Credit Suisse: ‘NHB norms mask HFCs’ asset-liability mismatch’

This is because the National Housing Bank, a wholly-owned arm of the Reserve Bank of India (RBI), allows housing finance companies to report ALM on behavioural basis (factoring in loan prepayments and liability roll-overs) instead of using run-down rates (repayment) as per loan contracts. HFCs typically base their ALM reporting on their own historical experience of run-down rates (over, say, the last five years), while other NBFCs report their ALM on a contractual basis.

“This, in an environment of abundant liquidity, could lead to an illusion of shorter-tenure asset book — requiring a matched shorter-tenure liability book,” it said.

NHB data show the run-down rate for home loans at around 25 per cent — implying the duration of about four years, compared with contracted maturities of 10-20 years.

An email sent to the National Housing Bank on October 24 for a response remained unanswered till the paper went to press on Monday. FE