The Reserve Bank of India (RBI) has proposed that 50 per cent of net assets of a housing finance company (HFC) should be qualifying assets or housing finance, and at least 75 per cent of qualifying assets should be towards individual housing loans. In its draft guidelines for HFCs, the RBI has also recommended that no pre-payment or foreclosure charges should be levied on customers.
However, HFCs will be given a phased timeline of up to four years to comply with the new RBI guidelines. They should achieve 60 per cent individual loans by 2022, 70 per cent by 2023 and 75 per cent by 2024, the central bank said in the draft norms for HFCs.
If an HFC does not fulfil the criterion, it will be treated as NBFC-investment and credit company (NBFC-ICC) and required to approach the RBI for conversion of its certificate of registration from HFCs to NBFC-ICC, the RBI said.
The draft norms say that non-deposit taking HFCs (HFC-ND) with asset size of Rs 500 crore and above, and all deposit taking HFCs (HFC-D), irrespective of asset size, will be treated as systemically important HFCs. No foreclosure charges/pre-payment penalties should be levied on any floating rate term loan sanctioned for purposes other than business to individual borrowers with or without co-obligants, the RBI said.
To address worries on double financing due to lending to construction firms in the group and also to individuals purchasing flats from the latter, the concerned HFC may choose to lend only at one level, it said. That is, the HFC can either undertake an exposure on the group company in real estate business or lend to retail individual home buyers in the projects of group entities, but not do both. If the HFC decides to take any exposure in its group entities (lending and investment) directly or indirectly, such exposure cannot be over 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 draft norms say.
According to BFSI leader Srinath Sridharan, draft regulatory changes for HFCs bring the true meaning of “housing finance” or “providing finance for housing” by tightening the definition to “residential dwellings”. He said the draft circular also mentions “lending to builders for construction of residential dwelling units” comes under this definition, is a sign of relief for residential developers.
However, the context of “social/rental housing” under National Urban Rental Housing Policy, 2015 seems to have missed out under this definition. “By asking the HFCs to do 75 per cent of their qualifying assets only for individuals housing loans by March 2024, the RBI has segregated HFCs from NBFCs. That could make a big positive impact on the industry as a whole,” Sridharan said.
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