Housing is one of the basic needs of human being, and the capital required per dwelling is so large that few individuals can raise it from their own saving. There is therefore a great need and scope for the development of arrangements for supplying loans or finance for the purpose of house construction. However, for some reason or other, the shelter sector of the Indian financial system remained utterly underdeveloped till the end of 1980s. The lack of adequate institutional supply of credit for house building was stressed as an important gap in the process of financial development in India. In the recent past, the authorities have initiated certain steps to bridge this gap.

Finance for housing is provided in the form of mortgage loans, i.e., it is provided against the security of immoveable property of land building. The suppliers of house mortgage loans I India are the following: the Housing and Urban Development Corporation (HUDCO), the apex Co-operative Housing finance Societies and Housing Boards in different states, central and state governments, LIC, Commercial banks, GIC, and a few private housing finance companies and nidhis. The governments provide direct loans mainly to their employees. The participation of commercial and urban co-operative banks in direct mortgage loans has been marginal till recently. The LIC has been a major supplier of mortgage loans in indirect and direct forms. It has been giving loans for house building to the state governments, apex Co-operative Housing Finance Societies, HUDCO, and so on. In addition, it has been providing mortgage loans directly individuals under its various mortgage schemes.

National Housing Bank was set up in July 1988 as an apex level housing finance institution and as a wholly owned subsidiary of the RBI. It began its operations with a total 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 crore. These bonds were guaranteed by the central government and had carried an interest rate of 11.5 per cent per annum. The RBI had sanctioned in 1986-90 a long term loan of Rs.25 crore to it. Further, it can borrow in the U.S capital market $50 million under he USAID Government Guarantee programme. 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 resourse base of the NHB has been made quite strong.