Mumbai: The Reserve Bank of India (RBI) has withdrawn certain exemptions granted to housing finance companies (HFCs), putting its regulations on a par with those of non-banking financial companies (NBFCs).

This comes after the Finance Act, 2019 amended the National Housing Bank Act, 1987, conferring certain powers for regulation of HFCs with the Reserve Bank of India.

The central bank said HFCs are currently exempt from the provisions of Chapter IIIB of Reserve Bank of India Act, 1934. However, on a review, it has been decided to withdraw these exemptions and make the provisions of Chapter IIIB except Section 45-IA of Reserve Bank of India Act applicable to them.

Following the withdrawal of these exemptions, RBI can, on being satisfied that the HFC is unable to pay its debt or if its continuance is detrimental to public interest, order its winding it up. It will be considered that the HFC is unable to pay its debt if it fails to meet within five working days any lawful demand.

Moreover, the central bank can now inspect any HFC to verify the correctness or completeness of any statement, furnished to RBI. Another exemption taken away is with regard to the creation and maintenance of a reserve fund. Mortgage lenders will have to create a reserve fund and transfer at least 20% of its net profit every year before any dividend is declared.

In her maiden Budget speech on 5 July, finance minister Nirmala Sitharaman had proposed an amendment to Section 45-IA of the RBI Act 1934 in the Finance Bill.

On 13 August, RBI announced that housing finance companies will be treated as a category of non-banks.

“HFCs will henceforth be treated as one of the categories of non-banking financial companies (NBFCs) for regulatory purposes. Reserve Bank of India will carry out a review of the extant regulatory framework applicable to HFCs and come out with revised regulations in due course," the central bank had said.

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