The Reserve Bank of India (RBI) has placed a draft of changes proposed to the extant regulatory framework applicable to housing finance companies (HFCs) on its website. This comes after the central bank had notified its intent to review it on August 13, 2019 and stated that HFCs would until further directions comply with the National Housing Board (NHB) Act.
“RBI has undertaken the said review and has identified a few changes which are proposed to be prescribed for HFCs,” the central bank said on June 18, 2020.
The changes address the following:
> Defining principal business and qualifying assets for HFCs;
> Defining the phrase ‘providing finance for housing’ or ‘housing finance’;
> Classifying HFCs as systemically important (asset size of Rs 500 crore and above) and non-systemically important (asset size less than Rs 500 crore); and
> Directions on Liquidity Risk framework and LCR, securitisation, etc., for non-banking finance companies (NBFCs), to be made applicable to HFCs.
The regulator has sought public comments on its draft from HFCs, market participants and other stakeholders by July 15, 2020, latest – over email with subject line ‘Feedback – proposed changes to regulations applicable to HFCs’.
Some of the proposed changes are as follows:
> To address double lending, the revisions propose HFCs can either take exposure on the group company in real estate business or lend to an individual, retail homebuyers in group entity projects.
> For loans to individual buyers who choose to buy housing units from entities in the group, the HFC would follow arm’s length principles in letter and spirit.
> HFCs exposures, whether in terms of lending and investment cannot exceed 15 percent of the owned funds in a single entity in the group and 25 percent of owned funds for all such group entities.
> The change in the definition of housing finance brings loans to builders for construction of residential dwelling units, schools and hospitals within its purview while excluding loans against the property from it.
> HFCs will also be required to have a minimum 50 percent of net assets as "housing finance". A four-year timeline for individual loan portfolio has also been proposed, of which at least 75 percent must be housing finance. These conditions if not met would lead to the HFC being categorised as an NBFC – Investment and Credit Companies (NBFC-ICCs).> Existing home loan lenders will be required to double their minimum net owned fund to Rs 20 crore in two years, in order to strengthen the capital base.