This story is from June 18, 2020

RBI moves to tighten rules for housing finance lending business

The RBI on Wednesday proposed a host of changes to the rules that govern housing finance companies (HFCs). These include doubling of net owned funds to Rs 20 crore and dividing all these companies into systematically important ones and the rest.
RBI moves to tighten rules for housing finance lending business
(File photo)
MUMBAI: The RBI on Wednesday proposed a host of changes to the rules that govern housing finance companies (HFCs). These include doubling of net owned funds to Rs 20 crore and dividing all these companies into systematically important ones and the rest. The industry regulator also said that at least 75% of half of HFCs’ net assets should be individual housing loans and proposed that no pre-payment penalty should be levied for floating rate loans.

According to the RBI, a net owned fund is the total of equity capital, free reserves, balance in share premium account and capital reserves. The central bank also proposed that non-adherence to the new rules should render HFCs to be treated as non-banking finance companies (NBFCs). The changes in rules have been initiated since HFCs came under the direct supervision of the RBI in early August 2019, from the National Housing Bank (NHB). The regulator has given the industry till July 15 to send their comments to it.
Industry players said the proposals are forward looking and would make the housing finance sector stronger. However, some industry players said that some of these rules are already there in various forms within NHB’s regulations. “NHB’s refinancing rules stipulate that at least 51% net assets of an HFC should be in housing loans, although the same is not there in the main rules for HFCs. So HFCs which got refinance from NHB fulfil this criterion,” said HDFC executive director V S Rangan.
RBI moves to tighten rules for housing fin lending biz

This move by the RBI is part of its endeavour to bring all types of lenders — banks, NBFCs and HFCs — under one regulatory umbrella. The draft guidelines also say that existing HFCs will get a year to increase their net owned funds to Rs 15 crore and two years to reach the Rs 20-crore limit.
“This step is aimed at strengthening the capital base, especially of smaller HFCs”, and new companies entering the sector, the draft proposal said.
The draft guidelines also defined the terms ‘housing finance’ and ‘providing finance for housing’ as financing for purchase, construction, reconstruction, renovation or repairs of residential dwelling units. The RBI draft rules also said that non-deposit-taking HFCs with asset size of Rs 500 crore and above, and all deposit-taking HFCs, irrespective of their asset size, will be treated as systemically important HFCs. According to Indiabulls Housing Finance VC & MD Gagan Banga, for a while developmental works relating to HFCs were on the slow track and these rules, once adopted, would make the sector robust. “These rules would also make it easier for HFCs to raise debt and equity capital,” Banga said.
End of Article
FOLLOW US ON SOCIAL MEDIA