Honeywell CEO King Harris states that his company's Employee Loan Housing Program, introduced in March this year, has brought down employee losses from 25 per cent to 14 per cent. The Aspen Sky Company, which operates the sports-oriented Sky Resort, has invested millions into buying and building affordable housing for its employees in the past five years. Similarly, Bank of America started House Buying Help of $5,000 to its employees last year.

Corporate help is usually in the form of a down-payment on the purchase of a home and in some cases even comes in the form of an interest subsidy on loan repayments by the employee. Many companies totally waive off the down-payment from an employee provided he stays with the company for a minimum five years.

Owning a home in India is far more difficult than in the West. To begin with, our home costs account for 10-15 years of employee wages. This is largely because of high interest rates that translate into high repayment costs. For a 30-year loan scheme of ICICI, for example, a borrower pays 4.118 times the borrowed amount; his US counterpart pays less than half that.

Indian companies are fast realising that owning one's own home can be a major motivating factor in reducing employee turnover. IT companies, the hospitality industry and banks have been the first to introduce employee housing schemes. Let us take a look at some of these schemes.

East India Hotels (EIH) offers its senior employees housing loans of upto Rs 10 lakh under a tie-up arrangement with HUDCO. The employee secures his loan from HUDCO at its standard rate of interest (13 per cent at monthly rest currently), but the company subsidises the interest cost to the employee so that the effective rate of interest for him is only 4 per cent. This enables the employee to clear his 15-year loan in 10 years by simply redeploying post-tax interest subsidy and the income-tax relief amount towards principal loan repayment. Let me explain this concept with the help of an example.

Mr Rahul Batra approaches EIH for a Rs 10 lakh housing loan. His salary plus dearness allowance is Rs 30,000 per month. Once the loan is sanctioned by HUDCO for a period of 15 years, his EMI (equated monthly installment) is pegged at Rs 12,652 (at 13 per cent compounded monthly). On this basis, Mr Batra's debt service cost (12,652 x 180 months) works out to Rs 22,77,260, which includes an interest cost component of Rs 12,77,360.

However, under its executive housing scheme, EIH has agreed to subsidise the interest cost in excess of 4 per cent per annum on the outstanding loan amount at the close of the previous year upto a maximum of 10 years.

Table-I shows loan amortisation and the interest cost subsidy that Mr Batra would receive from EIH on an annualised basis. However, to ensure that the loan is settled in about eight years' time, EIH will pay the subsidy amount to HUDCO as additional principal loan repayment. This amount will be taxed in Rahul's hand, but interest subsidy under Section 24 of the Income-Tax Act will be available to him on interest paid to HUDCO of upto Rs 1 lakh.

Similarly, some banks give their senior employees housing loans at interest rates ranging between 2.5 and 4.0 per cent. The best part is that the loans are structured in such a manner that the employee pays only the interest cost on a year-to-year basis for the entire 15-year tenure, while the principal amount is settled by the bank when the term ends.

How is this done? Let us say HDFC Bank sanctions Mr Batra a loan of Rs 17 lakh and the annual interest payable on this amount at 2.5 per cent is Rs 42,500-i.e. Rs 3,542 per month. The bank will actually disburse a loan of Rs 15 lakh to Mr Batra and invest the balance Rs 2 lakh in high return investments, which would grow to Rs 17 lakh in about 15 years. At a point when the investment amount equals outstanding principal loan amount the investment will be en-cashed and proceeds utilised to square up the loan account.

The latest trend in the IT industry is to encourage high potential employees to purchase a home within the first two years of their joining the company by underwriting their EMI payments to the housing finance company for the next 10 years. However, the company gets an undertaking from the employee that the apartment will be his without any further cost only if he stays with the company for five years.

How is this achieved? Let us say the cost of an apartment is Rs 12 lakh. The company will make a down-payment of Rs 2 lakh on behalf of the employee and show it as an outstanding advance in its books. The balance amount of Rs 10 lakh will be secured as a 10-year loan from HUDCO, which will carry an EMI payment of Rs 14,930 per month. The company will give the employee a house rent allowance of Rs 15,000 per month and use it to pay the HUDCO installments.

Assuming the employee's salary is Rs 30,000 per month, he will pay nil tax on this amount, provided he repays Rs 18,192 to HUDCO. To pay this, the employee will actually be utilising the income-tax benefit of Rs 34,500 per annum under Section 24 of the Income-Tax Act. This way, he will be contributing a marginal amount of Rs 3,804-i.e. Rs 317 only per month-from his salary. This in effect would bring down the loan repayment period to seven years.

The company will not only additionally appropriate a part of the employee's post-tax bonus, but also utilise the amount for squaring up the advance of Rs 2 lakh and undertake loan repayment in such a manner that at the end of the fifth year, the outstanding loan amount will be zero.

This means that the company in effect commits to the employee a minimum guaranteed bonus of about Rs 1 lakh per annum for the next four years. If the employee leaves in the intervening period, then the company withdraws its guarantee to HUDCO and the employee has to settle the outstanding HUDCO loan liability. Given the uncertainty perception in IT jobs, refinance may not be easily available.

Yet another scheme doing the corporate rounds is the one LIC Housing Finance specifically intends for policy-holders. Under this, the borrower takes out an `endowment with profits' life insurance policy on his life of the same value and tenure as his housing loan. While he repays the interest every month, he pays the principal upon maturity of the policy. The insurance policy is assigned to the LIC Housing Finance. Let us examine the feasibility of this scheme for an investor who borrows Rs 10 lakh for a term of 15 years. The interest cost on this loan at 13 per cent calculated on annual rest basis is Rs 1,30,000 pa. In addition, the borrower would pay an insurance premium on his Rs 10 lakh life endowment policy of approximately Rs 66,000 per annum (premium varies with age at entry of the insured person, policy terms, type of scheme chosen and the sum insured).

On this basis, the borrower would annually pay Rs 1.96 lakh (Rs 16,333 monthly) towards loan servicing, which he cannot afford with a monthly salary of Rs 30,000. On the other hand, if the borrower opts for a conventional loan scheme with HUDCO, the EMI would work out to Rs 12,652 (Rs 22,77,360 for the full loan term). But if the interest cost is being subsidised by the employer and the effective interest rate does not exceed 9 per cent, then this plan would be worth considering.

These are just a few of the schemes that are doing the rounds of the corporate world and the possibility of more companies formulating their employee benefit schemes can only be high.