RBI Reviews Regulatory Framework For Housing Financiers

The Reserve Bank of India has issued a revised set of guidelines for housing finance companies after it took over regulation of these lenders last year.

The final guidelines follow a draft issued in June this year and seek to harmonise regulations between non-bank lenders and housing financiers.

The new rules define a housing finance company as an NBFC where at least 60% of total assets are in the form of financing for housing. In addition, not less than 50% of the company's assets should be housing financing for individuals.

Loans Which Qualify As Housing Loans

• Loans to individuals or group of individuals, including co-operative societies, for construction or purchase of new dwelling units.
• Loans to individuals for purchase of old dwelling units.
• Loans to individuals for purchasing old or new dwelling units by mortgaging existing dwelling units.
• Loans to individuals for purchase of plots for construction of residential dwelling units provided a declaration is obtained from borrowers that they intend to construct a house on the plot within a period of three years from the date of availing of the loan.
• Loans to individuals for renovation or reconstruction of existing dwelling units.
• Lending to public agencies, including state housing boards, for construction of residential dwelling units.
• Loans to corporates or government agencies (through loans for employee housing).
• Loans for construction of educational, health, social, cultural or other institutions or centres, which are part of housing project in the same complex and which are necessary for the development of settlements or townships.
• Loans for construction of houses and related infrastructure within the same area, meant for improving the conditions in slum areas for which credit may be extended directly to the slum-dwellers on the guarantee of the government, or indirectly to them through the state governments.
• Loans given for slum improvement schemes to be implemented by slum clearance boards and other public agencies.
• Lending to builders for construction of residential dwelling units.

Registered HFCs which do not currently fulfil the criteria but wish to continue as HFCs, shall be provided time for transition till March 2024.

Liquidity Coverage Ratio

The RBI asked housing financiers to create a liquidity buffer in the form of a liquidity coverage ratio, which will help survive any acute liquidity stress scenario lasting for 30 days.

• Non-deposit taking HFCs with asset size of Rs 10,000 crore and above, along with all deposit taking HFCs will need to maintain an LCR of 50% starting December 2021. This will be raised in stages to 100% by 2025.
• All non-deposit taking HFCs with asset size of Rs 5,000 crore and above will need to maintain an LCR of 30% starting December 2021. This will be raised to 100% by December 2025.

Exposure Of HFCs To Group Companies Engaged In Real Estate

The RBI rules specify that HFCs may undertake exposure either to the group company engaged in real estate business or lend to retail individual home buyers in the projects of such group companies.

“In case HFC prefers to undertake exposure in group companies, such exposure by way of lending and investing, directly or indirectly, cannot be more than 15% of owned fund for a single entity in the group and 25% of owned fund for all such group entities,” it said. The HFC would in all such cases follow arm's length principles in letter and spirit, the RBI said.

Other NBFC Rules Applicable

Other areas where the regulator has proposed greater parity between housing financiers and NBFCs include:

• Group entities engaged in real estate business.
• Monitoring of frauds.
• Information technology framework.
• Securitisation.
• Lending against shares.
• Managing risks and code of conduct in outsourcing of financial services.
• Implementation of Indian Accounting Standards.

The regulator said that any other divergences between NBFC and HFC rules would be slowly narrowed.

“Further harmonisation between the regulations of HFCs and NBFCs will be taken up in a phased manner in the next two years so as to ensure that the transition is achieved with least disruption,” the RBI said.