New Rules for HFCs by RBI

Published on June 19, 2020
Current Context: The Reserve Bank of India being the regulator of Housing Finance Companies (HFCs) has proposed changes in rules and regulations of HFCs with an aim to increase and address concerns of liquidity and double financing.
New Rules for HFCs by RBI

  • The changes are prescribed in the draft regulatory framework released by RBI. The new key proposed changes are as follows:
  • Minimum NOF to Rs 20 crore: Under the section 29A (1) (b) of NHB act 1987, RBI has proposed changes of minimum Net owned Funds (NOF) for HFCs from the current requirement of Rs 10 crore to Rs 20 crore. This move will result in strengthening the capital base for NFCs. Existing HFCs will get one year to reach the level of Rs 15 crore and two years to increase to Rs 20 crore.
  • Increase in CRAR: Currently, minimum Capital Risk-Weighted Assets Ratio (CRAR) for NFCs is at 12%, it will be increased to 14% by 31st March 2021 and to 15% by 31st March 2022.
  • Classification of HFCs: Presently, all the HFCs irrespective of their asset size and ownership comes under a common set of regulations. Therefore it is proposed to issue regulations to classify them as systematically important and non- systematically important. For this, Non-deposit taking HFCs (HFC-ND) with an asset size of Rs 500 crore and above and the deposit-taking HFCs (HFC-D), irrespective of asset size will be termed as systematically important. Whereas, HFCs with asset size below Rs 500 crore will be termed as non- systematically important HFCs
  • Double Financing: HFC can now either lend to a real estate company or to homebuyers in the projects of group entities, but not to both. Also, HFCs cannot take exposures of more than 15% of owned funds to one company in a group and more than 25% across all companies of the same group
  • Housing loans must account to at least 50% of the HFCs assets of which at least 75% should be towards individual housing loans. And the HFCs who will not fulfil this criterion will be termed as NBFC- Investment and Credit Companies (NBFC-ICCs).
  • Now onwards, Housing finance definition will not exist. RBI said that housing finance will now mean ‘financing for purchase’/ construction/reconstruction/ renovation/repairs of residential dwelling unit’ and some other activities like giving loans to corporate and governmental agencies for employee housing projects.
  • Static Part: 
    • HQ of RBI: Mumbai
    • Governor of RBI: Shaktikanta Das

Question: 

Q.1 RBI has proposed changes of minimum Net owned Funds (NOF) for HFCs from the current requirement of Rs 10 crore to _____?
a. Rs 15 crore
b. Rs 20 crore
c. Rs 25 crore
d. Rs 30 crore

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