The Reserve Bank of India (RBI) on Wednesday proposed changes to the regulations governing housing finance companies with an aim to increase their efficiency and address concerns of liquidity and double financing.
The proposals come after the RBI took over as the regulator of housing finance companies (HFCs) from the National Housing Bank (NHB) in August 2019, as per a government decision in its budget last year.
The RBI proposed to double the minimum net owned funds requirement for HFCs to Rs 20 crore to strengthen their capital base. Existing HFCs will get one year to reach the level of Rs 15 crore and two years to increase it to Rs 20 crore, the RBI said in a draft seeking comments before July 15.
The central bank also sought to define the term ‘housing finance’. It said housing finance would include loans to buy, build or repair a residential dwelling unit. It would also include loans to companies and government agencies for employee housing projects.
Loans for furnishing a house, loans against mortgage of property for any purpose other than for buying, construction or renovation of a house will be treated as non-housing loans, the RBI said.
The RBI said that non-deposit-taking HFCs with asset size of Rs 500 crore and above and all deposit-taking HFCs will be classified as systemically important HFCs.
The central bank proposed to bring all HFCs under the ambit of guidelines on securitisation transaction as applicable to non-banking finance companies (NBFCs).
In another proposal, the RBI said housing loans must account for at least 50% of HFCs’ assets and loans to individual homebuyers 75% of the total. The HFCs which do not meet this norm will be classified as NBFCs–investment and credit companies.
The regulator also sought to address concerns on “double financing” due to lending by an HFC to construction companies and also to individuals purchasing flats from the same companies. The RBI said an HFC can now either lend to a real estate company or to homebuyers in the projects of group entities, but not to both.
Also, HFCs cannot take exposure of more than 15% of owned funds to one company in a group and more than 25% across all companies of the same group.
The proposals come amid concerns of a rise in bad loans at banks and NBFCs, including HFCs, after the RBI’s six-month moratorium on loan repayments ends in August. The RBI had allowed the moratorium in the wake of the nationwide lockdowns to control the spread of the coronavirus pandemic.
Even before the pandemic, the troubled real estate sector and a liquidity crisis had hurt lenders like Dewan Housing Finance Corp and Altico Capital. Dewan Housing is undergoing bankruptcy proceedings while Altico has been looking for buyers. The asset quality of several other mortgage lenders has also worsened in recent years, according to a recent VCCircle analysis .