MUMBAI, JAN 1: The National Housing Bank (NHB) has tightened deposit acceptance norms for housing finance companies (HFCs) with immediate effect. The new norms are on the lines of norms announced by the Reserve Bank of India for non-banking finance companies (NBFCs) in January 1998.According to amendments made in the Housing Finance Companies (NHB) Directions (1989), housing finance companies (HFCs) having net-owned funds (NOF) of less than Rs 25 lakh as also those having NOF of Rs 25 lakh and above, but with credit ratings below A have been prohibited from accepting or renewing public deposits. This would mean that even HFCs with investment grade (BBB) ratings would not be able to access public deposits.Further, the apex housing bank has reduced the ceiling on the overall borrowings of HFCs. While the ceiling on borrowings in respect of HFCs having NOFs of up to Rs 10 crore has been retained at 10 times the same, the ceiling for HFCs with NOFs of Rs 10 crore, but below Rs 20 crore has been reduced to11 times against 12.5 times earlier. Companies with NOFs of more than Rs 20 crore will now be able to borrow only 12 times their NOF against 15 times earlier. Within this overall ceiling, a sub-limit of five times NOF has been fixed for public deposits.The new directives are, however, unlikely to affect the operations of most players in the housing finance industry since their borrowals are well within the revised ceilings announced by NHB.NHB has said that HFCs holding deposits in excess of the revised ceiling as on January 1, 1999, will have to stop accepting fresh deposits. They have also been directed not to renew existing deposits after September 30, 2000, or wherein the deposits are received under any recurring scheme, not to receive installments after the expiry of the scheme's period.In case HFCs are downgraded to any credit rating level below A, the company will have to stop accepting any fresh deposit with immediate effect and repay the amount of excess deposit within a period of one year.NHB has also decided to hike the percentage of liquid assets to be maintained by HFCs to 12.5 per cent of assets from 10 per cent earlier, effective April 1, 1999. The percentage of liquid assets to be maintained in the form of unencumbered approved securities has also been increased from 5 per cent to 6 per cent.Most large housing companies will be able to meet NHB's stricter norms. Special norms for housing companies have presumably been called for because of the potential for maturity mismatches in such companies. Typically, while the liabilities of these companies are short term, their assets are long term in nature. This means that housing companies are forced to roll over their deposits.When interest rates rise, this could lead to pressure on their profitability. Restricting access to deposits will not solve this problem. Rather, the introduction of long-overdue foreclosure laws will do far more for investor protection in this field than any amount of tinkering with deposit norms.
