Housing Finance companies “New rules” explained

The Reserve Bank of India (RBI) issued a revised regulatory framework for housing finance companies (HFCs). This is part of the process of transferring the regulations of these companies from the National Housing Bank to the central bank. According to the RBI, an HFC is an NBFC whose financial assets constitute at least 60% of its total assets. Out of the total assets, not less than 50% should be by way of housing financing for individuals.

HFC, which currently do not satisfy this criteria, need to meet the 60% cut-off by March 2024. Of this, 50% should be towards housing finance for individuals. Such HFCs need to submit to the RBI a board-approved plan within three months including a roadmap to fulfil the above-mentioned criteria and timeline for transition.

Those HFCs unable to fulfil the above criteria as per the timeline shall be treated as NBFC – Investment and Credit Companies (NBFC-ICC) and they will be required to approach the central bank for conversion of their Certificate of Registration from HFC to NBFC-ICC. An HFC needs a minimum ₹ 20 crore, the minimum net owned funds required for a company to commence housing finance as its principal business or carry on the business of housing finance as its principal business.

If the HFCs fail to comply with this norm within a specified period, their registration will get cancelled. HFCs cannot impose foreclosure charges/ pre-payment penalties on any floating rate term loan sanctioned for purposes other than business to individual borrowers. Further, the RBI has stipulated a liquidity buffer in terms of LCR (liquidity coverage ratio), which will promote resilience of HFCs to potential liquidity disruptions, the RBI said. According to this, all HFCs need to have 100% LCR by 1st December 2025.

HFC prefers to undertake exposure in group companies, such exposure by way of lending and investing, directly or indirectly, cannot be more than 15% of owned fund for a single entity in the group and 25% of owned fund for all such group entities. HFCs have been regulated by NHB. The RBI wants to bring these companies under closer scrutiny to make sure these are run with enough safeguards.



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