RBI proposes tighter norms for deposit-taking housing finance companies

Regulator suggests enhanced requirements of liquid assets as part of steps to harmonise regulations

Deposit-taking housing finance companies (HFCs) will have to maintain 15 per cent liquid assets against public deposits held by them, up from a stipulated 13 per cent.

The Reserve Bank of India (RBI) has proposed enhanced requirements of liquid assets as part of steps to harmonise regulations for housing finance and non-banking financial companies (NBFCs).

Deposits taking HFCs will get time till March 2025 to meet the enhanced liquid asset norms.

RBI on Monday released a draft circular on ‘Review of regulatory framework for HFCs and harmonisation of regulations applicable to HFCs and NBFCs’. Prominent deposit-taking HFCs include LIC Housing Finance, PNB Housing Finance and Can Fin Homes.

Currently, HFCs accepting public deposits are subject to more relaxed prudential parameters on deposit acceptance as compared to NBFCs. The regulatory concerns associated with deposit acceptance are the same across all categories of NBFCs.

Hence, it has been decided to move HFCs towards the regulatory regime on deposit acceptance as applicable to deposit-taking NBFCs, RBI said in a communication to HFCs and NBFCs.

RBI also tightened the leverage ratio for raising funds via deposits.

Ceiling on the quantum of public deposits held by HFCs, subject to meeting prudential norms and minimum investment grade credit rating, will stand reduced from 3 times to 1.5 times of net-owned funds. This will come into effect from the date of this circular, RBI said.

Deposit-taking HFCs holding deposits in excess of the revised limit will not accept fresh deposits or renew existing deposits till the time the quantum of public deposits is below the revised limit. However, the existing excess deposits will be allowed to run off till maturity, RBI added.

Currently, HFCs are allowed to accept or renew deposits repayable after one year or more but not more than 10 years from the date of acceptance or renewal of such deposits.

Henceforth, deposits accepted or renewed by HFCs shall be repayable after one year or more but not later than five years.

Existing deposits with maturities above five years will be repaid according to their existing repayment profile.

RBI has permitted HFCs to hedge the risks arising out of their operations like in case of NBFCs.

Further, HFCs have been allowed to diversify their activities in certain fee-based functions without risk participation like in case of NBFCs, subject to compliance to regulatory norms.