The Reserve Bank of India on Monday proposed a phased transition towards tightening regulations for housing finance companies (HFCs) to ensure they are treated at par with non-banking financial companies (NBFCs).
The RBI, in a draft circular, proposed all deposit-taking HFCs raise their total liquid assets, along with unencumbered approved securities, to 15% of public deposits, from 13% currently, by the end of March 2025. HFCs will do this in a phased manner, wherein the minimum percentage will be increased to 14% of deposits by September 2024, and 15% by March 2025. It has invited comments from stakeholders by February 29.
“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 and specify uniform prudential parameters,” the RBI said. The revised regulations are effective immediately, unless specified otherwise, the central bank said.
Currently, HFCs are allowed to accept or renew public deposits repayable after a period of 12 months or more but not later than 120 months from the date of acceptance or renewal of such deposits, the RBI said in the draft circular. “It has been decided that henceforth, with effect from the date of this circular, the public deposits accepted or renewed by HFCs shall be repayable after a period of 12 months or more but not later than 60 months.
Existing deposits with maturities above 60 months shall be repaid as per their existing repayment profile,” it said. In case their credit rating is below minimum investment grade, such HFCs would not renew existing deposits or accept fresh deposits thereafter till they obtain an investment grade credit rating.
With regard to the ceiling on the quantum of public deposits held by deposit-taking HFCs, the RBI said the limit now stands reduced from 3 times to 1.5 times of net owned funds. It has now been decided that all deposit-taking HFCs would maintain on an ongoing basis liquid assets to the extent of 15% of public deposits held by them in a phased manner, it said. It would be incumbent upon the HFC concerned to inform the National Housing Bank in case the above asset cover falls short of the liability on account of public deposits.
According to the draft circular, deposit-taking HFCs must fix board-approved internal limits separately within the limit of direct investment, for investments in unquoted shares of another company which is not a subsidiary or a group company. Such internal limit must form part of overall limits and sub-limits for exposure to capital market for deposit taking housing finance companies.
Separately, the RBI has also proposed that housing finance companies be allowed to hedge the risks arising out of their operations. These entities will also be allowed to diversify their activities into certain fee-based activities without risk participation.