RBI Updates Regulations For Housing Finance Companies

                Housing Finance Companies (HFCs) accepting 
public deposits will face the same regulatory 
rigour as deposit-taking Non-Banking Finance 
Companies (NBFCs), with the ceiling on 
the quantum of deposits and the maximum 
period for which they can accept deposits 
being halved.
Further, HFCs will be required to maintain 
higher minimum percentage of liquid assets. 
Even as prudential regulations have been 
tightened, HFCs, like NBFCs, have been given 
leeway to hedge the risks arising out of their 
operations and to issue co-branded credit 
cards.
The aforementioned prescriptions are part of 
RBI’s “review of regulatory framework for HFCs 
and harmonisation of regulations applicable to 
HFCs and NBFCs”.
RBI noted that currently, HFCs accepting public 
deposits are subject to more relaxed prudential 
parameters on deposit acceptance as 
compared to NBFCs. Since the regulatory 
concerns associated with deposit acceptance 
are same across all categories of NBFCs, RBI 
decided to move HFCs towards the regulatory 
regime on deposit acceptance as 
applicable to deposit-taking NBFCs and 
specify uniform prudential parameters.
Quantum of Deposits
The ceiling on quantum of public deposits held 
by deposit taking HFCs, which comply with all 
prudential norms and minimum investment 
grade credit rating, has been reduced from 3 
times to 1.5 times of net owned fund.
Deposit taking HFCs holding deposits in 
excess of the revised limit cannot accept fresh 
public deposits or renew existing deposits till 
they conform to the revised limit. However, the 
existing excess deposits will be allowed to run 
off till maturity.
The halving of the ceiling on the quantum of 
public deposits will require them to explore 
other fund raising alternatives.
Public deposits accepted or renewed by HFCs 
will be repayable after a period of twelve 
months or more but not later than 60 months 
(currently 120 months). Existing deposits with 
maturities above 60 months can be repaid as 
per their existing repayment profile.
Maintenance of liquid assets
All deposit taking HFCs have to maintain, on an 
ongoing basis, liquid assets to the extent of 15 
per cent (against the current 13 per cent) of 
the public deposits held by them, in a 
phased manner – 14 per cent by January 1, 
2025 and 15 per cent by July 1, 2025.
To be eligible to accept public deposits, the 
deposit taking HFCs has to invariably obtain 
minimum investment grade credit rating at 
least once a year.
If the HFC’s credit rating is below the minimum 
investment grade, it cannot renew existing 
deposits or accept fresh deposits thereafter till 
it obtains an investment grade credit rating.



Source : The Hindu Business Line