The Reserve Bank of India (RBI) has proposed several changes in the regulatory framework for housing finance companies aimed at strengthening the capital base. Housing finance companies lately undergoing lots of challenges due to economic slowdown, lockdown, and liquidity crisis. To counter all these challenges the central bank took regulatory control of housing finance companies from National Housing Bank (NHB) in August 2019. The RBI carry out review applicable to the regulatory framework to housing finance companies periodically.
The central bank has proposed to doubled the minimum net owned fund (NOF) requirement for housing finance companies to Rs 20 crore. The RBI will give sufficient time to all existing housing finance companies to transition swiftly to meet new net owned fund (NFO) requirements. HFCs are required to reach INR 15 crore within one year and INR 20 crore within two years.
The RBI in its new regulatory framework draft has divided housing finance companies into systemically important and non-systemically important companies into the lines of NBFCs (Non-banking finance companies). Currently, all housing finance companies have common regulation irrespective of their asset size and ownership.
All the non-deposit taking housing finance companies (HFC-ND) with asset size of INR 500 crore & above and all deposit-taking housing finance companies (HFC-D) irrespective of asset size will be considered as systematically important. On the other side, all the housing finance companies with an asset size of less than INR 500 crore will be considered as non-systematically important (HFC-non-SI).
However, the guidelines for HFC-NDSI and HFC-D companies will follow the existing National Housing Bank (NHB) regulations or synchronized with NBFCs regulations. Subsequently, the guidelines for HFC-non-SI will be analogous to relevant regulations for NBFC-ND-non-SI.
The proposed regulatory framework will restrict housing finance companies from lending to either the construction company or individuals buying flats from the company. According to a new draft, housing finance companies will not be allowed to indulge in both, they either take complete exposure on the group company real estate business or retail lending to individual homebuyers in the real estate projects of group companies.
Housing finance companies will not levy any foreclosure charges or penalties on prepayment on any floating rate term loan for purposes other than business to individual borrowers with or without co-applicants as proposed in the draft by the RBI. This change is proposed to bring uniformity and customer protection.