The Government of India identified that non-availability of long term finance to individual household and the housing institutions on a significant scale as a major lacuna impeding progress of housing sector in our country. Therefore a Sub-Group on Housing Finance was constituted for the Seventh Five Year Plan (1985-90) to study the aspect and submit its recommendation. This 38 Sub-Group recommended the setting up of national level institution.
The Committee of Secretaries considered the recommendations of the sub group and set up the High Level Group under the Chairmanship of Dr. C. Rangarajan, the then Deputy Governor, Reserve Bank of India to examine the proposal. The group recommended the setting up of National Housing Bank as an autonomous housing finance institution. In turn, the recommendations of the High Level Group were accepted by the Government of India.
The National Housing Policy, 1988 was framed by Government of India. This policy as well proposed the setting up of an apex level presenting the Union Budget for 1987-88 on February 28, 1987 announced the decision to establish the National Housing Bank (NHB) as an apex level institution for housing finance. The National Housing Bank Bill was presented in Parliament for providing legislative framework for the establishment of National Housing Bank. It was passed by Parliament in the winter session of 1987 and 1987, became an Act of Parliament. Thus, in pursuance of the above, National Housing Bank was set up on July 9, 1988 under the National Housing Bank Act, 1987.
The Bank was set up as a wholly owned subsidiary of the Reserve Bank of India. It began its operations with a total 39 capital of Rs. 170 crore (Rs. 100 crore as share capital, Rs.50 crore as long term loan from the RBI, and Rs.20 crore through the sale of bonds). In September 1989, its share capital was raised to Rs.150 crore. During 1989-90, it issued its second series of bonds to which the total subscription amounted to Rs.60 crores. These bonds were guaranteed by the Central Government. The RBI had sanctioned in 1989-90, a long term loan of Rs.25 crore to it. Further, it can borrow in the U.S. capital market $50 million under the USAID Government Guarantee program. In 1995-96, the paid up and authorized capital of NHB was raised to Rs.300 crore with an additional capital contribution of Rs.50 crore by the RBI. Thus, the resources base of the NHB has been made quite strong.