RBI regulates new directives for Housing Finance Company

As per the review conducted on Wednesday by RBI, Housing Finance Company (HFC) will now be considered under the category of non-banking financial company (NBFC). RBI has suggested stringent norms for housing companies by mandating 75 per cent of their home loans to individual borrowers and 50 per cent of assets as their housing loans by March 2024. The conversion is said to happen in a staggered manner, i.e. 60 per cent in March 2022, 70 per cent in March 2023 and 75 per cent in March 2024.

The bank has proposed to increase minimum net owned fund (NOF) to Rs 20 crore within two years from the current requirement of Rs 10 crore. The minimum capital-to-risk weighted assets ratio (CRAR) for HFC currently is 12 per cent, which will gradually increase to 14 per cent by March 2021 and 15 per cent by March 2022.

On addressing the concern of double financing due to lending to construction group companies and individuals purchasing flats, HFC can choose only at one level. HFC can only undertake exposure on companies in real estate business or individual home buyer in the project of the group companies but not both.

Amongst all the housing finance companies, HFCs that have an advantage on CRAR front are Housing Development and Finance Corporation Limited (HDFC) of 18.26 per cent, Indiabulls Housing Finance has CRAR of 29 per cent while, Punjab National Bank Housing Finance (PNB) has CRAR of 17.98 per cent.

As mandated by RBI, the minimum net owned fund (NOF) is increased to Rs 20 crore from the current Rs 10 crore in two years. HDFC with AAA rating, PNB and Indiabulls Housing Finance with AA rating can easily add more to their net owned funds.

The new directives are strict and could possibly affect those HFCs, which do not meet the criteria like minimum NOF and CRAR.