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New Delhi, Aug. 12

The Comptroller and Auditor General of India (CAG) has pulled up Housing and Urban Development Corporation Ltd for not disbursing directly to the end users the bulk of the funds borrowed from various banks for housing sector lending.

The CAG noted that this was in violation of RBI guidelines.

The CAG brushed aside HUDCO's contention that bulk loans given to the Government agencies for housing purposes cannot be termed as diversion of housing funds. It also pointed out that the corporation “lacked control mechanism to monitor the utilisation of funds borrowed from banks for housing specific purposes”.

HUDCO provides long-term finance for construction of houses and urban development programmes, for which it raises funds through scheduled commercial banks, financial institutions, bonds and public deposits.

Priority sector

Between April 1999 and March 2009, the company borrowed Rs 6,535.2 crore from banks for housing purposes. The lending to the company was subject to RBI guidelines, which stipulate that term loans can be granted by banks to housing intermediary agencies (like HUDCO) against the direct loans sanctioned or proposed to be sanctioned by these agencies. For this purpose, loans up to Rs 5 lakh per housing unit are treated as priority sector loans by the banks.

The CAG report said that audit scrutiny of funds borrowed by the company from banks between April 1999 and March 2009 revealed that against the overall amount borrowed from the banks, only about Rs 843.1 crore was lent directly to end users.

“Thus the company did not lend Rs 5,692.1 crore as per RBI guidelines (which included Rs 4,884.1 crore meant for priority sector lending,” the CAG said.

Purpose of cash

It also said that the company had borrowed funds (Rs 8,813.92 crore) during the period under review but the purpose of raising the loans was not specified in the respective loan agreements. Instead, these loans were classified broadly as ‘Housing and Urban Infrastructure', ‘Housing and Social Infrastructure' and ‘Housing and Infrastructure'.

Further, about Rs 771.7 crore disbursed by HUDCO for non-housing schemes, like construction of commercial complexes and office complexes, was classified as housing loans, the report said.

However, HUDCO management pointed out that the company was funding to priority sector through Government agencies and thereby adhering to the criteria laid down by the Ministry of Housing and Urban Poverty Alleviation and the Planning Commission. These rules differed from those set by the RBI.

The company also stated that area development schemes such as commercial and office complexes for township projects are being classified under the housing schemes.

The CAG maintained that construction of commercial complexes cannot be treated as housing loans. It said that as HUDCO had agreed to comply with the RBI instructions while availing funds from the banks, it should have followed the stipulated norms in utilisation of such funds.


(This article was published in the Business Line print edition dated August 13, 2010)
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