Mumbai: The Reserve Bank of India (RBI) on Monday said housing finance companies (HFCs) will need to hold higher liquid assets to back deposits, and allowed these lenders to issue co-branded credit cards, in a move to bring them at par with their non-banking financial counterparts.
These mandates were first proposed in draft guidelines released on January 15. The Finance Act, 2019 amended the National Housing Bank Act, 1987 and conferred certain powers on the RBI for regulation of housing finance companies. This led to the transfer of regulations of mortgage lenders to the RBI. Since then, the RBI has issued a series of regulations treating housing finance companies as a category of non-banking financial company (NBFC), gradually aligning the regulatory framework for both.
Some sections of the final guidelines apply to housing finance companies that take deposits, while the rest apply to all mortgage lenders. For example, housing finance companies that take deposits from the public must hold 13% of liquid assets against such deposits. This percentage has now been increased to 15% in tranches. Such lenders will be required to increase the percentage of liquid assets to 14% by 1 January 2025, and to 15% in a further six months.
“Currently, HFCs accepting public deposits are subject to more relaxed prudential parameters on acceptance of deposits as compared to NBFCs,” the RBI said in a notification. “Since the regulatory concerns associated with acceptance of deposits are the same across all categories of NBFCs, it has been decided to move HFCs towards the regulatory regime on acceptance of deposits applicable to deposit-taking NBFCs and specify uniform prudential parameters…”
According to information available on the National Housing Bank website, HFCs that can accept deposits include Can Fin Homes Ltd, Cent Bank Home Finance Ltd, Aadhar Housing Finance Ltd, ICICI Home Finance Company Ltd and LIC Housing Finance Limited.
Apart from that, the RBI also allowed HFCs to hedge risks arising out of their operations and issue co-branded credit cards. “HFCs may issue co-branded credit cards, subject to prescribed instructions,” it said.
According to the RBI, in order to accept public deposits, housing finance companies accepting deposits will have to obtain a minimum investment grade credit rating at least once a year. “In case their credit rating falls below the minimum investment grade, such companies will not renew existing deposits or accept fresh deposits until they obtain an investment grade credit rating.”
Meanwhile, the central bank has reduced the maximum tenor of deposits with housing finance companies to five years. Existing deposits with maturities exceeding sixty months will be repaid as per their current repayment profile, it said. Further, the RBI has reduced the limit on the quantum of public deposits from three to 1.5 times of net equity.
“Deposit-taking HFCs with deposits exceeding the revised limit will not accept new public deposits or renew existing deposits until they are brought within the revised limit. However, existing excess deposits will be allowed to be depleted until maturity,” it said.
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