Housing Finance Companies (HFCs) accepting public deposits will face the same regulatory rigour as deposit-taking Non-Banking Finance Companies (NBFCs), with the ceiling on the quantum of deposits and the maximum period for which they can accept deposits being halved.
Further, HFCs will be required to maintain higher minimum percentage of liquid assets. Even as prudential regulations have been tightened, HFCs, like NBFCs, have been given leeway to hedge the risks arising out of their operations and to issue co-branded credit cards.
The aforementioned prescriptions are part of RBI’s “review of regulatory framework for HFCs and harmonisation of regulations applicable to HFCs and NBFCs”.
RBI noted that currently, HFCs accepting public deposits are subject to more relaxed prudential parameters on deposit acceptance as compared to NBFCs. Since the regulatory concerns associated with deposit acceptance are same across all categories of NBFCs, RBI decided to move HFCs towards the regulatory regime on deposit acceptance as applicable to deposit-taking NBFCs and specify uniform prudential parameters.
Quantum of Deposits
The ceiling on quantum of public deposits held by deposit taking HFCs, which comply with all prudential norms and minimum investment grade credit rating, has been reduced from 3 times to 1.5 times of net owned fund.
Deposit taking HFCs holding deposits in excess of the revised limit cannot accept fresh public deposits or renew existing deposits till they conform to the revised limit. However, the existing excess deposits will be allowed to run off till maturity.
The halving of the ceiling on the quantum of public deposits will require them to explore other fund raising alternatives.
Public deposits accepted or renewed by HFCs will be repayable after a period of twelve months or more but not later than 60 months (currently 120 months). Existing deposits with maturities above 60 months can be repaid as per their existing repayment profile.
Maintenance of liquid assets
All deposit taking HFCs have to maintain, on an ongoing basis, liquid assets to the extent of 15 per cent (against the current 13 per cent) of the public deposits held by them, in a phased manner – 14 per cent by January 1, 2025 and 15 per cent by July 1, 2025.
To be eligible to accept public deposits, the deposit taking HFCs has to invariably obtain minimum investment grade credit rating at least once a year.
If the HFC’s credit rating is below the minimum investment grade, it cannot renew existing deposits or accept fresh deposits thereafter till it obtains an investment grade credit rating.