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RBI issues Directions for Housing Finance Companies

Published on February 20, 2021
Current Context: The Reserve Bank of India has issued directions for Housing Finance Companies under Sections 45L and 45MA of RBI Act, 1934 and Section 30, 30A, 32 and 33 of
RBI issues Directions for Housing Finance Companies
National Housing Bank Act 1987.
  • The issued directions will be applicable to all the housing finance companies registered under section 29A of the National Housing Bank Act 1987.
  • The issued directions are related to maintenance of liquidity coverage ratio, risk management, asset classification and loan-to-value ratio, among others, for housing finance companies (HFCs).
  • The non-deposit taking HFCs, having asset size of Rs 100 crore and above and all deposit-taking HFCs need liquidity risk management, which inter alia should cover adherence to gap limits, making use of liquidity risk monitoring tools and adoption of a stock approach to liquidity risk. Therefore, in this regards, RBI has asked the board of each HFC to follow this guideline.
  • HFCs are mandated to maintain a liquidity buffer in terms of liquidity coverage ratio (LCR). This will help to have sufficient high-quality liquid asset (HQLA) to survive an acute liquidity stress scenario lasting for 30 days. Therefore, the non-deposit taking HFCs with an asset size of Rs 10,000 crore and above, and all deposit-taking HFCs irrespective of their asset size will have to maintain a minimum LCR of 50% by 1st Dec 2021 and to 100% by 1st Dec 2025.
  • Also, all non-deposit-taking HFCs with an asset size of Rs 5,000 crore and above, but less than Rs 10,000 crore will have to maintain a minimum LCR of 30% by 1st Dec 2021 and to 100% by 1st Dec 2025.
  • RBI also issued a guideline that HFCs lending against the collateral of listed shares should maintain a loan-to-value (LTV) ratio of 50%. Also, HFCs shall maintain an LTV ratio not exceeding 75%, in case of loans granted against the collateral of gold jewellery.
  • The HFCs should not provide housing loans to an individual up to Rs 30 lakhs, with an LTV ratio exceeding 90% and above Rs 30 lakh and up to Rs 75 lakh with an LTV ratio exceeding 80%.
  • The HFCs are also restricted from accepting and renewing public deposit unless it has obtained a minimum investment grade rating for fixed deposits from any one of the approved credit rating agencies for at least once a year.
  • The HFCs will not accept or renew public deposit at an exceeding interest rate of 12.5% per annum or as revised by the central bank.
  • If HFCs fails to repay any public deposit, it shall not grant any loan or other credit facility or make any investment or create any other asset as long as the default is active.
  • Static Part: 
    • HQ of RBI: Mumbai
    • Governor of RBI: Shaktikanta Das

Question: 

Q.1 As per RBI’s issued direction for Housing Finance Companies (HFCs), the non-deposit taking HFCs with an asset size of Rs10,000 crore and above, and all deposit-taking HFCs irrespective of their asset size will have to maintain a minimum LCR of _____% by 1st Dec 2021?
a. 40%
b. 50%
c. 70%
d. 100%
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