– Qasim Saif (firstname.lastname@example.org)
Finance Minister in her speech for the budget 2019-20 stated that “Efficient and conducive regulation of the housing sector is extremely important in our context. The National Housing Bank (NHB), besides being the refinancer and lender, is also regulator of the housing finance sector. This gives a somewhat conflicting and difficult mandate to NHB. I am proposing to return the regulation authority over the housing finance sector from NHB to RBI. Necessary proposals have been placed in the Finance Bill.” Subsequently, the provisions of National Housing Bank Act, 1987 were amended w.e.f August 09, 2019 pursuant to the Finance Act, 2019 thereby shifting the power to govern Housing finance Companies (HFCs) from National Housing Bank (NHB) to the Reserve Bank of India (RBI). Consequently, the RBI on June 17, 2020, issued a draft for review of extant regulatory framework for HFCs, and had invited comments from the industry on the same. After considering the inputs received from the industry, the RBI, on October 22, 2020 issued the Regulatory Framework for HFCs (‘Regulations’).
Our write-up covering the changes made by Regulations issued on October 22, 2020 and its analysis can be accessed here
After the Regulations were notified, the regulatory framework for HFCs became patchy as requirements came in from different sources and the need for a single point reference was felt.
To deal with the said issue, RBI has now issued the Master Directions – Non-Banking Financial Company – Housing Finance Company (Reserve Bank) Directions, 2021 on February 17, 2021 (“Directions”). The Directions broadly accumulate the regulatory requirements, from the Regulations notified on October 22, 2020, erstwhile Master Circular for Housing Finance Companies (NHB) Directions, 2010 and other applicable circulars. The Directions neither impose any new requirements nor amend any existing regulation, but merely aggregate them.
Overview of the Direction
In order to get a comprehensive understanding of the Directions we have summarised the major requirements and also provided the original regulations from where the requirement arises.
|Para||Regulation in Master Direction||Reference Circular|
|3||Following guidelines made applicable to HFC-
➔ Guidelines on Liquidity Risk Management Framework
➔ Guidelines on Maintenance of Liquidity Coverage Ratio
➔ Guidelines on Securitization Transactions and reset of Credit Enhancement
➔ Managing Risks and Code of Conduct in Outsourcing of Financial Services
➔ Implementation of Indian Accounting Standards
➔ Master Direction – Know Your Customer (KYC) Direction, 2016,
➔ Master Direction – Monitoring of Frauds in NBFCs (Reserve Bank) Directions, 2016,
➔ Master Direction – Information Technology Framework for the NBFC Sector dated June 08, 2017,
|October 22, 2020 Regulations|
|3||LTV for Loan Against Shares and Gold Jewellry capped at 50% and 75% respectively|
|4||“Housing finance company” shall mean a company that fulfils the following conditions:
a. It is an NBFC whose financial assets, in the business of providing finance for housing, constitute at least 60% of its total assets (netted off by intangible assets)
b. Out of the total assets (netted off by intangible assets), not less than 50% should be by way of housing finance for individuals.
|Existing HFCs to comply the limits in phased manner till 2023|
|5||NOF Requirement to be increased to Rs. 20 Cr
Existing HFCs to achieve NOF of
➔ Rs. 15 Cr by 31.4.2022 and
➔ Rs. 20 Cr by 31.4.2023
HFC unable to fulfil the NOF requirement may convert to NBFC-ICC
|6||HFCs shall, CRAR consisting of Tier-I and Tier-II capital which shall not be less than-
➔ 13% on or before 31.4.2020;
➔ 14% on or before 31.4.2020; and
➔ 15% on or before 31.4.2020 and thereafter
The Tier-I capital, at any point of time, shall not be less than 10%
|NHB Notification dated 17th June 2019
|7-17||Asset Classification, Provisioning and Accounting requirements||As per the existing NHB Guidelines|
|19||LTV for grant of housing loans to individuals shall be capped at:
➔ < 30 lakhs 90%,
➔ > 30 lakhs and < 75 lakhs 80%
➔ > 75 lakhs 75%.
|20||Norms for credit/investment concentration|
|21||Exposure of HFCs to group companies engaged in real estate business||October 22, 2020 Regulations|
|22||Investment in real estate by HFC capped at 20% of capital funds|
|23||Limits on housing finance companies’ exposure to capital market|
|Chapter VII||Acceptance of Public Deposits||As per the existing NHB Guidelines|
|Chapter VIII||Prior approval for change in control and directorship|
|Chapter IX||Corporate Governance Norms|
|Section IV||Miscellaneous Instructions|
|Chapter XIII||Fair Practice Code|
Pursuant to the consolidation as above, the corresponding extant NHB Guidelines as well as the October, 22 Regulations have been repealed.
Our Other Related Write-ups can be viewed here-