Housing finance regulator National Housing Bank (NHB) plans to roll out a set of measures for housing finance companies (HFCs) to better equip them to handle liquidity and solvency risks.
In the long run, the proposed measures on higher minimum capital requirement and lower borrowing limit are expected to better integrate HFCs with the broader banking and financial system.
As part of the regulatory framework review, NHB proposes to progressively increase the minimum capital adequacy requirement for HFCs from the current 12 per cent of aggregate risk weighted assets, and of risk adjusted value of off-balance sheet items, to 15 per cent by March 2022. Currently, India has about 95 registered HFCs, of which 18 are allowed to access public deposits.
‘Brakes’ on the sector
Some industry experts see the latest NHB proposals as regulatory brakes being applied on the somewhat overheated housing finance sector.
The Capital Adequacy Ratio (CAR) is one of the important parameters from the point of view of solvency of HFCs and their protection from untoward events, which arise as a result of the liquidity and credit risks HFCs are exposed to.
The CAR of HFCs is to be increased from 12 per cent now to 13 per cent by March 2020, 14 per cent by March 2021 and 15 per cent by March 2022.
It may be recalled that the minimum CAR for non-banking financial companies (NBFCs) is already 15 per cent.
NHB also proposes to progressively reduce the limit on the overall borrowings of HFCs, from the current permissible level of 16 times of Net Owned Funds (NOF) to 12 times by March 31, 2022. Moreover, the ceiling on public deposits for an applicable HFC is proposed to be capped at three times its NOF.
RV Verma, former CMD of NHB, told BusinessLine that the regulatory measures will bring greater stability to the housing finance system and improve confidence among stakeholders — investors, equity and debt providers, depositors and borrowers — in the capacity, health and sustainability of the HFCs.
This also is an important signal that only serious players with deep capital commitment and long-term interest will be expected to register with the NHB, he added.
Ravindra Sudhalkar, ED & CEO, Reliance Home Finance, said: “It should be noted that prudent home finance companies have always maintained a higher CAR.” Lowering the borrowing levels is a good move that will help rein-in the sector, he added.
But the regulator also needs to facilitate easy availability of capital for HFCs with strong balance-sheets, as funds crunch is a major roadblock to the growth of the housing market, Sudhalkar added.
NHB has given time till end March for HFCs and other stakeholders to respond/provide feedback on the proposed regulatory changes.