet facilities.
There was, however, a decline in the sanitation facilities (waste collection and street cleaning),
possibly because many beneficiaries moved to the urban periphery, where such facilities are
inferior to those available in the main cities. The review mission conducted in April–May 2007
reported improvement in basic living conditions of sample beneficiaries in the three CFI
subprojects (Appendix 2). In the case of SML and SPMS, the beneficiaries also benefited from
CFI membership that included income generating activities.

85.       ICICI Bank loan (Loan 1761-IND). ICICI Bank carried out sample surveys 37 under part
B(i) for the HF II benefit impact assessment. The results of the sample survey submitted in 2004
indicate that the project beneficiaries’ living and economic conditions had improved primarily
due to more living space; new construction; and better facilities such as better quality and
supply of water, sanitation, health facilities, etc. However, in the cities of Mumbai and Indore,
the respondents’ commuting time to their places of work had increased. Nonetheless, the
majority of the beneficiaries reported they were satisfied, since it enabled them to own a
property under favorable living conditions. The results of the 2007 survey indicate that a majority
of the respondents rated various facilities such as water supply, electricity, sanitation, and
health as good or excellent, with about 25%-37% reporting improvement in the facilities
compared to where they previously lived. Overall, about 82% of the respondents reported

37
     The survey contained in the 2004 report comprised 151 subloans in the cities of Mumbai, Nasik and Indore. The
     survey in 2007 of the ICICI Bank home loan under the HF II project examined 55 subloans in Jaipur and Cochin.
20


satisfaction with the loan. ICICI Bank has so far not submitted BME reports under part A(i). The
field visits of various missions, however, supported the conclusions regarding improvement of
living conditions of beneficiaries.

H.         Lessons

86.      The existing procedures under NHB’s refinance operations are not suited for directing
credit to LIHs based on income criteria. Capacity development of NHB in terms of developing
refinancing guidelines and procedures that enable tracking of requisite information on end-
borrowers should precede any similar interventions in the future.

87.     Higher delinquency among the LIH segment, as reported by ICICI Bank, is likely to pose
a challenge to the future growth of the housing finance business for the LIH segment. In addition
to better credit norms, availability of products such as mortgage insurance and title insurance
would help in delinquency management.

88.       The establishment of linkages between the formal financial system and informal
institutions (i.e., CFIs and NGOs) is at an experimental stage for housing finance; this contrasts
with the current microfinance scenario for income generation and livelihood purposes, which
has a different purpose and product structure.38 However, CFIs and NGOs are an important
channel for reaching people without regular incomes and those in rural areas, and it would be
worthwhile to develop the capacity of these channels for housing finance. Direct lending by NHB
to CFIs and NGOs, albeit still small, constitutes an important activity. With direct experience in
this area, NHB may be well placed to address the constraints in lending through CFIs and
NGOs and create an enabling environment for increasing penetration of housing. ICICI Bank’s
Kudumbashree program demonstrated the partnership model for housing finance and led to
other banks entering the segment in Kerala. However, scalability and sustainability issues—
such as CDS capacity development and low rates of interest—still need to be addressed.

89.     To develop the housing finance market, including lending through CFIs and/or NGOs, it
is important that existing issues related to uncertainties in land titles be addressed. This would
involve, among others, reforms at the state level for conversion of presumptive titles to
conclusive titles, availability of information on land parcel maps and records of rights. ADB may
consider supporting activities in these areas.

I.         Recommendations

90.       NHB has a renewed focus on inclusive financial delivery for the housing sector, and
NHB management is of the view that studies need to be conducted in areas such as a risk
facility for second loss coverage and credit enhancement, a micro-securitization framework, title
insurance, housing microfinance, and a secured transactions registry. Furthermore, NHB plans
to support the housing finance operations of regional rural banks, use the public-private
partnership to promote housing projects to low income groups, and support housing policy
reforms at the state level. ADB may consider support to NHB in these areas with the following
caveats: (i) a realistic and effective monitoring and evaluation framework should be discussed
and agreed upon with NHB upfront; and (ii) given past experience, financial intermediation loan
modality should be used selectively, and the suitability of such a modality for achieving the
desired outcome should be carefully assessed.

38
     Microfinance loans for productive purposes are much smaller than loans for housing finance, and the loans are
     typically repayable within a year in weekly installments.
                                                                                           Appendix 1     21




                                        PROJECT FRAMEWORK

Design Summary                Targets                     Project Monitoring      Risks/ Assumptions
                                                          Mechanisms
1. Goal

Support human                 • Approximately             • Quarterly reports;    • The Government
development by                  270,000 h o u s i n g       annual reports and      continues to place a
increasing the availability     l o a n s benefiting        evaluations, loan       high priority on
and affordability of            over 1.3 million            documentation,          addressing the
housing finance to low-         people are disbursed        review missions.        housing finance needs
income households               through formal and                                  of LIHs and on
(LIHs).                         informal housing                                    promoting sectoral
                                finance institutions.                               policy reforms.

2. Purpose

Improve the living            • At least 270,000 LIHs     • Project completion    • The relationship
standards and quality of        obtain loans for home       report (PCR)            between the cost of
life of LIHs that lack          purchase or                                         Asian Development
access to affordable            improvement by Dec                                  Bank (ADB) funds and
credit for housing and          2006.                                               market interest rates
home-based, income-                                                                 results in financially
generating activities.                                                              viable lending
                                                                                    modalities.
                              • At least 14,000 LIHs      • PCR                   • Borrowers establish
                                obtain microcredit to                               and expand linkages
                                finance home                                        with financial
                                workplace                                           intermediaries to
                                improvements by                                     channel housing loans
                                Dec 2006.                                           to LIHs.

                              • At least five slum        • PCR                   • Housing and Urban
                                networking                                          Development
                                subprojects are                                     Corporation (HUDCO)
                                prepared and                                        improves its
                                financed by Dec                                     institutional capacity to
                                2007.                                               structure, appraise,
                                                                                    and manage
                                                                                    innovative housing
                                                                                    subprojects.
3. Outputs

3.1 Linkages                  • At least 49,000 loans     • HUDCO, Housing        • HUDCO, National
established between             totaling $40 million to     Development             Housing Bank (NHB),
housing finance                 LIHs are channeled          Finance Corporation     HDFC, and ICICI
institutions (HFIs) and         through CFIs and            (HDFC), and ICICI       establish appropriate
community-based                 NGOs.                       lending records and     CFI lending windows,
financial institutions                                      quarterly project       marketing strategies,
(CFIs) and                    • Approximately $20           reports, field          and disbursement
nongovernment                   million additional          evaluations, ADB        procedures to
organizations (NGOs) to         leveraging                  loan disbursement       increase lending to
onlend to LIHs.                 contributed by LIH          requests, review        CFIs.
22    Appendix 1



Design Summary              Targets                     Project Monitoring        Risks/ Assumptions
                                                        Mechanisms
                              beneficiaries.              missions.
                                                                                  • Adequate effective
                                                                                    demand and CFI
                                                                                    absorptive capacity
                                                                                    exists for housing
                                                                                    loans.
3.2 Linkages                • At least 46,000 loans     • HUDCO, HDFC, and        • HUDCO, HDFC, and
established between           totaling $75 million to     ICICI lending records     ICICI establish
HFIs and public and/or        LIHs are channeled          and quarterly project     appropriate lending
private enterprises to        through public/private      reports, field            windows, marketing
onlend to LIHs.               enterprises.                evaluations, ADB          strategies, and
                                                          loan disbursement         disbursement
                            • Approximately $38           requests, review          procedures to
                              million additional          missions.                 increase lending to
                              leveraging                                            public and private
                              contributed by LIH                                    enterprises.
                              beneficiaries.
                                                                                  • Public and private
                            • Approximately $15                                     enterprises willing and
                              million additional                                    able to support
                              leveraging                                            housing loan
                              contributed by                                        programs for
                              HUDCO, HDFC, and                                      employees.
                              ICICI.

3.3 Linkages                • At least 23,000 loans     • HUDCO, HDFC, and        • HUDCO, HDFC, and
established between           totaling $38 million to     ICICI lending records     ICICI establish
HFIs and state and/or         LIHs are channeled          and quarterly project     appropriate lending
local bodies to onlend to     through state and           reports, field            windows, marketing
LIHs.                         local bodies.               evaluations, ADB          strategies, and
                                                          loan disbursement         disbursement
                            • Approximately $18           requests, review          procedures to
                              million additional          missions.                 increase lending to
                              leveraging                                            state and local bodies.
                              contributed by LIH
                              beneficiaries.                                      • State and local bodies
                                                                                    willing and able to
                            • Approximately $8                                      support housing loan
                              million additional                                    programs.
                              leveraging
                              contributed by
                              HUDCO, HDFC, and
                              ICICI.
                                                                                            Appendix 1     23


Design Summary             Targets                      Project Monitoring         Risks/ Assumptions
                                                        Mechanisms
3.4 Innovative slum        • At least five slum         • HUDCO lending            • HUDCO develops
networking subprojects       networking                   records and quarterly      capacity to structure,
are prepared, financed,      subprojects totaling         project reports, field     appraise, and finance
and implemented              $10 million are              evaluations, ADB           slum networking
                             prepared, financed,          loan disbursement          subprojects.
                             and implemented.             requests, review
                                                          missions.                • Grant sources of
                           • Approximately $5                                        financing are identified
                             million additional                                      to supplement loan
                             leveraging                                              funds.
                             contributed by slum
                             dwellers as well as                                   • Sustainable
                             municipal authorities                                   partnerships are
                             and private                                             established among
                             enterprises.                                            communities, CFIs,
                                                                                     NGOs, and local
                                                                                     authorities.

3.5 Microcredit            • A total of $5 million is   • HUDCO lending            • HUDCO establishes
programs are                 channeled through            records and quarterly      partnerships and
established to support        worker cooperatives         project reports, field     lending cooperatives
home workplace lending.       to onlend to LIHs for       evaluations, ADB           and societies.
                              improvements to             loan disbursement
                              home workplaces,            requests, review         • Grant sources of
                             resulting in a               missions.                  financing are identified
                             minimum of 10                                           to supplement loan
                             subprojects.                                            funds.

                           • Approximately $3
                              million additional
                             leveraging
                             contributed by LIH
                             beneficiaries as
                              well as cooperatives
                              and government.
3.6 HFI lending directly   • At least 65,000 loans      • HUDCO, HDFC, and         • HUDCO, HDFC, and
to LIH is increased and      totaling $144 million        ICICI lending records      ICICI commit to
sustained.                   are directly                 and quarterly project      expanding direct
                             channeled to LIHs by         reports, field             lending to LIHs.
                             HFIs.                        evaluations, ADB
                                                          loan disbursement        • Appropriate screening
                           • Approximately $72            requests, review           criteria and lending
                             million additional           missions.                  procedures are in
                             leveraging by LIH                                       place to ensure that
                             beneficiaries.                                          housing loans are
                                                                                     directed to LIHs.
24    Appendix 1



Design Summary             Targets                    Project Monitoring         Risks/ Assumptions
                                                      Mechanisms
3.7 Refinancing            • Approximately $29        • NHB refinancing          • NHB develops
provided for HFI lending     million equity             records and quarterly       appropriate
to LIHs.                     contribution by HFIs.      project reports, field      refinancing
                                                        evaluations, ADB            guidelines and
                           • At least 27,000 loans      loan disbursement           procedures to ensure
                             to LIHs totaling $50       requests, review           that only loans to LIHs
                             million are refinanced     missions.                  are refinanced.
                             by NHB.
                                                                                 • NHB operationalizes
                           • At least $8 million is                                its refinancing
                             used to refinance                                     program for HFC
                             HFC lending to CFIs.                                  lending to CFIs.

                           • Approximately $10
                             million equity is
                             contributed by NHB.
4. Activities
                                                      • HUDCO, HDFC, and         • HUDCO, HDFC, and
4.1 Linkages                                            ICICI lending records      ICICI develop
established between                                     and quarterly project      sufficient
HFIs and CFIs and/or                                    reports, field             in-house capacity,
NGOs to onlend to LIHs.                                 evaluations, ADB           expertise, and
                                                        loan disbursement          commitment for CFI
                                                        requests, review           lending.
                                                        missions.
• CFI lending windows      Start: Jan 2001.                                      • Lending to CFIs is
  operationalized and      Complete: July 2001.                                    financially viable given
  marketed to CFIs         Responsibility:                                         cost of ADB funds vis-
                           HUDCO,                                                  à-vis domestic sources
                           HDFC, and ICICI.                                        of capital.

• Appropriate CFI rating   Start: Jan 2001.
  criteria and lending     Complete: July 2001.
  procedures               Responsibility:
  developed.               HUDCO,
                           HDFC, and ICICI.
                                                                                 • HUDCO, HDFC, and
4.2 Linkages                                                                       ICICI develop
established between                                   • HUDCO, HDFC, and           sufficient in-house
HFIs and public and/or                                  ICICI lending records      capacity, expertise,
private enterprises to                                  and quarterly project      and commitment for
onlend to LIHs:                                         reports, field             lending to public and
                                                        evaluations, ADB           private enterprises.
• Lending program          Start: Jan 2001.             loan disbursement
  marketed to public and   Complete: July 2001.         requests, review
  private enterprises      Responsibility:              missions.
                           HUDCO,
                           HDFC, and ICICI.
                                                                                 • Lending to public and
• Participation criteria   Start: Jan 2001.                                        private enterprises is
  and appropriate          Complete: July 2001.                                    financially viable given
  lending, monitoring,     Responsibility:                                         cost of ADB funds vis
  and reporting            HUDCO,                                                  à-vis domestic
                                                                                        Appendix 1      25


Design Summary              Targets                 Project Monitoring         Risks/ Assumptions
                                                    Mechanisms
  procedures                HDFC, and ICICI.                                     sources of capital.
  developed.

                                                                               • HUDCO, HDFC, and
4.3 Linkages                                                                     ICICI develop
established between                                                              sufficient in-house
HFIs and state and/or                                                            capacity, expertise,
local bodies to onlend to                                                        and commitment for
LIHs:                                                                            lending to state and
                                                    • HUDCO, HDFC, and
                                                                                 local bodies.
• Lending program           Start: Jan 2001.
                                                      ICICI lending records
  marketed to state and                               and quarterly project
                            Complete: July 2001.
                                                      reports, field           • Lending to state and
  local bodies              Responsibility:
                                                      evaluations, ADB           local bodies is
                            HUDCO, HDFC, and                                     financially viable given
                                                      loan disbursement
                            ICICI.                                               cost of ADB funds vis
                                                      requests, review
                                                      missions.                  à-vis domestic
                                                                                 sources of capital.
• Participation criteria    Start: Jan 2001.
  and appropriate           Complete: July 2001.
  lending, monitoring,      Responsibility:
  and reporting             HUDCO,
  procedures developed      HDFC, and ICICI
                                                                               • HUDCO develops
4.4 Innovative slum                                 • HUDCO lending              sufficient in-house
networking subprojects                                records                    capacity, expertise,
are prepared, financed,                               and quarterly project      and commitment to
and implemented:                                      reports, field             prepare, finance, and
                                                      evaluations, ADB           implement slum
                                                      loan disbursement          networking
                                                      requests, review           subprojects.
                                                      missions.
                                                                               • Grant funds are
• HUDCO works with          Start: Jan 2001.                                     available from
  CFIs, municipal           Complete: Jan 2005.                                  government programs,
  authorities, private      Responsibility: HUDCO                                bilateral funding
  enterprises, and slum                                                          agencies, and private
  communities to                                                                 sector sources.
  structure viable
  subprojects.

• Appropriate               Start: Jan 2001.
   mechanisms in place      Complete: Jan 2005.
   to ensure community      Responsibility: HUDCO
   participation from
   subproject design
   through
   implementation.
4.5 Microcredit                                     • HUDCO lending            • HUDCO develops
programs are                                          records and quarterly      sufficient in-house
established to support                                project reports, field     capacity, expertise,
home workplace                                        evaluations, ADB           and commitment to
lending:                                              loan disbursement          partner with worker
                                                      requests, review           cooperatives for
                                                      missions.                  microcredit lending.
26    Appendix 1



Design Summary             Targets                  Project Monitoring         Risks/ Assumptions
                                                    Mechanisms

• HUDCO establishes        Start: Jan 2001.                                    • Grant funds are
   partnerships with       Complete: Jan 2005.                                   available from
   worker cooperatives     Responsibility: HUDCO                                 government programs,
   and develops                                                                  bilateral funding
   appropriate lending                                                           agencies, and private
   guidelines,                                                                   sector sources.
   procedures, and
   monitoring systems.
4.6 HFI lending directly                            • HUDCO, HDFC, and         • HUDCO, HDFC, and
to LIHs is increased                                  ICICI lending records      ICICI develop
and sustained:                                        and quarterly project      sufficient in-house
                                                      reports, field             capacity, expertise,
• Institutional            Start: Jan 2001.           evaluations, ADB           and commitment to
  commitment to            Complete: July 2001.       loan disbursement          increase direct
  marketing and            Responsibility: HUDCO,     requests, review           lending to LIHs.
  expanding lending to     HDFC, and ICICI.           missions.
  LIHs.                                                                        • Lending to LIHs is
                                                                                 financially viable
• Appropriate criteria     Start: Jan 2001.                                      given cost of ADB
  established to screen    Complete: July 2001.                                  funds vis-à-vis
  borrowers and            Responsibility: HUDCO,                                domestic sources of
  minimize credit risk.    HDFC, and ICICI.                                      capital.
• Reporting systems
  developed to             Start: Jan 2001.
  document borrower        Complete: July 2001.
  incomes, loan sizes,     Responsibility: HUDCO,
  house location,          HDFC, and ICICI.
  collateral, etc.

4.7 Refinancing                                                                • NHB develops
provided for HFI lending                            • NHB refinancing            sufficient in-house
to LIHs:                                              records and quarterly      capacity, expertise,
                                                      project reports, field     and commitment to
• Procedures and           Start: Jan 2001.           evaluations, ADB           refinancing HFI
  systems established      Complete: July 2001.       loan disbursement          loans to LIHs.
  to facilitate timely     Responsibility: NHB.       requests, review         • NHB develops
  refinancing of HFI                                  missions.                  sufficient in-house
  lending to LIHs.                                                               capacity, expertise,
                           Start: Jan 2001.                                      and commitment to
• Reporting                                                                      refinancing HFI
  requirements             Complete: July 2001.
                           Responsibility: NHB.                                  loans to CFIs.
  developed to ensure
  that only LIH loans                                                          • Refinancing is
  are refinanced.                                                                financially viable
                           Start: Jan 2001.                                      given cost of ADB
• Refinancing window                                                             funds vis-à-vis
  for HFI lending to       Complete: July 2001.
                           Responsibility: NHB.                                  domestic sources of
  CFIs operationalized.                                                          capital.
                                                                                             Appendix 1     27


 Design Summary              Targets                     Project Monitoring         Risks/ Assumptions
                                                         Mechanisms
 5. Inputs
 5.1 Financial

                                                        • HUDCO, NHB,               • Borrowing
 • ADB Loan                  $300 million                                             institutions comply
 • Beneficiary               $146 million                 HDFC,
                                                          and ICICI lending           with ADB financial
   contribution                                                                       guidelines and
                                                          records and quarterly
 • HUDCO contribution        $21   million                                            procedures to
                             $10   million                project reports; field
 • NHB contribution                                                                   account for the
                             $20   million                evaluations; ADB
 • HDFC contribution                                      loan disbursement           sources and uses of
 • ICICI contribution        $20   million                                            funds, and to
                                                          requests; review
                                                          missions; PCR.              monitor project
                                                                                      impacts and
                                                                                      benefits.
 5.2 Capacity Building

 • TA provided to            Start: Jan 2001.           • TA progress reports;     • Qualified consultants
   expand lending to         Complete: Jan 2005.          review missions.           are recruited;
   CFIs and NGOs, to         Institutional Focus:                                    counterpart
   structure slum            HUDCO and NHB.                                          commitment and
   networking                                                                        contributions are
   subprojects, and to                                                               realized.
   examine how
   mortgage
   securitization can
   expand the domestic
   capital market for
   housing finance.
Source: ADB. 2000. Report and Recommendation of the President to the Board of Directors on Four Proposed Loans
to the Housing and Urban Development Corporation, National Housing Bank, Housing Development Finance
Corporation, and ICICI for the Housing Finance II Project in India. Manila.
28     Appendix 2



              COMMUNITY-BASED FINANCIAL INSTITUTION AND NON-GOVERNMENT
                         ORGANIZATION SUBPROJECT PROFILES

A.        National Housing Bank Loan (Loan 1759-IND)

         1.         Share Microfin Limited

                    a.      Scope of operations

1.       Share Microfin Limited (SML) is a microfinance institution that began operations in
January 2000 with the objective of providing financial services to the poor. It provides financial
and other support services to 1.3 million poor women living in rural areas. SML has a network of
462 branches across 10 states with a staff of 3,022 (as of 31 March 2008). Based on specific
criteria, including an income ceiling of Rs350 per month, women are formed into groups of five
called a joint liability group (JLG). SML provides JLG members small value (up to Rs15,000),
collateral-free loans. These members have the opportunity to increase their incomes with
assistance provided by SML for planning income-earning activities, loans, savings avenues, etc.
SML provides housing loans only to members who have gone through loan cycles and reached
an income-earning capacity of about Rs2,500-3,000 per month. However, the housing finance
activities of SML remain very small. SML also provides training to empower JLG members to
make decisions on group liability, selection of income-earning activity, etc. It seeks to help
women build productive microenterprises, thereby contributing to the development of
sustainable communities.

                    b.      Details of Subloan

2.      The Housing Finance II Project (HF II) 1 supported SML under two loans: the National
Housing Bank (NHB) loan and ICICI Bank Limited (ICICI Bank) loan. 2 Under the NHB loan, in
April 2005 3 NHB extended a loan of Rs3.8 million ($83,712) to SML for repairs and renovation of
the existing houses of 307 poor women who were senior eligible members of the JLGs in
various parts of Andhra Pradesh.

3.      Under HF II the maturity of SML loans to members was 1 year, while the maturity of the
loan from NHB to SML was 5 years. The interest rate on the loan from NHB to SML is 7% per
annum (fixed with 3 years reset clause), while SML can onlend the funds to its members at a
rate not exceeding 13%. The loan from NHB to SML is secured by a charge created in a
manner and to the satisfaction of NHB, over SML book debts created out of the aforementioned
financial assistance.

                    c.     Financial Viability

4.                                r
       SML sources its funds f om a few commercial banks and financial institutions, but is
looking to further expand its resource base. SML’s strength in terms of its outreach and
excellent financial track record can be leveraged to provide inclusive financial services to the
1
    ADB. 2000. Report And Recommendation of the President to the Board of Directors on Four Proposed Loans to
    the Housing and Urban Development Corporation, National Housing Bank, Housing Development Finance
    Corporation, and ICICI for the Housing Finance II Project in India. Manila.
2
    Loans 1759-IND and 1761-IND, respectively.
3
    ADB retroactively approved the subloan to SML in June 2007 and reallocated the amount from housing finance
    institution (HFI) loan refinancing—part B(ii)—to lending through community-based financial institutions (CFIs) and
    non-government organizations (NGOs)—part A(i).
                                                                                                Appendix 2     29


poor. The gross loan portfolio of SML increased from $3.5 million in 2001 to $91.7 million in
2007, while its return on equity increased by approximately 12% during the same period.
However, SML is constrained by issues of acceptable collateral in providing loans of longer
tenors.

5.     Regarding repayment performance, SML reported 100% recovery of the SML loan under
HF II from its members. NHB did not provide confirmation of recycling of repayments as
envisaged under HF II to the project completion review mission.

                  d.       Impact

6.      The review mission (conducted intermittently in April–May 2007) observed that the
economic profile of beneficiaries matched that targeted under the loan. Further, the review
mission also noted that subsequent to their membership with SML, members reported benefits
such as (i) a steady and improved income-stream, (ii) small savings in post office and life
insurance, (iii) a reduction in the school dropout rate of their children, (iv) emotional support
from male members, and (v) improved self-confidence and unity among the residents. In
addition, the members benefited from the subproject assistance because it enabled them to
obtain loans with lower interest rates than were available from alternate informal sources (i.e.,
private money lenders).

          2.      Sri Padmavathy Mahila Abyudaya Sangam

                  a.       Scope of operations

7.      Sri Padmavathy Mahila Abyudaya Sangam (SPMS) is a federation of women self help
groups (SHGs) managed by its members and assisted by Dhan Foundation, a non-government
organization (NGO). It provides a comprehensive range of services such as technical support
for construction, community organization, insurance schemes, training, and health and income-
generation schemes for low-income groups. It has a membership of more than 9,500 women
organized into 778 SHGs. Members are women slum dwellers with incomes ranging from
Rs3,000 to Rs6,000. SPMS’s criteria for granting housing loans 4 are set at two levels, for SHGs
and SHG members. SHGs must have healthy operational processes, a repayment track-record
and good governance. The commitment of members is ensured through requirements
specifying a minimum period of membership, a history of regular savings, regular attendance at
group meetings and rights to land tenure.
                  b.       Details of Subloan

8.     Under the NHB loan, in August 2004, 5 NHB extended a loan of Rs4.4 million ($95,524)
to SPMS to partly meet construction costs of new dwelling units for 122 members. The
beneficiaries belonged to SHGs located in the slums under the Tirupati Urban Development
Authority. The individual members constructed their own house on plots they owned, following a
design proposed by SPMS in consultation with the members.
9.                   h
        Under HF II t e maturity of the loan from NHB to SPMS is 15 years, whereas the
individual members repay to the SHGs on a monthly basis over a period of 12 years. The loan
from NHB to SPMS carries an interest rate of 6.5% (fixed with a 3-year reset clause), and is
4
    Housing finance loans comprised about 47% of the overall loan portfolio of SPMS in 2007. However, the project
    completion review m ission could not obtain growth figures for the housing finance portfolio during 2001–2007.
5
    ADB retroactively approved the subloan to SPMS in June 2007 and reallocated the amount from HFI loan
    refinancing—part B(ii)—to lending through CFIs and NGOs—part A(i).
30     Appendix 2



                                         an
backed by security of Dharakasthu patta ( applicable land document evidencing rights to
occupation)6 provided by the state urban planning authority. As per the project proposal
submitted by SPMS to NHB, SPMS proposed to onlend to SHGs at 9%–10% per annum, who
would further lend to their members at 12% per annum, as per their norms. The project
completion review mission was informed that the actual end-borrower rates on SPMS loans is
15% on a reducing balance basis.

                    c.     Financial viability

10. Apart from the loan from NHB, SPMS has been mobilizing funds in the form of loans from
institutions including HDFC, HUDCO and the Rabobank foundation (the Netherlands) in order to
meet the credit requirement of its SHGs. During 2007–2008, SPMS borrowed Rs1.3 million from
the National Bank for Agriculture and Rural Development and Rs.1.0 million from Kalanjiam
Development Financial Services.

11.      The review mission conducted in April–May 2007 observed that SPMS managed the
debt servicing schedule of its members within the scheduled timeframe of NHB and regularly
met its obligations to NHB. NHB confirmed to the project completion review mission that the
debt-servicing performance of SPMS to NHB was 100%. The current status of repayment
collection from SPMS members to SHGs is 95%, and from SHGs to SPMS is 100%.

                    d.     Impact

12.    The project completion review mission observed that the beneficiaries moved from
temporary to permanent housing structures with the help of the loan from NHB. In addition,
some members also benefited from additions to their productive income-earning assets (e.g., in
a random sample from the Jeevakona cluster office, two households were renting out house
extensions for use as shops).

           3.       SPARC Samudaya Nirman Sahayak

                    a.     Scope of Operations

13.     The Society for Promotion of Area Resource Centre (SPARC) was founded in 1984 as a
trust by a group of professionals with work experience in welfare-oriented NGOs. It is involved in
a number of community development programmes for housing, transit, and infrastructure
projects in about 50 towns and cities across India. SPARC works in alliance with the National
                              an
Slum Dwellers Federation ( association of slum dwellers in various localities) and Mahila
Milan (a collective of microcredit and savings groups active in slum localities). Within this
alliance, SPARC designs and develops strategies to enable its partners to undertake
administrative tasks and mobilize funds for its work.

14.     SPARC Samudaya Nirman Sahayak (SSNS) is a non-profit construction company set up
by SPARC and the federations to assist poor communities. It was created in 1998 to manage
formal issues (e.g., financial and technical assistance) related to construction. SSNS aims to
develop new strategies to enable the poor to access affordable housing and infrastructure. The
federations along with SPARC negotiate for land and support the local communities to manage
6
    The Government of Andhra Pradesh allowed mortgaging of plots of land by SHG members for the purpose of
    obtaining housing loans from financial institutions, enabling borrowers to create an equitable mortgage as
    collateral or security in favor of SPMS. These mortgages are in turn to be charged to NHB by declaration under
    Section 16 A of the NHB Act, 1987.
                                                                                                      Appendix 2     31


and participate in construction.

                     b.      Details of Subloan

15.     Under the NHB loan, in April 2004, 7 NHB extended a loan of Rs27.6 million ($602,745)
to SSNS towards meeting the partial cost of construction of 147 tenements free of cost, and
development of additional flats (2,787 square meters) and commercial units (159 square
meters) for free sale at Dharavi, Mumbai. The member families of the Bharat Janata Colony
were living in pucca8 and semi-pucca structures erected on land owned by Mumbai Municipal
Corporation. The member families formed a cooperative housing society, Bharat Janata
Cooperative Society, to acquire permanent structures free of cost, along with leasehold title to
property under the slum rehabilitation scheme. The subproject comprised construction of five
seven-story buildings, including three buildings for rehabilitation of 147 existing slum-dwellers
under the Slum Rehabilitation Act (SRA).9 The remaining two buildings, consisting of 50
residential tenements and five shops, formed the commercial component intended for sale in
the market to nearby residents. The cost of construction was to be recovered by the sale of the
two buildings and transfer of development rights granted by the State Slum Rehabilitation
Authority.
16.     The subproject is currently under implementation. The rehabilitation buildings have been
completed and beneficiaries have occupied their homes. The work relating to the commercial
component will be taken up after the Maharashtra government finalizes its policy regarding
resettlement of slum dwellers in Dharavi.
17.    The loan by NHB to SSNS carried an interest rate of 6.5% (fixed with a 3-year reset
clause), with a bullet repayment at the end of 5 years. The loan is secured by lien noted in the
records of Slum Rehabilitation Authority on the transferable development rights (TDRs)10 and
the free sale construction. NHB’s loan disbursements to SSNS are routed through a dedicated
escrow account with a commercial bank to account for project funds and ensure appropriate
end use and a recovery mechanism.
                    c.       Financial Viability

18.        The project completion review mission could not obtain financial data for SSNS.
                    d.       Impact

19.     The rehabilitation part of the subproject was completed successfully and all the
beneficiaries had shifted to the new dwellings before the review mission in April–May 2007.
According to the review mission, the b   eneficiaries of the NHB subloan perceived that the
positive impacts included: (i) acquisition of permanent structures with attached kitchen,
bathroom, their own water supply and independent toilet facilities; (ii) improvements in sanitation
and drainage conditions, with no stagnant water present inside the structures during the
monsoon; (iii) a greater sense of security in the buildings, which have a proper entrance, and


7
                                                    t
     ADB retroactively approved the subloan o SSNS in June 2007 and reallocated the amount from HFI loan
     refinancing—part B(ii)—to lending through CFIs and NGOs—part A(i).
8
     A pucca house is one, which has walls made of burnt bricks, stones , cement concrete, timber, etc. and roof made
     of tiles, galvanised corrugated iron sheets, asbestos cement sheet, reinforced brick concrete, reinforced cement
     concrete, timber, etc.
9
     According to the SRA, any agency that constructs tenements of rehabilitated slum -dwellers in Dharavi is entitled to
     receive 1.33 times the constructed area for sale in the market, to enable recovery of the project cost.
10
     In addition to the area for free sale, 2,454 square meters of TDRs were generated to be disposed off by SSNS.
32      Appendix 2



gates that can be locked; (iv) privacy for families, especially women; and (v) better overall living
conditions and quality of life for slum-dwelling families.
20.    Benefits notwithstanding, beneficiaries, particularly large families, were constrained by
the small size of the living space available in the permanent structures. In addition, the
unhealthy surrounding environment of the Dharavi slums, the poor approach road and
community toilets in front of the buildings were noted as problems.

B.         ICICI Bank Loan (Loan 1761-IND)

          1.         Share Microfin Limited11

                     a.      Details of Subloan

21.      ADB assisted Share Microfin Limited (SML) under both the NHB and ICICI Bank loans.
Under the latter, ICICI Bank extended a loan of Rs19.77 million ($454,692) in June 2005,
covering 2,830 female subborrowers. ICICI Bank and SML formed a partnership 12 for extension
of housing finance directly to the microfinance clients organized by SML. The security for this
loan is the mutual guarantee given by the beneficiary groups and a first default liability
guarantee given by SML to ICICI Bank, amounting to around 8% of the outstanding loan
portfolio.

22.     Housing loans are repayable in 52 weekly installments along with a flat rate of interest of
15% per annum over a period of 1 year by SML members. ICICI Bank charges SML 8.75% per
annum. The income of SML is the difference between 15% and 8.75%, out of which the loan
administration costs are met. Further, SML collects weekly repayments from its members and
remits funds to ICICI Bank on a monthly basis.

                     b.    Financial Viability

23.    At the time of the review mission (April–May 2007), SML reported that all the
beneficiaries had fully repaid the ICICI Bank subloan. ICICI Bank did not provide any updated
information on the recycling of repayments as envisaged under the project and the repayment
performance of the end-borrowers.

          2.         Kudumbashree, Kerala

                     a.      Scope of Operations

24.     Kudumbashree is a state-level poverty reduction program launched by the Kerala
government in 1998. It is designed as a state–community partnership, wherein poor women are
organized as a SHG for income generation activities, community health, education, and thrift,
among other purposes. Kudumbashree functions under a three-tiered structure. At the lowest
level are the neighborhood groups (NHGs), constituted of 15–40 poor women. About 8–15
NHGs are federated at ward levels into area development societies (ADSs), which are federated


11
     Refer to paras.1, 4, and 6 for details regarding the scope of operations, financial aspects of the institution and
     impact of the SML loan.
12
     ICICI Bank disbursements to SML are held in a bank account, and then disbursed by SML to individual
     beneficiaries on behalf of ICICI Bank. ICICI Bank records each individual subloan as a direct loan, and not a loan
     to SML.
                                                                                                          Appendix 2      33


at the Panchayat level. These ADSs are further federated into a community development
society (CDS), which is a registered society under the Charitable Societies Act.

25.      There are 991 CDSs, 16,000 ADSs, and 185,000 NHGs covering about 3.65 million
families. The cumulative financial assistance availed by NHG members from financial
institutions as of 31 March 2008 was Linkage Banking: Rs5,540.6 million; Housing Scheme
(Bhavanashree): Rs1,862.2 million; and Micro enterprise: Rs300.0 million.

                     b.       Details of Subloans

26.    ICICI Bank’s subloans are channeled to poor female members of Kudumbashree by
leveraging the community–state partnership structure. Under HF II, the approved subproject
was for Rs350 million (approximately $7.93 million equivalent) towards ICICI Bank’s subloans to
145 community development societies (CDSs) organized under the Kudumbashree program.13

27.     The CDS is the subborrower on record, and in effect acts as a channeling agency to
transfer the loans to ultimate beneficiaries. The loans are intended for new construction or
repairs of existing houses. The maximum loan amount to the CDS borrower is Rs50,000, or
95% of the project cost, whichever is lower. The loan has a tenor of 10 years inclusive of a 6-
month moratorium. The loan is disbursed to the CDS with a guarantee from individual CDS
borrowers. The title deed of each guarantor is collected by the CDS and mortgaged to ICICI
Bank. The CDS borrower and the house that is constructed are insured. The facility to the CDS
is additionally secured by a charge on the receivables from the CDS beneficiaries. The interest
rate on the loans was initially 7.25%, set in consultation with the Kerala government, and later
revised to 8.75% (applicable to about 20% of the loans). The subloans covered rural areas in all
14 districts of Kerala, benefiting 7,900 households and 31,000 members.

28.      Under HF II, the monthly household incomes of beneficiaries was set at less than
Rs7,300. The CDS members are poor women employed predominantly in agricultural and allied
activities with no documentary record of actual income. However, Kudumbashree program’s
nine-point criteria 14 for eligibility indicate that the members would fall well below the income limit
of HF II. ICICI Bank’s selection criteria for individuals include (i) NHG, ADS and CDS
recommendations; (ii) completion of at least 6 months of NHG activity; (iii) ownership of land
with an area of at least 60.7 square meters (1.5 cents); (iv) age between 18–50 years; and (v)
possession of clear and marketable title deed.

                     c.       Financial Viability

29.     ICICI Bank has a robust system for scrutinizing loan applications for conformity to the
established loan parameters. Any deviations are recorded for approval at the delegated level.
Because ICICI Bank’s borrower on record is the CDS (and not its members), accounting
information at the CDS level is integrated into the formal accounting system. At present, manual

13
     ICICI Bank’s total outstanding assistance under the Kudumbashree program as of 31 March 2008 included a
     housing loan (Rs 363.33 million), income generation loan (Rs2.63 million), and term loan (Rs 6.88 million).
14
     A family is identified as an LIH if it meets any four of the following nine criteria: (i) owns no land or less than 404.7
     square meters (10 cents) of land; (ii) does not have a house or has a dilapidated house; (iii) does not have a
     sanitary latrine; (iv) lacks access to safe drinking water within 300 meters; (v) is a household headed by a women,
     or includes a widow, divorcee, abandoned women or unwed mother; (vi) no one in the family is regularly
     employed; (vii) the family belongs to a socially disadvantaged group (scheduled caste and/or tribe); (viii) the family
     includes a mentally or physically challenged, or chronically ill member; or (ix) the family has an illiterate adult
     member.
34   Appendix 2



records of individual-level data are kept by the CDS, and record keeping varies across the
CDSs. ICICI Bank is currently in the process of establishing systems and databases for tracking
individual-level data and bringing record keeping into uniformity across the CDSs.

30.    Each CDS is responsible for identifying NHGs and borrowers, undertaking loan
documentation, facilitating disbursement, monitoring, and loan repayment, with each CDS
repaying ICICI Bank to the extent monies are received from beneficiaries. Delays occur at times
due to the specific circumstances of the beneficiaries. ICICI Bank’s overall housing portfolio to
Kudumbashree, with Rs363.33 million outstanding as of 31 March 2008, had total overdues of
Rs21.71 million.

31.     Financial management of the subproject by ICICI Bank is sound and adequate.
However, CDSs lack structured formats or institutionalized frameworks to ensure sound
financial management and monitoring of repayment performance over a 10-year repayment
period. Also, the current portfolio is small enough for supervisors in CDSs to have firsthand
knowledge and control over subloan performance. For a larger portfolio over a longer
timeframe, CDS capacity with respect to financial management, internal control, and monitoring
of recovery performance needs to be strengthened. Based on the suggestions by the review
mission conducted in December 2006 on the need for capacity enhancement of CDSs, ICICI
Bank has undertaken some steps such as training of field executives for assisting CDSs with
management, and training of selected CDS officials, and has further initiated steps for better
CDS bookkeeping systems.

                  d.   Impact

32.    Field visits to a sample of beneficiaries indicated they had constructed new houses or
renovated and extended existing houses, which suggested an improvement in living conditions.
However, one beneficiary was delinquent and mentioned that her obligation under the loan was
proving to be an excessive financial burden for the family.

33.    The linkage between ICICI Bank and the Kudumbashree program has contributed to
capacity building of the CDSs. ADB played an important role by providing useful inputs and
feedback to ICICI Bank on the need for capacity building.
                                                                                    Appendix 3   35


             DETAILS OF REFINANCE AND DIRECT FINANCE UNDER THE PROJECT

A.          Housing Finance II Project, National Housing Bank Loan (Loan 1759-IND)

               Table A3.1: Housing Finance Companies Refinanced under Part B(ii)

         Name of the Housing Finance                 Asian           Equivalent $ Amounta
         Company                               Development Bank           ($ million)
                                                 Loan amount
                                                  (Rs million)
         Bank of Baroda Housing Finance Ltd         26.90                         0.59
         Cent Bank Housing Finance Ltd              46.56                         1.02
         CanFin Homes Finance Ltd                   34.35                         0.75
         CorpBank Homes Finance Ltd                  2.83                         0.06
         Dewan Housing Finance                      27.03                         0.59
         Gruh Homes Finance Ltd                      3.34                         0.00
         LIC Housing Finance Ltd                    96.48                         2.11
         PNB Housing Finance Ltd.                   26.60                         0.58
         ViBank                                      2.20                         0.05
         Weizmann Homes Ltd                         11.70                         0.26
         DHFL–Vysya                                  6.79                         0.15
         Total                                     284.79                         6.22
     a
      1$ = Rs45.80.
     Source: National Housing Bank.

B.          Housing Finance II Project, ICICI Bank Limited Loan (Loan 1761-IND)

                        Table A3.2: Terms of Lending under Parts A(ii) and B(i)

         Percent lent as fixed and floating
         Type                                                        Percent of subloans
         Fixed                                                                  2.50
         Floating                                                             97.50
         Rate of interest of subloansa
         Rate of interest                                            Percent of subloans
         Below 9%                                                               6
         Above 9% and below 11%                                               10
         Above 11% and below 13%                                              59
         Above 13%                                                            25
         Tenure of the subloansb
         Tenor                                                       Percent of subloans
         <100 months                                                          10
         100–200 months                                                       29
         200–300 months                                                       27
         300–400 months                                                       33
         >400 months                                                            1
     a
      As of May 2008.
     b
      This includes revisions till May 2008.
     Source: ICICI Bank Limited.
36     Appendix 3




           Table A3.3: Income Distribution of Subborrowers under Parts A(ii) and B(i)

      Income (Rs per month)                                   Percent of subborrowers
      < 5,000                                                             0
      5,000–6,000                                                        26
      6,000–7,000                                                        40
      7,000–8,000                                                        32
      >8,000                                                              2
     Source: ICICI Bank Limited.

        Table A3.4: Geographical Distribution of the Subloans under Parts A(ii) and B(i)

      State                                                      Percent of subloans
      Andhra Pradesh                                                    4.70
      Gujarat                                                          15.83
      Karnataka                                                         2.64
      Kerala                                                            6.03
      Madhya Pradesh                                                   11.31
      Maharashtra                                                      29.15
      Punjab                                                            3.97
      Rajasthan                                                         3.45
      Tamil Nadu                                                        5.55
      Uttar Pradesh                                                     9.15
      West Bengal                                                       6.43
      Others                                                            1.80
 Source: ICICI Bank Limited.
                                                                                      Appendix 4   37


                           POLICY AND INSTITUTIONAL ACTION PLAN

A.      Housing Finance II Project, National Housing Bank Loan (Loan 1759-IND)

            Table A4.1: Status of Policy and Institutional Action Plan Relevant to
                                 the National Housing Bank

       Policy                      Action needed                                Status
     objective
 Strengthening        Expand refinancing window for HFC NHB’s CFI refinance window
 linkages             lending to CFIs and streamline refinancing did not elicit any proposals from
 between formal       operations                                 HFCs. NHB therefore started
 and       informal                                              direct lending to CFIs and
 sectors                                                         NGOs.
  Raise               NHB must prepare a time-bound action NHB               reports        corporate
  corporate           plan to adopt and implement corporate governance matters through its
  governance          governance provisions regarding board published annual report and
  standards for       composition, the establishment of an accounts. The report indicates
  public              independent audit committee, a board that its board of directors meets
  institutions        remuneration committee, accounting and regularly as stipulated in the
                      financial    reporting,  and     corporate governing statute. It has
                      governance compliance reporting as part constituted an audit committee
                      of its annual report.                      comprising            non-executive
                                                                 directors and an executive
                                                                 committee, which also meets
                                                                 regularly. The board has also
                                                                 constituted a risk management
                                                                 advisory committee, comprising
                                                                 its chairman, senior staff and
                                                                 external experts.
 Implement            The working committee of NHB shall have NHB Act was amended in 2000,
 foreclosure          submitted a final report to NHB by 31 and provides for appointment of
 regulations and      March 2002 on (a) procedures for recovery                    officers       and
 provisions           mortgagee power of sale without procedures for the recovery of
                      intervention of courts; (b) procedures, housing         loan      dues     from
                      administrative support, funding and defaulting             borrowers.       The
                      powers of Housing Finance Institution Housing Finance Institutions
                      Debt Recovery Appellate tribunals; and (c) Debt       Recovery        Appellate
                      preservation of mortgage power of sale Tribunal            (Financial       and
                      without court intervention given judicial Administrative Power) Rules,
                      review.                                    2002, were notified through the
                                                                 Government’s notification dated
                      NHB Board shall have approved the Draft 7 May 2002. The Securitisation
                      Regulations by 31 July 2002.               and Reconstruction of Financial
                                                                 Assets and Enforcement of
                      NHB shall have submitted the Draft Security Interest Act 2002 was
                      Regulations for notification by 31 Dec enacted and provides for easy
                      2002                                       procedures relating to mortgage
                                                                 foreclosure. NHB is of the view
                                                                 that the Securitisation Act
                                                                 facilitates mortgage foreclosure
38      Appendix 4



        Policy                          Action needed                                       Status
       objective
                                                                             by HFIs; NHB is consequently
                                                                             not pursuing establishment of
                                                                             debt recovery tribunals for
                                                                             HFCs, as per the amended
                                                                             NHB Act provisions.
    Improve             NHB shall, in cooperation with ICICI                 NHB has complied with this
    mortgage            Limited, have taken all necessary                    covenant      in      principle    by
    registration        measures satisfactory to ADB for the                 facilitating the establishment
    system              establishment of a working group on                  and participation in the working
                        mortgage registration. The working group             group.      The       draft    report
                        shall have submitted to the guarantor its            prepared by the working group
                        recommendations by 31 December 2002.                 could not be finalized, and was
                                                                             presented to the guarantor in
                                                                             January 2006. The project
                                                                             completion review mission was
                                                                             unable to get an update on the
                                                                             status of the report.
    Expand     the      Lessons learned from the pilot issue                 A          feasibility         study,
    capital market      require documentation and analysis in the            comprehensive business plan
    for    housing      context    of  other    mortgage-backed              and implementation plan and
    finance             securities (MBS) markets in Asia and                 investor prospectus are being
                        elsewhere in order to define the requisite           prepared under ADB TA1 with
                        reform measures to develop India's MBS               the aim of assisting in the
                        market.                                              development of a mechanism
                                                                             for issuance of “true sale”
                                                                             residential     MBSs         through
                                                                             establishment of a credit
                                                                             enhancement agency and/or
                                                                             secondary mortgage institution.
                                                                             The feasibility study will include
                                                                             recommendations for policy
                                                                             and/or regulatory development
                                                                             and for establishment of the
                                                                             agency.
CFI = community-based financial institution, HFC = housing finance company, NGO = non-government organization,
NHB = National Housing Bank.




1
    ADB. 2005. Technical Assistance to the National Housing Bank and the Housing Development Finance
    Corporation of India for a Study on the Development of an Agency to Facilitate Issuance of Residential Mortgage-
    Backed Securities. Manila.
                                                                                            Appendix 4    39


B.      Housing Finance II Project, ICICI Bank Limited Loan (Loan 1761-IND)

 Table A4.2: Status of Policy and Institutional Action Plan Relevant to ICICI Bank Limited
       Policy                      Action needed                                Status
     objective
                    ICICI Limited will develop in-house ICICI                   Bank’s       Rural,
                    departments and expertise for microcredit Microbanking & Agri Business
                    lending.                                       Group has developed such
                                                                   expertise        through       its
                                                                   experience.
                    ICICI Limited will prepare rating criteria for ICICI Bank has developed a
 Strengthen
                    CFIs based on their repayment capacities system for vetting all proposals
 linkages
                    and lending track records.                     from a risk perspective by its
 between formal
                                                                   risk management team.
 and       informal
 sectors            Standardize and streamline processing ICICI Bank has formulated
                    procedures for loans to CFIs to promote procedures that are adapted as
                    greater efficiency and predictability.         per    specific     needs    and
                                                                   circumstances of the CFIs.
                    Operationalize       innovative     financing ICICI Bank has implemented a
                    structures such as escrow accounts, risk sharing agreement with
                    guarantee funds, and revolving funds.          CFIs.
                    ICICI Limited must prepare a time-bound ICICI Bank has put in place a
  Raise             action plan to adopt and implement sound corporate governance
  corporate         corporate governance provisions regarding structure that comprises an
  governance        board composition, the establishment of independent and professional
  standards for an independent audit committee, a board board of directors, board-
  public            remuneration committee, accounting, and appointed committees for audit,
  institutions      financial     reporting,   and      corporate governance,          remuneration,
                    governance compliance reporting as part credit, fraud monitoring and risk
                    of the annual report.                          management.
                    ICICI Limited will (i) establish a working ICICI Bank established the
                    group on mortgage registration with working group, outlined the
                    representatives       from    the      central terms     of    reference    and
                    government, selected state governments, facilitated                   meetings,
  Improve           NHB, HUDCO, Reserve Bank of India, culminating in the preparation
  mortgage          professionals and other relevant partners; of draft report. The draft report
  registration      (ii) outline terms of reference for the was presented to the guarantor
  system            working group; and (iii) formulate a time- in January 2006. ICICI Bank
                    bound action plan for submission of the stated that there has been no
                    working group’s recommendations on further                    update         on
                    mortgage registration to the Government.       implementation of the draft
                                                                   recommendations.
CFI = community-based financial institution, HUDCO = Housing and Urban Development Corporation Limited, ICICI
Bank = ICICI Bank Limited, NHB = National Housing Bank.
                                                                                                                                                           40
                                                             FINANCIAL STATEMENTS OF NATIONAL HOUSING BANK
                                                               Table A5.1: Balance Sheet of National Housing Bank




                                                                                                                                                           Appendix 5
                                                                              (Fiscal Year Ending 30 June)
                                                                                   (Rs million)

Item                                                                   2001            2002             2003         2004      2005      2006      2007
Assets
Cash and Bank Balances                                                9,680          10,172            23,277       31,139    49,634    21,579     9,720
Investments (net of provisions)
Government of India dated securities                                    993             241             1,457        8,514      122        18        19
Stocks, Shares, Bonds, Debentures, and Securities of
Housing Finance Institutions/Building Material Co.                      143             151                  119      107       107        58        58
Stocks, Shares, Bonds, Debentures, and Securities of Other
Institutions                                                          2,858           1,396             2,294         185      2,247     4,167     2,805
Loans and Advances (net of provisions)
Housing Finance Institutions                                         37,420          41,988            51,506       52,980    52,552    50,789    49,498
Scheduled Banks                                                       1,456           2,114             9,382       22,594    67,125   105,189   138,791
State Co-operative Agriculture Rural Development Banks/               4,641           5,354             5,221        4,951     3,430     2,839     1,981
  Land Development Banks
Others                                                                1,620           2,594            2,725         2,314     1,928     5,090     5,719
Less Provisions for Nonperforming Assets                                  -               -                -             -       277       274       271
Fixed Assets (net)                                                      277             273              318           346       259       243       234
Other Assets                                                         15,462           6,544            6,597         7,943     9,841     6,191     6,460
Total Assets                                                         74,549          70,825          102,897       131,075   186,967   195,888   215,014

Liabilities
Capital                                                               3,500           3,500             4,500        4,500     4,500     4,500     4,500
Reserves                                                              8,572           9,667            10,880       12,061    12,013    12,877    13,891
Balance of Net Profit                                                     7               7                 7            6         7         0         0
Bonds and Debentures                                                 28,922          30,519            60,105       82,467   123,670   114,655    90,833
Subordinated Debts                                                        -               -             4,000        4,000     4,000     4,000     4,000
Borrowings
From Reserve Bank of India                                            8,750           2,500            2,650           895       869       842       816
From Other Sources in India                                           9,287           8,553            6,300        12,900    26,619    44,313    85,036
From Other Sources outside India                                      5,599           6,728            6,265         5,430     4,974     4,782     4,105
Current Liabilities and Provisions                                    4,475           4,262            4,018         4,382     5,520     5,993     8,209
Other Liabilities                                                     5,438           5,089            4,172         4,432     4,795     3,926     3,626
Total Liabilities                                                    74,549          70,825          102,897       131,075   186,967   195,888   215,014
 - = not available, Rs = rupees.
Sources: National Housing Bank annual reports.
                                                    Table A5.2: Profit and Loss Account of National Housing Bank
                                                                     (Fiscal Year Ending 30 June)
                                                                              (Rs million)

Item                                                                  2001           2002            2003     2004     2005     2006     2007
Income                                                               6,651          7,935           8,572    8,528   10,378   12,043   14,516
Interest Income                                                      5,900          7,461           6,856    7,439    9,456   11,712   14,255
Investment Income (revaluation and/or sale of investments)             594            189             383      546      145      237      153
Noninterest Income (commission, brokerage, gain on foreign
exchange transactions, and provisions written back)                    157            285           1,334      544      776       93      108
Expenditure                                                          5,333          6,139           7,276    6,951    9,324   10,554   12,654
Interest and Other Expenses on Borrowing                             5,155          5,935           5,390    6,108    8,112    9,799   12,132
Operating Expenses (employee and others)                               178            204             292      247      255      212      186
Provisions on Loans and Investments (net)                                -              -           1,594      596      957      543      336
Profit before Depreciation and Tax                                   1,319          1,796           1,296    1,577    1,054    1,489    1,862
Depreciation                                                            16             13              19       21       25       23       24
Profit before Tax                                                    1,302          1,784           1,278    1,557    1,029    1,466    1,838
Provision for Tax (income tax, wealth tax, deferred tax, and
fringe benefit tax)                                                     94            697              70      375     589      602       695
Profit after Tax                                                     1,208          1,087           1,207    1,181     440      864     1,143
- = not available, Rs = rupees.
Sources: National Housing Bank annual reports.




                                                                                                                                                Appendix 5
                                                                                                                                                41
                                                                                                                                 42
                                  Table A5.3: Key Ratios and Performance Indicators of National Housing Bank




                                                                                                                                 Appendix 5
Item                                          2001          2002         2003          2004         2005        2006     2007
Return on Average Equity (%)                 10.54          8.61          8.45          7.39         2.66        5.10     6.39
Return on Average Assets (%)                  1.72           1.5         1.39          1.01          0.28        0.45     0.56
Debt Equity Ratio (%)                           -           4.00          6.56          8.42       11.35       11.33    10.14
Capital Adequacy Ratio (%)                   16.83         20.16        27.96         30.05        22.48       22.32    22.58
Debt-Service Coverage Ratio (%)                 -           1.79          8.18          1.25         2.23        1.20     0.70
Number of Employees                            73             79            74            84           80          78       67
- = not available.
Source: National Housing Bank.
                                                              FINANCIAL STATEMENTS OF ICICI BANK LIMITED
                                                               Table A6.1: Balance Sheet of ICICI Bank Limited
                                                                                 (Rs million)

Item                                                                     2001                2002         2003       2004        2005         2006        2007
Net Worth                                                               83,227              65,986       72,833     83,606     129,000      225,560     246,633
Equity Capital                                                           7,848               6,130        6,127      6,164       7,368        8,898       8,993
Preference Share Capital                                                 3,500               3,500        3,500      3,500       3,500        3,500       3,500
Reserves and Surplus                                                    71,879              56,355       63,207     73,942     118,132      213,162     234,139
Deposits                                                                     -             320,851      481,693    681,086     998,188    1,650,832   2,305,102
Borrowings                                                             598,350             492,187      343,024    307,402     335,445      385,219     512,560
Borrowings in India from Reserve Bank of India, other banks            497,341             419,428      284,107    229,661     198,740      169,609     134,176
  and institutions, bonds and debentures
Borrowings outside India                                               101,008              72,759       58,917     77,741     136,705     215,610     378,384
From multilateral and/or bilateral credit agencies                      21,473              25,214       25,418     24,404      24,949      23,821      22,702
From international banks, institutions, and consortiums                 52,226              29,348       27,948     35,112      80,042     123,777     177,127
Bonds and Notes                                                         27,310              18,198        5,551     18,226      31,714      68,013     178,555
Current Liabilities and Provisions                                      52,561             162,076      170,569    180,195     213,962     252,279     382,286
Other Liabilities
Total Liabilities                                                      734,137           1,041,099    1,068,120   1,252,289   1,676,594   2,513,890   3,446,581

Fixed Assets including Leased Assets (net)                              51,104              42,393       40,607      40,564      40,380      39,807      39,234
Other Assets                                                             3,144              41,583       75,205      78,634      87,989     126,575     164,899
Investments (net of provisions)                                        111,516             358,911      354,623     427,429     504,874     715,474     912,578
Government and other approved securities                                     -                   -      255,830     299,780     344,820     510,740     676,648
Debentures and bonds                                                         -                   -       56,900      55,490      28,540      18,040      24,628
Shares                                                                       -                   -       16,420      16,840      19,150      20,580      19,373
Others                                                                       -                   -       25,473      55,319     112,364     166,114     191,930
Advances (net)                                                         492,548             470,349      532,794     620,955     914,052   1,461,631   1,958,656
Current Assets                                                          75,825             127,863       64,890      84,706     129,300     170,402     371,213
Cash and balances with Reserve Bank of India                                 -              17,745       48,861      54,080      63,449      89,344     187,069
Balances with banks and money at call and short notice                       -             110,119       16,029      30,626      65,851      81,059     184,144
Total Assets                                                           734,137           1,041,099    1,068,120   1,252,289   1,676,594   2,513,890   3,446,581
  - = not available, Rs = rupees.
Sources: ICICI Bank Limited annual reports.




                                                                                                                                                                  Appendix 6
                                                                                                                                                                  43
                                                                                                                                                         44
                                                                                                                                                         Appendix 6
                                                             Table A6.2: Profit and Loss Account of ICICI Bank Limited
                                                                                     (Rs million)

Item                                                                    2001          2002           2003           2004      2005      2006      2007
Income                                                                92,981        27,266        125,269        119,590   128,260   187,676   289,235
Interest Income                                                       60,579        21,519         93,681         88,940    94,099   137,845   229,943
Investment Income (revaluation and/or sale of investments)            13,984         2,911          4,924         12,246     5,460     6,963       815
Noninterest Income (commission, exchange and                           7,777         2,671          8,020         12,644    22,356    34,750    49,748
  brokerage, and foreign exchange transactions)
Income from Subsidiary Companies and/or Joint Ventures                 1,081             0          1,094          1,262     1,881     3,387     4,485
Other Income (including lease income and sale of assets)               9,560           165         17,549          4,497     4,464     4,731     4,244
Expenditure                                                           83,233        23,727        112,428         95,197    97,085   150,472   247,306
Interest and Other Expenses on Borrowing                              64,954        15,589         79,440         70,152    65,709    95,974   163,585
Operating Expenses (employee and others)                               4,064         5,585         15,057         20,318    27,088    38,557    61,458
Provisions and Contingencies (excluding Taxes)                        14,215         2,553         17,931          4,727     4,288    15,941    22,264
Profit before Depreciation and Tax                                     9,747         3,539         12,841         24,393    31,176    37,204    41,928
Depreciation                                                           3,975           641          5,059          5,394     5,904     6,238     5,448
Profit before Tax                                                      5,773         2,898          7,781         18,998    25,272    30,966    36,480
Provision for Tax (income tax and wealth tax)                          1,224           315         (4,280)         2,627     5,220     5,565     5,378
Profit after Tax                                                       4,548         2,583         12,062         16,371    20,052    25,401    31,102
Proposed Dividends (equity + preference) including                     4,937           486          5,187          6,138     7,231     8,658    10,543
  Corporate Dividend Tax
( ) = negative, Rs = rupees.
Sources: ICICI Bank Limited annual reports.
                                              Table A6.3: Key Ratios and Performance Indicators of ICICI Bank Limited
                                                           (Rs million, unless otherwise specified)

Item                                                                      2001         2002         2003           2004     2005      2006       2007
Capital Adequacy Ratio (%)                                               11.57        11.44        11.10          10.36    11.78     13.35      11.69
Debt Equity Ratio (%)                                                     5.73         4.28         4.28           7.50     5.35      3.76      1.46
Earnings per Share (Rs)                                                   8.13        11.61        19.68          26.66    27.60     32.50      34.84
Net Interest Margin (%)                                                   3.55         2.67         1.40           1.80     2.40      2.40       2.60
Interest Spread (%)                                                       2.90         2.20         1.30           1.90     2.30      2.20       2.30
Number of Employees                                                         -         7,700       10,600         13,609   18,000    25,384     33,321

Growth in Advances (net) (%)                                                -            (5)       12.00          15.00    38.00     46.00      34.00
Growth in Retail Advances (%)                                               -        116.00        85.00          54.00    52.00     48.00      39.15
Share of Retail Loan Portfolio In Total Loan Portfolio (%)                3.20         9.40        22.80          31.90    60.90     62.90      65.20
Nonperforming Assets (NPAs)
Gross NPA                                                                   -         53.25        58.39          40.14    34.32      22.68       4.68
Net NPA                                                                     -         27.21        31.51          20.37    19.83      10.75      20.19
Net Customer Assets                                                         -        575.26       640.51         710.02   978.94   1,520.07   2,053.74
% of Net NPA to customer assets                                             -          4.73         4.92           2.87     2.03       0.71       0.98
- = not available, ( ) = negative, Rs = rupees.
Sources: ICICI Bank Limited annual reports.




                                                                                                                                                         Appendix 6
                                                                                                                                                         45
46   Appendix 7


                    STATUS OF COMPLIANCE WITH KEY LOAN COVENANTS

  Table A7.1: Housing Finance II Project, National Housing Bank Loan (Loan 1759- IND)
 S. No.                   Covenant                      Reference Status of Compliance
                                                         in Loan
                                                        Agreement
         Sector
1.       The Guarantor and NHB shall execute the Schedule 4, Complied.
         Policy and Institutional Action Plan as para. 1
         agreed to by the Government, NHB and
         ADB to the extent that actions thereunder
         are applicable to or the responsibility of the
         Guarantor or NHB.
         Working Group on Mortgage Registration
2.       NHB shall, in cooperation with ICICI Schedule 4, Complied.
         Limited, have taken all necessary measures para. 14
         satisfactory to ADB for the establishment of
         a working group on mortgage registration.
         The working Group shall have submitted to
         the Guarantor its recommendations by 31st
         December 2002.
         NHB Act Regulations
3.       The Working Committee of NHB shall have Schedule 4, There was deviation
         submitted a final report to NHB by 31st para. 17         from the covenant (see
         March 2002 on (a) procedures for                         status on Policy and
         mortgagee      power     of   sale     without           Institutional   Action
         intervention of courts;(b) procedures,                   Plan) but with the
         administrative support, funding and powers               concurrence of ADB.
         of Housing Finance Institution Debt                      Complied.
         Recovery Appellate tribunals; and (c)
         preservation of mortgage power of sale
         without court intervention given judicial
         review.

          NHB Board shall have approved the Draft          Schedule 4,   Complied.
          Regulations by 31st July 2002.                   para. 18

          NHB shall have submitted the Draft               Schedule 4,   Complied.
          Regulations for notification by 31st Dec         para. 19
          2002.
          Environmental and Social Is sues
4.        NHB shall ensure and cause Qualified             Schedule 4,   Complied.
          Enterprises to ensure (i) that all Qualified     para. 2
          Housing Proposals are in compliance with
          the applicable environmental and social
          guidelines of ADB; and (ii) that any Qualified
          Housing Proposal requiring involuntary
          resettlement shall be undertaken in
          accordance     with    ADB's       Involuntary
          Resettlement Policy and ADB's Handbook
                                                                               Appendix 7   47


S. No.                    Covenant                         Reference   Status of Compliance
                                                            in Loan
                                                           Agreement
         on Resettlement 1998, as amended from
         time to time.
         Financial
5.       NHB shall at all times make adequate              Section     Complied.
         provision to protect itself against any loss      5.02
         resulting from changes in the rate of
         exchange between Rupees and the
         currency in which NHB's outstanding money
         obligations will be met. NHB may swap the
         proceeds of the Loan for Rupees, and shall
         establish a Rupee account for the deposit of
         such proceeds .
6.       NHB shall ensure that all local currency          Section     Complied.
         funds and other resources which are               5.03
         required for the Project by Qualified
         Enterprises for the carrying out of their
         respective Qualified Housing Proposals
         shall be available to such Qualified
         Enterprises promptly as needed.
7.        NHB shall maintain records and accounts          Section     Complied.
         adequate to record the progress of the            5.04
         Project and of each Qualified Housing
         Proposal (including the cost thereof), and to
         reflect, in accordance with consistently
         maintained sound accounting principles, the
         operations and financial condition of NHB.
8.       NHB shall have its accounts, the Rupee            Section     Complied.
         accounts and financial statements audited         5.06 (a)
         annually, in accordance with appropriate
         auditing standards consistently applied, and
         promptly after their preparation but in any
         event not later than 9 months after the close
         of the Financial Year to which they relate,
         furnish to ADB (i) certified copies of such
         audited accounts and financial statements;
         and (ii) the auditors' reports containing their
         opinion, inter alia, on the use of the Loan
         proceeds, on the status of compliance by
         NHB with the covenants and with ADB's
         Loan Disbursement Handbook as amended
         from time to time, including the Imprest
         Account.
9.       NHB shall maintain a ratio of the                 Section     Complied.
         consolidated debt to the consolidated equity      5.10
         not higher than 12:1.
10.      NHB shall ensure that the consolidated            Section     Ratio for FY2007 is
         internal cash generation for each FY shall        5.11        below the stipulated
48    Appendix 7



S. No.                      Covenant                        Reference      Status of Compliance
                                                             in Loan
                                                            Agreement
           be at least 1.1 times the consolidated debt-                    threshold.
           service requirement for that FY.                                Not Complied.
           Other Reporting Requirements
11.        NHB shall furnish to ADB all such reports        Section        Complied.
           and information ADB shall reasonably             5.05 (a)
           request concerning(i) the Loan, and the
           expenditure      of    the    proceeds     and
           maintenance of the service thereof;(ii) the
           Project(iii) the Qualified Enterprises, the
           Qualified Housing Proposals, and the
           Subloans;(iv) the administration, operations
           and financial condition of NHB; and (v) any
           other matters relating to the purposes of the
           Loan.
12.        NHB shall furnish to the ADB quarterly                          Information submitted
           reports on the execution of the Project and      Section        in response to specific
           on the operation and management of the           5.05 (b)       requests from ADB.
           NHB until the full utilization of the Loan and                  Partially Complied.
           semiannually thereafter.
           Predisbursement
13.        NHB shall establish immediately after the        Section        Complied.
           effective date an Imprest Account at a prime     3.02 (c) (i)
           rated commercial bank subject to the
           guidelines of Reserve Bank of India and
           satisfactory to ADB.
14.        Notwithstanding any other provision of the       Section        Complied.
           Loan Agreement, no withdrawals shall be          3.02 (f)
           made from the Loan Account until (i) ADB
           shall have received the NHB's management
           approval of a time bound action plan, in
           form and substance acceptable to ADB to
           ensure NHB's implementation of and
           compliance with corporate governance
           standards satisfactory to ADB, including (a)
           establishment of a board audit committee
           with specified composition, powers and
           functions; (b) codes of conduct and ethics
           as laid down by NHB's Board; and (c)
           incorporation of corporate governance
           sections in the annual report of NHB; and
           (ii) ADB shall have received an opinion from
           an auditor acceptable to ADB, in form and
           substance satisfactory to ADB, which
           certifies that NHB is in compliance with
           Prudential Norms, and debt service
           coverage and debt/equity ratios as specified
           in Secs. 5.10 and Sec. 5.11.
                                                                                      Appendix 7   49


S. No.                     Covenant                         Reference        Status of Compliance
                                                             in Loan
                                                            Agreement
         Others
15.      The Loan is made for the financing by NHB          Section          Complied.
         under Parts A(i), B(ii) and (iii) of the Overall   3.01(a)
         Project of specific Qualified Housing
         Proposals.
16.      Without prejudice to Secs 3.01(a) above,           Section          Complied.
         NHB shall observe subloan financing criteria       3.01(b)
         that include maximum ADB financing of 80
         percent of the Subloans provided by NHB
         under Part B of the Overall Project.
17.      Without prejudice to Secs. 3.01 (a and b)          Section          Not complied, but with
         above, NHB shall ensure that (i) no more           3.01(c)          concurrence of ADB.
         than 80 per cent of Loan proceeds or such
         other percentage as ADB agrees, are used
         to refinance lending for Qualified Housing
         Proposals from HFIs under Part B(ii) of the
         Overall Project; and (ii) at least 20 per cent
         of Loan proceeds or such other percentage
         as ADB agrees, are to finance or refinance
         HFC lending to CFIs and NGOs under Parts
         A(i) and Part B (iii) of the Overall Project.
18.       Notwithstanding any other provisions of this      Section          Complied.
         Loan Agreement and without prejudice to            3.02 (c) (iii)
         the liabilities and obligations of NHB under
         Sec 5.02, no withdrawals shall be made
         from the Loan Account until ADB is satisfied
         with the detailed arrangements for the
         establishment of the Imprest Account and
         ADB has, prior to any deposit into the
         Imprest Account, has been notified by NHB
         of a swap or other arrangements required to
         meet the provisions of Sec 5.02. ADB shall
         notify NHB of its acceptance or not of such
         arrangements and shall thereafter notify
         NHB of the availability of Loan proceeds no
         later than 3 Banking Days before the expiry
         of the 13 Banking Days stipulated in Sec.
         2.02.
19.      Notwithstanding any other provision of this        Section          Complied.
         Loan Agreement, the Borrower shall submit          3.04 (a)
         to the Bank for approval (i) at least two
         Qualified Housing Proposals under Part B(ii)
         of the Overall Project; and (ii) at least two
         Qualified Housing Proposals under Parts
         A(i) or B(iii) of the Overall Project.
50    Appendix 7



S. No.                     Covenant                       Reference   Status of Compliance
                                                           in Loan
                                                          Agreement
20.        Each subloan shall carry interest at an Section            Complied.
           appropriate rate and shall be made on 4.01
           terms whereby NHB shall obtain, by a
           written agreement with the Qualified
           Enterprise in form acceptable to ADB, rights
           adequate to protect the interests of ADB
           and NHB.
21.        NHB shall ensure that subloans are made to Section         Complied.
           those Qualified Enterprises that (a) are not 4.04
           delinquent or otherwise in arrears in
           repayment of other debt obligations known
           to NHB; and (b) made available audited
           accounts satisfactory to ADB.
22.        NHB shall, promptly as required, take all Section          Complied.
           action within its powers to maintain its 5.09 (a)
           corporate existence, to carry on its
           operations and to acquire, maintain and
           renew all rights, properties, powers,
           privileges and franchises which are
           necessary in the carrying out of the project
           or in the conduct of its business
23.        Except ADB and the NHB may otherwise Section               Complied.
           agree, NHB shall not sell, lease or 5.09 (c)
           otherwise dispose of any of its assets,
           except in the ordinary course of its
           business.
24.        Prior to establishing or acquiring any Section             Complied.
           subsidiary which may have an adverse 5.09 (d)
           effect on the Project, NHB shall inform ADB
           of any such action.
25.        NHB shall ensure that none of its Section                  Complied.
           subsidiaries shall perform the obligations of 5.12
           NHB under the Loan Agreement for the
           Project without the prior approval of ADB.
26.        NHB undertakes that (i) if NHB shall create Section        Complied.
           any lien on any assets as security for any 5.13
           debt, such lien will ipso facto equally and
           ratably secure the payment of the principal
           of, and interest and other charges on, the
           loan and NHB, in creating or permitting the
           creation of any such lien, will make express
           provision to that effect; and (ii) if any such
           statutory lien shall be created on any assets
           of NHB as security for any debt, NHB shall
           grant to ADB an equivalent lien satisfactory
           to ADB.
27.        NHB shall cooperate with ICICI Limited in Schedule 4       BME         information
                                                                                 Appendix 7   51


S. No.                    Covenant                     Reference        Status of Compliance
                                                        in Loan
                                                       Agreement
         implementing a benefit monitoring and para 5                submitted
         evaluation (BME) system of the Project. The                 intermittently.     The
         BME information shall be provided in the                    submitted information
         first quarterly report of each calendar year.               did       not      cover
                                                                     beneficiaries      under
                                                                     Part A (i).
                                                                     Partially Complied.
28.      NHB shall maintain for Parts A (i), B (ii) and   Schedule 4 The project completion
         (iii) of the Overall Project proper lending      para 10    review mission could
         records which shall include ADB access to                   not       obtain      the
         data of Qualified Enterprises, which obtain                 requested information
         refinancing from NHB, documenting the                       relating      to      the
         number and size of mortgage loans                           refinance     operations
         refinanced and household income levels of                   under Part B(ii) in a
         LIH mortgagees, in detail and format                        fully satisfactory form,
         satisfactory to ADB.                                        indicating inadequate
                                                                     records              and
                                                                     documentation under
                                                                     this Part.
                                                                     Partially Complied.
29.      By 31 April 2002, NHB shall ensure that it is    Schedule 4 Complied.
         in compliance with corporate governance          para 16
         standards specified in Sec. 3.03 (f) (i).
         Subloan Criteria
30.      Without limiting the generality of other Schedule 4
         Sections of the Loan Agreement:

         (a)   NHB to ensure that the use of Loan                      Complied.
               proceeds shall be for refinancing of
               mortgage loans to LIHs for qualified
               housing proposals under Parts A (i),
               Part B (ii) and (iii) of the Overall
               Project.

         (b)   NHB shall provide refinance under                       Complied.
               subloans        through       Subloan
               Agreements acceptable to ADB
               including    an     appropriate   rate
               commensurate with maturity risk
               perceptions, market conditions and
               project requirements.

         (c)   NHB shall ensure that subloan                           Relending     certificate
               repayments, net of loan repayments,                     for      FY2007       not
               shall be relent through the same                        received from NHB.
               lending channels and to the same                        Partially Complied.
               beneficiary groups specified under
 52    Appendix 7



  S. No.                        Covenant                          Reference       Status of Compliance
                                                                   in Loan
                                                                  Agreement
                    Parts A(i), B (ii) and (iii) of the Overall
                    Project during the term of the Loan
                    and that such relending information
                    shall be provided to ADB.

             (d)    NHB shall submit to ADB for approval                          Complied.
                    a detailed disbursement plan for the
                    first year of the Project, keeping the
                    Guarantor duly informed.

             (e)    NHB shall ensure that its refinancing                         Complied.
                    of HFI mortgage loans to LIHs under
                    Part B (ii) of the Overall Project are to
                    HFIs other than HUDCO and HDFC.

             (f)     NHB shall ensure that only state                             Complied.
                    slum improvement boards, State
                    apex cooperative housing societies,
                    State      Housing      improvement
                    development authorities evidenced
                    by NHB to have adequate financial
                    position and financial controls
                    satisfactory to ADB, shall be eligible
                    for Subloan under Part B (ii) of the
                    Overall Project.

             (g)    NHB shall ensure that there are no                            Complied.
                    Subloans based only on comfort
                    letters by the State instead of State
                    Guarantees unless such comfort
                    letters are issued in compliance with
                    criteria approved by the Guarantor
                    and acceptable to ADB.
ADB = Asian Development Bank, CFI = community-based financial institution, FY = financial year, HDFC = Housing
Development Finance Corporation Limited, HFC = housing finance company, HFI = housing finance institution,
HUDCO = Housing and Urban Development Corporation Limited, LIH = low income household, NGO = non-
government organization, NHB = National Housing Bank.
                                                                            Appendix 7   53


    Table A7.2: Housing Finance II Project, ICICI Bank Limited Loan (Loan 1761- IND)
 S.No.                       Covenant                      Reference       Status of
                                                            in Loan      Compliance
                                                           Agreement
          Sector
1.        The Guarantor and ICICI Bank shall execute Schedule 4, Complied.
          the Policy and Institutional Action Plan as para. 1
          agreed to by the Government, ICICI Bank and
          ADB to the extent that actions thereunder are
          applicable to or the responsibility of the
          Guarantor or ICICI Bank.
          Working Group on Mortgage Registration
2.        The Working Group of ICICI Bank shall have Schedule 4, Complied.
          submitted to the Guarantor recommendations para. 14
          in accordance with its terms of reference in
          Section 3.02 (d) (iii) by 31 December 2002.
          Environmental and Social Issues
3.        ICICI Bank shall ensure and cause Qualified Schedule 4, Complied.
          Enterprises to ensure (i) that all Qualified para. 2
          Housing Proposals are in compliance with the
          applicable     environmental      and     social
          guidelines of ADB; and (ii) that any Qualified
          Housing Proposal requiring involuntary
          resettlement shall be undertaken in
          accordance       with      ADB's    Involuntary
          Resettlement Policy and ADB's Handbook on
          Resettlement 1998, as amended from time to
          time.
          Financial
4.        ICICI Bank shall at all times make adequate Section        ICICI           Bank
          provision to protect itself against any loss 5.02          confirmed that it
          resulting from changes in the rate of                      stays within the
          exchange between Rupees and the currency                   overall positions as
          or currencies in which ICICI Bank's                        approved by its
          outstanding money obligations will be met.                 management.
          ICICI Bank may swap the proceeds of the                    Complied.
          Loan for Rupees. Such swap transaction, or
          any other arrangement to protect ICICI Bank
          against any loss resulting from changes in the
          rate of exchange between Dollars and
          Rupees, will be undertaken in accordance
          with arrangements satisfactory to ADB and in
          compliance with all regulatory requirements
          for such transactions.
5.        ICICI Bank shall ensure that all local currency Section    Complied.
          funds and other resources which are required 5.03
          for the Project by Qualified Enterprises for the
          carrying out of their respective Qualified
          Housing Proposals shall be available to such
          Qualified Enterprises promptly as needed.
54   Appendix 7



 S.No.                       Covenant                         Reference          Status of
                                                                in Loan         Compliance
                                                              Agreement
6.         ICICI Bank shall maintain records and Section                    Complied.
           accounts adequate to record the progress of 5.04
           the Project and of each Qualified Housing
           Proposal (including the cost thereof) and to
           reflect, in accordance with consistently
           maintained sound accounting principles, the
           operations and financial condition of ICICI
           Bank.
7.         ICICI Bank shall have its accounts and Section                   The auditors’ reports
           financial statements audited annually, in 5.06 (a)               under part (ii) were
           accordance       with    appropriate     auditing                submitted         with
           standards consistently applied, and shall                        delays, after follow-
           promptly after their preparation but in any                      ups by ADB.
           event not later than 9 months after the close                    Partially Complied.
           of the Financial Year to which they relate,
           furnish to ADB (i) certified copies of such
           audited accounts and financial statements;
           and (ii) the auditors' reports containing their
           opinion, inter-alia, on the use of the Loan
           proceeds, on the adequacy of ICICI Bank’s
           accounting and internal control procedures,
           on the status of compliance by ICICI Bank
           with the financial covenants of the Loan
           Agreement        and     with    ADB's      Loan
           Disbursement Handbook dated January 2001,
           as amended from time to time.
8.         Except as ADB may otherwise agree, ICICI Section
           Bank shall undertake its operations so as to 5.10
           ensure that it shall :                             and Section
                (i) conform to interest cover whereby 5.11                  Complied.
                ICICI Bank's profit before interest,
                provision for bad and doubtful debts,
                depreciation and other noncash charges
                for the relevant current financial year are
                at least 1.1 times the interest and
                commitment charges payable by it for the
                relevant financial year;
                (ii) conform to Reserve Bank of India                       Complied.
                (RBI) stipulations on Statutory Liquidity
                Ratio, and Capital Adequacy Ratio as
                amended from time to time;
                (iii)  conform      to    Asset     Liability               Complied.
                Management-liquidity          management
                guidelines of RBI; and share with ADB the
                internal norms and risk management
                guidelines adopted by its management,
                along with status of conformity to such
                guidelines; and
                                                                                   Appendix 7   55


    S.No.                     Covenant                        Reference         Status of
                                                               in Loan         Compliance
                                                              Agreement
                (iv) maintain a debt to equity ratio of not                Complied.
                more than 12:1. ICICI Bank shall maintain
                a ratio of the consolidated debt to
                consolidated equity as stipulated by the
                Regulator.
            Others
9           ICICI Bank shall furnish to ADB quarterly         Section      Information
            reports on the execution of the Project and on    5.05 (b)     submitted            in
            the operation and management of ICICI Bank                     response to specific
            until the full utilization of the Loan and                     request from ADB.
            semiannually thereafter.                                       Partially Complied.
10.         ICICI Bank shall cooperate with NHB in            Schedule 4   BME        information
            implementing a benefit monitoring and                          submitted
            evaluation (BME) system of the Project, in                     intermittently. Also,
            accordance with ADB’s Benefit Monitoring                       did      not     cover
            and Evaluation Handbook. ICICI Bank shall                      beneficiaries under
            provide ADB with BME information in the first                  Part A (i)
            quarterly report of each calendar year.                        Partially Complied.
11.         ICICI Bank shall assign a Project Manager         Schedule 4   Complied.
            who is responsible for Project supervision,
            monitoring, accounting, and reporting.
12.         ICICI Bank shall carry out independent            Schedule 4   Complied.
            Project impact evaluations at the end of 2
            years after the Effective Date and at the end
            of 4 years after the Effective Date.
13.         ICICI Bank shall keep ADB informed of any         Section      Complied.
            amendment of the ICICI Bank documents             5.01(c)
            which may substantially affect the Project.
14.         ICICI Bank shall, promptly as required, take      Section      Complied.
            all actions within its powers to maintain its     5.09 (a)
            corporate existence, to carry on its operations
            and to acquire, maintain and renew all rights,
            properties, powers, privileges and franchises
            which are necessary in the carrying out of the
            Project or in the conduct of its business.
15.          ICICI Bank shall at all times conduct its        Section      Complied.
            business in accordance with sound                 5.09 (b)
            administrative, financial, environmental and
            social practices, and under the supervision of
            competent and experienced management and
            personnel.
16.         Except as ADB and ICICI Bank may                  Section      Complied.
            otherwise agree, ICICI Bank shall not sell,       5.09 (c)
            lease, or otherwise dispose of any of its
            assets, except in the ordinary course of its
            business.
56    Appendix 7



 S.No.                         Covenant                    Reference       Status of
                                                            in Loan       Compliance
                                                           Agreement
17.         Prior to establishing or acquiring any Sec 5.09 (d)        Complied.
            subsidiary which may have an adverse effect
            on the Project, ICICI Bank shall inform ADB of
            any such action.
            Subloan Criteria
18.         Without limiting the generality of other Schedule 4
            Sections of the Loan Agreement:

            (a)    ICICI Bank shall provide subloans                   Interest rates under
                   through      Subloans      Agreements               the Kudumbashree
                   acceptable to ADB, including an                     subproject did not
                   appropriate rate commensurate with                  adequately factor in
                   maturity, risk perceptions, market                  the risk-premium for
                   conditions and project requirements.                lending     to   LIH
                                                                       segment. However,
                                                                       ICICI Bank’s rates
                                                                       were      not   very
                                                                       different from the
                                                                       rates offered by
                                                                       other banks that
                                                                       followed ICICI Bank
                                                                       into this segment in
                                                                       Kerala.
                                                                       Complied.

            (b)    ICICI Bank shall submit to ADB for                  Complied.
                   approval a detailed disbursement plan
                   for the first year of the Project and shall
                   keep the Guarantor duly informed.

            (c)    ICICI Bank shall ensure that subloan                Last report received
                   repayments, net of loan repayments,                 was in November
                   shall be relent through the same                    2005.
                   lending channels and to the same                    Partially Complied.
                   beneficiary groups specified under
                   Parts A and B (i) of the Overall Project
                   during the term of the Loan and that
                   such relending information shall be
                   provided to ADB.

            (d)    ICICI Bank shall ensure that eligibility            Complied.
                   criteria for CFI and NGO Qualified
                   Enterprises under Part A of the Overall
                   Project shall include but not limited to
                   the lending experience, operational
                   capacity, technical expertise, outreach
                   potential,      target     communities'
                                                                               Appendix 7   57


S.No.                     Covenant                          Reference        Status of
                                                             in Loan        Compliance
                                                            Agreement
              knowledge, reputation and loan
              repayment track record of Qualified
              Enterprises.

        (e)   ICICI Bank shall ensure that subloans                     Refer (a) above.
              to Qualified Enterprises constituting                     Complied.
              CFI or NGOs under Part A of the
              Overall Project are at interest rates that
              shall include a spread to cover loan
              processing expenses and a risk
              premium based on an assessment of
              the credit rating of the recipient CFI or
              NGO.

        (f)   ICICI Bank shall ensure that subloans                     Refer (a) above.
              to CFI or NGO Qualified Enterprises                       Complied.
              under Part A of the Overall Project are
              onlent to subborrowers at interest rates
              that include a spread to cover loan
              processing expenses and a risk
              premium for the CFI or NGO.

        (g)   ICICI Bank shall ensure that no more                      Condition dropped in
              than 50 percent of lending under Part A                   response to market
              (ii) of the Overall Project shall be direct               conditions,     vide
              housing loans to Qualified Enterprise                     amendment      letter
              employees who represent LIHs.                             dated 3 November
                                                                        2004.

        (h)   ICICI Bank shall ensure that only such                    ICICI Bank has not
              State housing boards that have                            extended        any
              undertaken or are undertaking reform                      subloans to State
              measures in accordance with ADB's                         Housing Boards.
              Technical Assistance on Restructuring
              State Level Housing Institutions shall
              be eligible for Subloans under Part A of
              the Overall Project.

        (i)   ICICI Bank shall ensure that only such                    ICICI Bank has not
              State slum improvement boards, State                      extended       any
              apex cooperative housing societies,                       subloans to such
              State housing improvement trusts,                         entities.
              agricultural      cooperative        rural
              development banks, and municipal
              development authorities evidenced by
              ICICI Bank to be of adequate financial
              position     and    financial    controls
              satisfactory to ADB, shall be eligible for
58    Appendix 7



 S.No.                        Covenant                        Reference        Status of
                                                               in Loan        Compliance
                                                              Agreement
                   Subloans under Part A of the Overall
                   Project.

            (j)    ICICI Bank shall ensure that there are                 ICICI Bank has not
                   no subloans based only on comfort                      extended          any
                   letters by the State instead of State                  subloans based on
                   guarantees unless such comfort letters                 comfort letter by the
                   are issued in compliance with criteria                 state under this
                   approved by the Guarantor and                          project.
                   acceptable to ADB.
19.         Without limiting the generality of the foregoing Section
            provisions of Section 4.01 and in addition to 4.02
            any other provisions which a prudent lender
            would request, each Subloan agreement shall
            include provisions to the effect that:

            (a)    the Qualified Enterprise shall carry out               Complied.
                   and operate the Qualified Housing
                   Proposal with due diligence and
                   efficiency and in accordance with
                   sound administrative, social and
                   environmental practices, including
                   maintenance of adequate accounts and
                   records;

            (b)    the proceeds of the Loan shall, if used                Complied.
                   for procurement of goods and services,
                   be only from member countries of ADB
                   in    accordance    with    procedures
                   acceptable to ADB, of goods produced
                   in, and services supplied from, such
                   countries, and the goods and services
                   financed out of the proceeds of the
                   Loan shall be used exclusively in the
                   carrying out of the Qualified Housing
                   Proposal;

            (c)    ADB and ICICI Bank shall each have                     Complied.
                   the right to inspect such goods, the
                   Qualified Enterprise, the Qualified
                   Housing Proposal, and any relevant
                   records and documents;

            (d)    ADB and ICICI Bank shall each be                       Complied.
                   entitled to obtain all such information
                   as each shall reasonably request
                   relating to the Subloan, the goods and
                   services financed out of the proceeds
                                                                                                Appendix 7   59


   S.No.                          Covenant                            Reference              Status of
                                                                       in Loan              Compliance
                                                                      Agreement
                     of the Loan, the Qualified Housing
                     Proposal, the Qualified Enterprise and
                     other related matters; and

              (e)    ICICI Bank shall be entitled to suspend                           Complied.
                     or terminate further access by the
                     Qualified Enterprise to the use of the
                     proceeds of the Loan upon failure by
                     the Qualified Enterprise to perform its
                     obligations under its agreement with
                     ICICI Bank.
 20.          ICICI Bank shall ensure that Subloans are               Section          Complied.
              made to those Qualified Enterprises that (a)            4.04
              are not delinquent or otherwise in arrears in
              repayment of other debt obligations known to
              ICICI Bank; (b) are in compliance with Section
              3.01(a); and (c) make available audited
              accounts satisfactory to ICICI Bank and ADB.
 21.          ICICI Bank shall ensure that none of its                Section          Complied.
              subsidiaries shall perform the obligations of           5.12
              ICICI Bank under the Loan Agreement for the
              Project without the prior approval of ADB.
 22.          (a) ICICI Bank shall undertake that, except as          Section          Complied.
                                                f
              ADB may otherwise agree, (i) i ICICI Bank               5.13 (a)
              shall create any lien on any of its assets as
              security for any debt, such lien will ipso facto
              equally and ratably secure the payment of the
              principal of, and interest and other charges
              on, the Loan and ICICI Bank, in creating or
              permitting the creation of any such lien, will
              make express provision to that effect; and (ii)
              if any statutory lien shall be created on any
              assets of ICICI Bank as security for any debt,
              ICICI Bank shall grant to ADB an equivalent
              lien satisfactory to ADB.

              (b) The provisions of paragraph (a) of this Section                      Complied.
              Section shall not apply to (i) any lien created 5.13 (b)
              on property, at the time of purchase thereof,
              solely as security for the payment of purchase
              price of such property; or (ii) any lien arising
              in the ordinary course of banking transactions
              and securing a debt maturing not more than
              one year after its date.
ADB = Asian Development Bank, CFI = community-based financial institution, ICICI Bank = ICICI Bank Limited, LIH =
low income household, NGO = non-government organization, NHB = National Housing Bank.

								
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