Min 60% of HFC loans for housing, no prepayment or foreclosure charges: RBI

Lenders must meet 60% ratio by March 2024; loans for furnishing dwelling units to be treated as non-housing loans

The Reserve Bank of India (RBI) on Thursday put out the final guidelines for housing finance companies (HFC) in which it said all such non-banking finance companies (NBFC) should have at least 60 per cent of their net assets deployed in the business of providing finance for housing, and those who still don’t have that ratio, must do so in a phased manner by March 31, 2024. 

HFCs cannot levy foreclosure charges, or prepayment penalties on any floating rate term loan sanctioned for housing loans.  

Out of the total net assets, at least 50 per cent should be loans given to individuals. Loans given for furnishing dwelling units, against mortgage of property for any purpose other than buying or construction of a new dwelling unit or renovation of the existing dwelling unit, will be treated as non-housing loans and will not be falling under the definition of housing finance, the RBI’s guidelines said. 

The RBI took over the regulation of housing finance companies from National Housing Bank in August 2019, and in June this year, released the draft guidelines.  

According to the final guidelines of the central bank, any housing finance company not having 60 per cent of its net assets deployed for housing loans must get 50 per cent of its books utilised for such loans by March 31 2022, 55 percent by March 31, 2023 and 60 per cent by March 31 2024. Minimum percentage of individual housing loans in this period should be progressively raised to 40 per cent, 45 per cent and 50 per cent respectively. 

“Such HFCs shall be required to submit to the Reserve Bank, a board approved plan within three months including a roadmap to fulfil the above-mentioned criteria and timeline for transition," said the final guidelines.  

HFCs unable to fulfil the above criteria as per the timeline will be treated as NBFC – Investment and Credit Companies (NBFC-ICC) and they will be required to approach the Reserve Bank for conversion of their certificate of registration from HFC to NBFC-ICC.  

The minimum net-owned fund should be Rs 20 crore for a company to commence housing finance as its principal business.  

HFCs can lend to group companies engaged in real estate business, but the direct or indirect exposure should not be more than 15 per cent of owned fund for a single entity in the group and 25 per cent of owned fund for all such group entities. “The HFC would in all such cases follow arm’s length principles in letter and spirit," the guidelines said. 

Any lending done against shares, should have loan to value (LTV) ratio of 50 per cent has to be maintained, and in case of loans against gold, the LTV ratio would be 75 per cent. 

The HFCs have to 10 per cent liquidity coverage ratio in phases by December 1, 2025.