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The Reserve Bank of India (RBI) has prescribed a transition path for registered housing finance companies (HFCs), whereby they should have at least 60 per cent of total assets towards housing finance by March 31, 2024.
Further, as per the review of regulatory framework for HFCs, the central bank has specified ₹20 crore as the minimum net owned funds (NOF) requirement for a company to commence housing finance as its principal business or carry on the business of housing finance as its principal business.
According to the framework, HFCs shall maintain a liquidity buffer in terms of Liquidity Coverage Ratio (LCR), which will promote their resilience to potential liquidity disruptions by ensuring that they have sufficient High Quality Liquid Asset (HQLA) to survive any acute liquidity stress scenario lasting for 30 days.
The framework has defined an HFC as a non-banking finance company (NBFC) whose financial assets, in the business of providing finance for housing, constitute at least 60 per cent of its total assets (netted off by intangible assets).
Further, out of the total assets (netted off by intangible assets), not less than 50 per cent should be by way of housing financing for individuals.
Roadmap
In case registered HFCs do not currently fulfil the aforementioned criteria, the central bank has prescibed a glide path, whereby housing finance should constitute at least 50 per cent total assets (and the minimum percentage of total assets towards housing finance for individuals should be 40 per cent) by March 31, 2022.
By March 31, 2023, housing finance should constitute at least 55 per cent total assets (and the minimum percentage of total assets towards housing finance for individuals should be 45 per cent).
By March 31, 2024, housing finance should constitute at least 60 per cent total assets (and the minimum percentage of total assets towards housing finance for individuals should be 50 per cent).
Registered HFCs that do not currently fulfil the criteria shall be required to submit to the Reserve Bank a board-approved plan within three months, including a roadmap to fulfil the above-mentioned criteria and timeline for transition.
HFCs unable to fulfil the above criteria as per the timeline shall be treated as NBFC – Investment and Credit Companies (NBFC-ICC) and they will be required to approach the Reserve Bank for conversion of their Certificate of Registration from HFC to NBFC-ICC.
NOF Requirement
The central bank said a HFC holding a Certificate of Registration (CoR) and having net owned fund (NOF) of less than ₹20 crore may continue to carry on the business of housing finance, if such company achieves NOF of ₹15 crore by March 31, 2022, and ₹20 crore by March 31, 2023.
It will be incumbent upon such HFCs whose NOF currently stands below ₹20 crore to submit a statutory auditor's certificate to Reserve Bank within a period of one month evidencing compliance with the prescribed levels as at the end of the period indicated above.
HFCs failing to achieve the prescribed level within the stipulated period shall not be eligible to hold the Certificate of Registration (CoR) as HFCs and registration for such HFCs shall be liable to be cancelled, the RBI said.
In case of companies in a group engaged in real estate business, 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 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 HFC would in all such cases follow arm’s length principles in letter and spirit.
LCR
As per the RBI’s guidelines on LCR for HFCs, all non-deposit-taking HFCs with asset size of ₹10,000 crore and above, and all deposit-taking HFCs irrespective of their asset size, have to maintain minimum LCR of 50 per cent by December 01, 2021; 60 per cent by December 01, 2022; 70 per cent by December 01, 2023; 85 per cent by December 01, 2024; and 100 per cent by December 01, 2025.
All non-deposit-taking HFCs with asset size of ₹5,000 crore and above, but less than ₹10,000 crore, have to maintain minimum LCR of 30 per cent by December 01, 2021; 50 per cent by December 1, 2022; 60 per cent by December 1, 2023; 85 per cent by December 1, 2024; and 100 per cent by December 1, 2025.