RBI's new deposit norms unlikely to be onerous for housing finance companies: Crisil

A CRISIL Ratings analysis of the 121 HFCs accepting public deposits showed that most of the HFCs are already compliant with the revised guidelines on public deposits and liquid assets.

"In general, the reliance on public deposits is limited for HFCs, with only 12 out of 94 HFCs having a deposit-taking license. Total public deposits held by deposit-taking HFCs is estimated at ~Rs 25,000 crore, constituting ~5% of their total borrowings; however, for 3 HFCs, this is higher than 10%," said the Crisil report.

Subha Sri Narayanan, Director, CRISIL Ratings, said, “Most deposit-taking HFCs already comply with the new norms. A couple of them may have to enhance their on-book liquidity to adhere to the 15% guideline and/or align their incremental deposits to manage the ratio of their public deposits to net owned funds. To be sure, the lowering of the maximum tenure of deposits will reduce the flexibility that HFCs have to manage their asset liability maturity profiles. However, most HFCs do not have a sizeable portion of over-5-year-maturity deposits in the borrowing mix.”

According to the analysts, the revised norms contain three key amendments for HFCs.

First, the minimum proportion of liquid assets held against public deposits by HFCs needs to be increased in a gradual manner from 13 percent currently to 14 percent by January 1, 2025, and to 15 percent by July 1, 2025. Unencumbered approved securities held as a percentage of public deposits have also been increased.

Second, the maximum quantum of public deposits held by deposit-taking HFCs has been reduced from 3x to 1.5x of net owned funds with immediate effect.

Third, the maximum tenure of public deposits raised by HFCs has been reduced from 10 years to 5 years with immediate effect.

The analysts also noted that the HFCs have been given enough time to implement the liquidity norms and been allowed to run down any excess or non-compliant deposits till maturity.

On the regulatory thinking behind this move, the analysts wrote, "The new norms are another step by the RBI to harmonise the regime for HFCs and non-banking financial companies
— the former came under its oversight in 2019."

They added, "This will reduce the arbitrage between different regulatory structures and ensure sharper focus on the business and operational fundamentals".