National Housing Bank, regulator for housing finance companies, has initiated a review of the books of the home loan providers under its ambit to assess the extent of real estate funding and the end-use of funds.

In a communication to HFCs, NHB said that a 'special' inspection team would visit them. According to the HFC sources, this was different from the annual inspection, which the regulator conducted till a year ago.

The officials of the inspection team studied the details of the loan book and sought details on the current status of accounts. In case of loans to builders, NHB officials enquired about their past record, and the exposure to a single account, sources at the home finance firms said.

"They sought detailed reports regarding the number of accounts, which have been restructured till now and those where the process is underway. They also wanted to know about the chances of accounts classified as standard asset being downgraded to the doubtful category, or treating them as non-performing assets in the next three months," said the head of an HFC which met members of the NHB team.

In addition, HFCs were also asked to submit a report on the monitoring process and the measures taken by them to improve the recovery of loans.

The companies were also asked to provide details of the lending rate charged by them and the cost of funds from various sources. In particular, the NHB team had sought details about how the funds accessed by the finance companies at 8 per cent under the special window were being deployed, said a source at a Mumbai-based HFC.

When contacted, an NHB official said that the agency was not conducting a special investigation and had merely undertaken regular regulatory assessment.

"Every year NHB conducts inspections on regulatory and credit issues and this inspection is a part of that process," the official said.

"Normally, NHB team visits for inspection annually, but this mid-year visit is something new," said a company executive.

The government was keen that HFCs did not use the special window at a low rate and offered loans at very high rates. On 5 December, the Reserve Bank of India [Get Quote] announced a refinance window for the HFCs, under which Rs 4,000 crore (Rs 40 billion) was made available to them from NHB at a concessional rate of 8 per cent.

In recent months with housing finance companies finding it tough to access capital and the real estate sector hit by the slowdown, NHB has tightened supervision. From November 2008, the regulator has asked for monthly reports from HFCs, which have to furnish more details about their borrowing pattern, asset liability mismatches and different sources of funding.

Similarly, the average cost associated with each instruments of borrowing is to be submitted at the end of every month along with the rating that each instrument enjoyed. Earlier, these details were required to be submitted annually.