In a proposed review of the existing norms for housing finance companies (HFCs), the Reserve Bank of India (RBI) on Wednesday clearly defined the ‘housing finance’ business. The regulator defined HFCs as those that have 50% assets as housing loans and 75% of which should be for individual homebuyers.
The proposed norms come months after the blowout at Dewan Housing Finance (DHFL), where a chunk of retail loans were found to have been diverted to group companies.
Housing companies will be allowed to achieve this target in a staggered manner — 60% by March 31, 2022, 70% by March 31, 2023, and 75% by March 31, 2024.
In order to address concerns on double financing due to lending to construction companies in the group and also to individuals purchasing flats from the latter, the HFC concerned may choose to lend only at one level, the central bank proposed. “That is, the HFC can either undertake an exposure on the group company in real estate business, or, lend to retail individual homebuyers in the projects of group entities but not do both,” the proposed guidelines said.
The limits prescribed for HFCs for exposure to commercial real estate (CRE) by way of investment in land and building shall not be more than 20% of capital fund and for capital market (CME) shall not be more than 40% of net worth total exposure of which direct exposure should be 20% of net worth. There are no such limits prescribed for NBFCs.
If the HFC decides to take any exposure in its group entities (lending and investment) directly or indirectly, such exposure cannot be more than 15% of owned fund for a single entity in the group and 25% of owned fund for all such group entities. As regards extending loans to individuals, who choose to buy housing units from entities in the group, the HFC would follow arm’s length principles in letter and spirit, the central bank said.
As a measure of customer protection and also in order to bring in uniformity with regard to repayment of various loans by borrowers of banks and NBFCs, HFCs will not be allowed to levy foreclosure charges or pre-payment penalties on any floating-rate term loan sanctioned for purposes other than business to individual borrowers with or without co-obligants.
Extant HFC regulations do not make any distinctions in terms of asset size or ownership. RBI proposed to issue HFC regulations by classifying them as systemically important and non-systemically important, so as to introduce a graded approach as applicable to NBFCs in general. In other words, non-deposit taking HFCs (HFC-ND) with asset size of Rs 500 crore and above and all deposit taking HFCs (HFC-D), irrespective of asset size, will be treated as systemically important HFCs. HFCs with asset size below Rs 500 crore will be treated as non-systemically important HFCs (HFC-non-SI). While the regulations for HFC-NDSI & HFC-Ds will be as existing under National Housing Bank (NHB) regulations or harmonised with NBFC regulations, the regulations for HFC-non-SI will be brought on par with relevant regulations for NBFC-ND-non-SI. RBI also proposed increasing the minimum net owned funds (NOF) for HFCs to Rs 20 crore from Rs 10 crore. For existing HFCs, the glide path would be to reach Rs 15 crore within one year and Rs 20 crore within two years. NHB’s former chairman RV Verma said this should not be a problem as many of the existing HFCs already have capital. “Those who are on the border will be given time. And even if they are not able to raise up to 20 crore within the stipulated time, I am sure RBI will provide dispensation to them,” he added.