RBI proposes to further harmonise regulations of HFCs and NBFCs

RBI

The Reserve Bank of India (RBI) on January 15 issued a draft circular that seeks to harmonise regulations of housing finance companies (HFCs) with that of Non-banking finance companies (NBFCs) in several areas including minimum capital requirement, deposit taking rules among other areas of regulations.

The central bank has reviewed deposit directions for deposit-taking HFCs, participation of HFCs in various derivative products for hedging purposes, diversification into other financial products and adoption of technical specifications by HFCs under Account Aggregator ecosystem, etc, the RBI said in a press release.

Further, the draft circular proposes to review certain directions for deposit taking NBFCs, the central bank said, adding this exercise is part of further harmonisation of HFC regulations with NBFC regulations.

Key changes proposed:

As per the draft circular, HFCs will have stricter rules going ahead comparable to NBFCs. Currently, HFCs accept public deposits are subject to more relaxed prudential parameters on deposit acceptance as compared to NBFCs.  Since the regulatory concerns associated with deposit acceptance is same across all categories of NBFCs, it has been decided to move HFCs towards the regulatory regime on deposit acceptance as applicable to deposit-taking NBFCs, the RBI said.

Accordingly, the revised regulations would be applicable to HFCs accepting or holding public deposits, the RBI said.

Also, currently the deposit taking HFCs are required to maintain 13 per cent of liquid assets against public deposits held by them. It has now been decided that all deposit taking HFCs need to maintain liquid assets to the extent of 15 per cent of the public deposits held by them, in a phased manner.

As per the plan,  deposit taking HFCs will need to take the percentage of liquid assets to 14 percent by September 30, 2024 and to 15 per cent by March 31, 2025, the RBI said. Also,  it has been decided that the regulations on safe custody of liquid assets for HFCs will be aligned with those of NBFCs in the interest of harmonization of regulations, the RBI said.

Further, the proposed regulations  seeks to harmonise regulations regarding appointment of agents, rate and tenure of deposits, participation in exchange traded currency derivatives, interest rate futures, credit defult swaps, issue of co-branded credit cards, accounting year and audit, investment through alternative investment funds among other issues, as per the draft circular.

Subsequent to transfer of regulation of HFCs from National Housing Bank (NHB), the RBI had issued revised regulatory framework for HFCs through a circular dated October 22, 2020, stating further harmonisation between regulations of HFCs and NBFCs will be taken up in a phased manner.

Comments on the draft circular are invited from NBFCs (including HFCs) and other stakeholders by February 29, 2024.