The Reserve Bank of India (RBI) today proposed to double the minimum net owned fund (NOF) requirement for housing finance companies to Rs 20 crore and classification of such firms under its draft framework for these companies. The step is expected to strengthen the capital base mainly of small housing finance companies (HFC).
Releasing the proposed changes in the regulatory framework for HFCs, the central bank has proposed in the new draft framework a new category of systematically important HFCs based on financial parameters and restrict lending by HFCs either to a construction company or flat buyers of that company.
The RBI said it would provide existing HFCs with a glide path to achieve the minimum NOF of Rs 20 crore. For that, they must reach Rs 15 crore within a year and Rs 20 crore in two years.
The proposed changes in the rules follow RBI’s taking over as the regulator of mortgage lenders from National Housing Bank (NHB) in August 2019. The central bank will now regulate home financiers under the category of non-banking financial companies.
Under the NHB regulations, there was no formal definition of housing finance. In the draft framework released on its website, RBI said housing finance would now mean “financing, for purchase, construction, reconstruction, renovation or repairs of residential dwelling unit …” and some other activities, including giving loans to corporates and government agencies for employee housing projects.
“All other loans, including those given for furnishing dwelling units, loans given against mortgage of property for any purpose other than buying/construction of a new dwelling unit/s or renovation of the existing dwelling unit/s, will be treated as non-housing loans,” said RBI.
The RBI draft said that they would be split into systemically important and non-systemically important companies on the lines of NBFCs. “Non-deposit taking HFCs with asset size of Rs 500 crore and above, and all deposit-taking HFCs 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,” according to the proposed regulations.
“RBI’s announcements on draft regulatory changes for HFCs sharpen the definition of what’s ‘housing finance’ or ‘providing finance for housing’ to residential dwellings. It also provides relief to residential developers as lending to builders for construction of residential dwelling units is allowed in this definition,” said Srinath Sridharan, a banking sector expert. “Also, with a few other tightenings of regulations, I anticipate the valuation-driven hunger for HFC licences over the past few years will ebb. Only serious players will stay in this industry.”