The RBI has issued the Non-Banking Financial Company – Housing Finance Company (Reserve Bank) Directions, 2021, effective from 17 February 2021. The said Directions aim to prevent the affairs of any Housing Finance Company (HFC) from being conducted in a manner detrimental to the interest of investors and depositors. They supersede ten earlier notifications issued by the National Housing Board (NHB) between 1 July 2019 to 22 October 2020. The Board of every HFC is to ensure that these directions are complied with.
An HFC is defined as an NBFC whose financial assets in the business of providing finance for housing constitute at least 60 per cent of its total assets. The Master Directions provide for the maintenance of liquidity coverage ratio, risk management, asset classification and loan-to-value ratio, among others. It also gives a list of regulations prescribed for NBFCs which will apply mutatis mutandis to HFCs, such as guidelines on liquidity risk management framework, securitisation transactions, liquidity coverage ratio, loans against security of shares, etc.
Some of the key directions are as under :
No HFC can invite or accept or renew public deposit at a rate of interest exceeding 12.5 per cent per annum or as revised by the RBI.
HFCs shall ensure that full cover is available for public deposits accepted by them at all times. In case an HFC fails to repay any public deposit or part thereof as per the terms and conditions of such deposit, as provided in Section 36A (1) of NHB Act, 1987, it cannot grant any loan or other credit facility or make any investment or create any other asset as long as the default exists.
In case a HFC prefers to undertake exposure in group companies, such exposure, by way of lending and investing directly or indirectly, 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.
In case of companies in a group engaged in real estate business, HFCs may undertake exposure either to the group company engaged in real estate business or lend to retail individual home buyers in the projects of such group companies.
To refer to the RBI Master Directions dated 17 February 2021, click here.
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