The Reserve Bank of India (RBI) on Wednesday proposed to modify the existing regulations for housing finance companies, as the central bank is now the regulator of these firms.
The RBI took over the regulations of the housing finance companies (HFC) from the National Housing Bank (NHB) in August 2019. So far, HFCs were being regulated by rules set by NHB.
However, in those regulations, according to RBI, there was no formal definition of ‘housing finance’. In a draft released on its website, the central bank set a formal definition of the same. Housing finance would now mean “financing, for purchase/ construction/ reconstruction/ renovation/ repairs of residential dwelling unit ...” for a whole host of functions that would include giving loans to corporates and government agencies for employee housing finance projects.
“All other loans including those given for furnishing dwelling units, loans given against mortgage of property for any purpose other than buying/ construction of a new dwelling unit/s or renovation of the existing dwelling unit/s, will be treated as non housing loans," the RBI draft said.
In its draft guidelines, the RBI also classified HFCs as systemically important and non-systemically important. “Non-deposit taking HFCs with asset size of Rs 500 crore and above; and all deposit taking HFCs, irrespective of asset size, will be treated as systemically important HFCs.
HFCs with asset size below Rs 500 crore will be treated as non-systemically important HFCs,” the RBI draft guidelines said.
For non-systemically important HFCs, the guidelines will be more or less modelled after normal NBFCs, the draft guidelines said. Therefore, the central bank’s directions on Liquidity Risk framework and liquidity coverage ratio, securitisation, etc., for NBFCs, will be made applicable to HFCs. Such harmonisation will be done over a period of two years, and till such time the HFCs can follow the extant NHB norms, the RBI said.
While treating HFCs as another form of NBFCs, the RBI draft proposed to carve out a slightly separate set of rules for the HFCs.
Qualifying Assets refer to ‘housing finance’ or ‘providing finance for housing’ as per the definition, and not less than 50 per cent of net assets should be in the nature of ‘qualifying assets’ for HFCs, of which at least 75 per cent should be towards individual housing loans, the RBI said.
If an HFC does not fulfil the criterion, will be treated as NBFC – Investment and Credit Companies (NBFC-ICCs) and will be required to approach RBI for conversion of their certificate of registration from HFCs to NBFC-ICC, the RBI said. However, such HFCs will be given a phased timeline of up to four years to comply with the new RBI guidelines.