In a move aimed at enhancing the regulatory framework for deposit-taking housing finance companies (HFCs), the Reserve Bank of India (RBI) has unveiled a draft circular proposing significant changes to the norms governing these entities. The proposed measures, part of the ‘Review of regulatory framework for HFCs and harmonisation of regulations applicable to HFCs and NBFCs,’ include a reduction in the ceiling on public deposits and a halving of the maximum deposit period.
According to the draft circular, the ceiling on the quantum of public deposits that deposit-taking HFCs can hold will be reduced from three times to 1.5 times of their net owned funds. HFCs exceeding this limit will be barred from accepting fresh public deposits or renewing existing deposits until the excess amount is below the revised limit. However, existing excess deposits will be allowed to mature as per their existing repayment schedule.
The maximum period for which HFCs can accept deposits is set to be slashed from the current 120 months to 60 months. Existing deposits with maturities exceeding 60 months will be allowed to run off until maturity, while the minimum deposit period remains at 12 months.
Additionally, HFCs will be required to maintain full asset cover for public deposits at all times and obtain a minimum investment grade credit rating annually. In case their credit rating falls below the minimum investment grade, HFCs cannot renew existing deposits or accept fresh deposits until they regain an investment-grade credit rating.
The proposed regulations also mandate that deposit-taking HFCs inform the National Housing Bank (NHB) if the asset cover falls short of the liability on account of public deposits.
Furthermore, to align with the regulations for non-banking finance companies (NBFCs), the RBI has prescribed that HFCs maintain liquid assets of 15% of the public deposits they hold, up from the current 13%. This requirement is to be phased in, with 14% to be achieved by September 30, 2024, and 15% by the end of March 2025.
The draft circular is open for comments from NBFCs, including HFCs, and other stakeholders until February 29, 2024.
