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Business News/ News / India/  RBI reviews regulatory structure for HFCs

RBI reviews regulatory structure for HFCs

The RBI has proposed higher liquid assets for housing finance companies, smaller aggregate deposits, and the ability to issue co-branded credit cards in a draft circular on reviewing the regulatory framework for HFCs.

The draft circular has proposed halving the maximum deposit tenure at housing finance companies to five years. (HT_PRINT)Premium
The draft circular has proposed halving the maximum deposit tenure at housing finance companies to five years. (HT_PRINT)

Mumbai: The Reserve Bank of India (RBI) on Monday took another step to harmonize regulations applicable to mortgage financiers and other non-bank lenders, proposing higher liquid assets to back deposits at housing finance companies, smaller aggregate deposits as a proportion of their own capital, and allowing them to issue co-branded credit cards.

These are part of a draft circular on reviewing the regulatory framework for housing finance companies (HFCs).

The Finance Act, 2019 amended the National Housing Bank Act, 1987, conferring certain powers on the RBI for regulation of housing finance companies. This led to the transfer of regulation of HFCs to the RBI. Since then, the RBI has issued a clutch of regulations that treat housing finance companies as a category of non-banking financial company (NBFC), gradually aligning the regulatory framework for both.

“To be consistent with this policy stance…an analysis of regulations as applicable to HFCs vis-à-vis NBFCs was undertaken, with an objective of harmonizing regulations of HFCs, duly considering the specialized nature of HFCs catering to the housing sector," RBI said on Monday.

For instance, deposit-taking HFCs had to so far maintain 13% of liquid assets against public deposits held by them. The RBI now proposed that all deposit-taking HFCs will need to maintain liquid assets of 15% of the public deposits held by them, in a phased manner, reaching the target by 31 March 2025.

According to information available on the website of National Housing Bank, HFCs that can accept deposits include Can Fin Homes Ltd, Cent Bank Home Finance Ltd, Aadhar Housing Finance Ltd, ICICI Home Finance Company Ltd and LIC Housing Finance Limited, besides others.

RBI also said that housing finance companies can selectively issue co-branded credit cards with scheduled commercial banks, without risk-sharing, with prior approval of the regulator. Meanwhile, in what could come as a setback to mortgage lenders allowed to take deposits, RBI proposed lowering the ceiling on aggregate deposits. It suggested that the ceiling should be shrunk from three times to 1.5 times of net owned funds.

“Deposit taking HFCs holding deposits in excess of the revised limit shall not accept fresh public deposits or renew existing deposits till such time the quantum of public deposits is below the revised limit. However, the existing excess deposits will be allowed to run off till maturity," it said.

The draft circular also proposed halving the maximum deposit tenure at housing finance companies to five years. Existing deposits that have maturities over five years will be repaid as per their existing repayment profile, the RBI said.

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Shayan Ghosh
Shayan Ghosh is a national editor at Mint reporting on traditional banks and shadow banks. He has over 12 years of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
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Published: 16 Jan 2024, 12:15 AM IST
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