The National Housing Bank has extended the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, to housing finance companies registered with it.

Earlier, these provisions were applicable only to banks and financial institutions. The provisions will apply to housing finance companies with a capital of more than Rs 10 crore (Rs 100 million) on March 31, 2003.

There are 23 such housing finance companies, including HDFC, ICICI Home Finance, LIC Housing Finance and Can Fin Homes Ltd.

The move is expected to result in a reduction of interest rates in the long run because the risk perception of housing finance companies will come down.

"It will result in more credit flow to the housing sector since many borrowers who were considered risky till now will be able to borrow due to the increased confidence in housing finance companies," NHB executive director R V Verma said.

Asked about the case against the Securitisation Act in the Supreme Court, Verma said the apex court's decision would be respected, and whatever decision was taken would be binding on housing finance companies.

The NHB Act also allows lenders to appoint recovery officers to take over assets of defaulting borrowers through a quasi-judicial mechanism, but it is time consuming. Verma said the Securitisation Act provided "express powers" to housing finance companies.

While welcoming the move, housing finance companies said there would be no immediate impact since non-performing asset levels were low in the sector.

According to estimates by the NHB, NPA levels in the housing sector are below 2 per cent.

ICICI Home Finance chief operating officer Rajiv Sabharwal described it as a positive step.

He said once the recovery of assets became easier, loan processing would become more convenient, and result in lower rates of interest in the long run.

HDFC Ltd executive director Renu Sud Karnad said in a hot housing loan market today, one never knew when he would stumble on a bad case.

"The provision will help to deter people who think they can get away despite defaulting," she added. HDFC had an NPA level of 0.92 per cent on March 31, 2003.