The government has proposed to transfer the regulatory authority over housing finance sector to the Reserve Bank of India (RBI) from the National Housing Bank (NHB) in a bid to strengthen the sector which was hit by payment delays and liquidity crunch.
While presenting her first Union Budget, Finance Minister Nirmala Sitharaman said, “efficient and conducive regulation of the housing sector is extremely important in our context. The National Housing Bank, besides being the refinancer and lender, is also regulator of the housing finance sector. This gives a somewhat conflicting and difficult mandate to NHB.”
“I am proposing to return the regulation authority over the housing finance sector from NHB to RBI,” the minister said. Necessary proposals have been placed in the Finance Bill,” she said.
The HFC segment was recently rocked by the payment delays by DHFL and some NBFCs. The housing finance sector has been facing challenges, which have led to a contraction in spreads, a rise in funding cost and an increased spotlight on their asset-liability mismatches. Such mismatches have resulted in constrained financing from both market-based sources (commercial papers and non-convertible debentures) and banks for many players.
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Amit Wadhwani, Co-founder, SECCPL, said, “the government has empowered the RBI to regulate the housing finance companies which will help in quality assessment by the lender for fear of facing scrutiny if found indulging in improper practices.” While there are 82 HFCs in India, more than 90 per cent of the housing finance business is controlled by the top five companies.
Karthik Srinivasan, Group Head – Financial Sector Ratings, ICRA, said, “with regulatory authority over HFCs moving to the RBI from NHB, it would lead to greater parity of regulations for NBFCs and HFCs.”
According to an Indian Ratings report, the systemic rise in market borrowings rate has affected the housing loan business. “The borrowing cost for some large HFCs could be upwards of banks’ marginal cost of funds-based lending rate (MCLR). This has led to the shrinking of margins in mid-to-large ticket housing loans, where banks are highly competitive. Furthermore, the ongoing challenges in the real estate and small and medium enterprise segments (loan against property customers) may lead to HFCs reassessing loan growth plans, thereby putting pressure on their margins,” it said.
During FY17-19, to mitigate the margin risk, many HFC players expanded their non-housing books at a significantly higher rate than their pure housing loan books. The increase in the proportion of non-housing loan book could lead to asset quality pressure amid the current slowdown in disbursement to developers. The current liquidity tightness in the housing finance industry has led to a large number of non-bank entities (both HFCs and NBFCs) curtailing loan disbursements, thereby creating a significant funding crunch in the sector, the rating firm said.