RBI proposes changes in regulations for housing finance companies

The Reserve Bank on Wednesday proposed to double the minimum net owned fund (NOF) requirement for housing finance companies to Rs 20 crore and classification of such firms under its draft framework for these companies.

The step is aimed at strengthening the capital base mainly of small housing finance companies (HFC), the RBI said while releasing the proposed changes in the regulatory framework for HFCs.

A new category of systematically important HFCs based on financial parameters and restrict lending by HFCs either to a construction company or flat buyers of that company have also been proposed in the draft framework.

The RBI said that existing HFCs would be provided with a glide path to achieve minimum Net Owned Fund (NOF) of Rs 20 crore. They will be required to reach Rs 15 crore within one year and Rs 20 crore within two years.

"This step is aimed at strengthening the capital base, especially of smaller HFCs and companies proposing to seek registration under NHB Act," the RBI said while inviting comments from stakeholders by July 15.

Regarding the classification of HFCs, the RBI draft said that they would be split into systemically important and non-systemically important companies on the lines of NBFCs.

At present, HFC regulations are common for all HFCs irrespective of their asset size and ownership, the draft said adding, "non-deposit taking HFCs (HFC-ND) with asset size of Rs 500 crore and above; and all deposit-taking HFCs (HFCD), irrespective of asset size, will be treated as systemically important HFCs."

On the other hand, HFCs with asset size below Rs 500 crore will be treated as non-systemically important HFCs (HFC-non-SI), the draft said.

"While the regulations for HFC-NDSI and HFC-Ds will be as existing under NHB regulations or harmonised with NBFC regulations, the regulations for HFC-non-SI will be brought on par with relevant regulations for NBFC-ND-non-SI."

Among other things, the draft regulations propose to restrict lending by the HFCs to either the construction company or individuals purchasing flats from the company.

"...the HFC can either undertake an exposure on the group company in real estate business or lend to retail individual homebuyers in the projects of group entities, but not do both,” the draft said.

The HFC's exposure in its group entities (lending and investment) directly or indirectly cannot be more than 15 per cent of owned fund for a single entity in the group and 25 per cent of owned fund for all such group entities.

The draft also proposes that foreclosure charges as a measure of customer protection and also in order to bring in uniformity, no foreclosure charges/pre-payment penalties shall be levied on any floating rate term loan sanctioned for purposes other than business to individual borrowers with or without co-obligants.

Since similar regulations are currently not prescribed for HFCs, it is proposed to extend these instructions to HFCs.

Post transfer of regulation of HFCs from National Housing Bank (NHB) to RBI in August 2019, the central bank had said it will carry out a review of the extant regulatory framework applicable to HFCs.