To harmonize the rules of HFCs with those of NBFCs, the Reserve Bank of India (RBI) has proposed to tighten the norms for housing finance companies (HFCs). The banking regulator has decided to reduce the maturity period of public deposits to five years and increase the requirement to maintain liquid assets against liabilities.

What are the proposed rules versus the existing rules?

At present, Housing Finance Companies (HFCs) are permitted to accept or renew payable public deposits after a period of 12 months or more, but not later than 120 months from the date of acceptance or renewal of such deposits.

In a draft circular dated January 15, the RBI said, “It has been decided that henceforth, from the date of this circular, public deposits accepted or renewed by HFCs will be repaid after a period of 12 months or more, but not 60.” After a month. Existing deposits with maturity periods of more than sixty months will be repaid as per their existing repayment profile.

It has invited comments on the proposed rules till February 29.

If their credit rating is below the minimum investment grade, such HFCs will not renew existing deposits or accept new deposits thereafter until they achieve investment grade credit rating. With regard to the limit on the quantum of public deposits held by deposit taking HFCs, it said that this limit has now been reduced from 3 times to 1.5 times of the net owned funds with immediate effect.

As per the draft rules, it has now been decided that all deposit taking HFCs will maintain liquid assets on an ongoing basis to the extent of 15 per cent of public deposits in a phased manner. The draft report further states that if the above asset cover falls short of the liability on account of public deposits, it will be mandatory for the concerned HFC to inform the National Housing Bank.

What are liquid assets?

Liquid assets are the minimum percentage of deposits that a lender must hold in government-approved securities. RBI said deposit taking HFCs are required to maintain liquid assets under Section 29B of the NHB Act and such liquid assets will be entrusted for safe custody with specified entities.

Will this affect HFCs?

Jefferies said in its report that Can Fin Homes, LIC Housing Finance and PNB Housing will have minimal impact from the proposed norms. The three NBFCs are deposit-taking housing finance companies (HFCs), accounting for 1-31 per cent of deposit lending.

according to a moncontrol According to the report, Manish Jaiswal, Managing Director and Chief Executive Officer, Gruham Housing Finance Limited (formerly Poonawalla Housing Finance Limited), said, HFCs facing the impact of high liquidity coverage ratio face increase in the cost of borrowing. may have an impact, especially on liabilities received through public deposits.

“This could lead to exploration of alternative borrowing avenues, potentially giving a boost to corporate bonds,” Jaiswal said.

RBI draft rules on co-branded credit cards

RBI said HFCs have been permitted to issue co-branded credit cards with scheduled commercial banks, without risk sharing, for an initial period of two years and with review thereafter, with the prior approval of the Reserve Bank. .

Other proposed norms of RBI

To meet certain expenses of contingent nature, subject to the satisfaction of the NBFC concerned, RBI said that ‘small deposit amount’ may be paid to individual depositors at the request of the depositor before the expiry of three months from the date of deposit. To accept such deposits in full, without interest.

In the case of other public deposits, at the request of the depositors, an amount exceeding 50 per cent of the principal amount of the deposit or Rs 5 lakh, whichever is less, may be paid prematurely to individual depositors. The circular said that such deposits will be accepted without interest after expiry of three months from the date of acceptance.

It states that the balance amount along with interest at the contracted rate will be governed by the provisions of the existing instructions applicable to public deposits.

Premature withdrawal will be allowed in case of meeting expenses of emergency nature including expenses arising due to medical emergencies or natural calamities/disasters.

Following the transfer of regulation of HFCs from the National Housing Bank (NHB), the Reserve Bank issued a revised regulatory framework for HFCs circular on October 22, 2020, to further harmonize the regulations for HFCs and NBFCs. Will be done. In a phased manner.