Housing Finance Companies, NBFC and Banks finance housing finance to individuals as well as corporates. They support the credit needs of the borrower. The Banks are active in the formal and urban centres whereas HFCs and NBFCs are more active in the semi-urban and informal centres. Their strength is sound credit assessments and speedy customer satisfaction.
In recent times banks and the NBFC sector through co-lending has also aligned to jointly serve the marginalised section of society. RBI has also come up with co-lending regulations as well as digital lending regulations.
On the other side Regulatory Authority for Housing Finance, Reserve Bank of India on 12th August 2024, has come up with directives wherein there is Harmonization of Regulatory Frameworks For Housing Finance Companies with the Non-Banking Finance Companies which is a positive step towards strengthening of the Housing Finance Sector in India.
With the advent of the Scale Base Regulations, it has been observed that the regulator has been harmonizing the Regulatory prescriptions for the Financial Institutions mainly on the basis of their asset book and nature of business. The directives have been welcomed by the financial institutions but the challenge is that the smaller players in short run will be gradually marginalised and ceased to exist in long run, which may have an impact on the niche segment being catered by them.
The key feature of the harmonization as arrived from the 12th August Notification is as under:
The regulation of Housing Finance Companies "HFCs: was transferred from the National Housing Bank (NHB) to the Reserve Bank from August 09, 2019. Accordingly, the exemption granted to HFCs from the provisions of Chapter III B of the Reserve Bank of India Act, 1934 except for section 45-IA (Requirement of registration & net owned funds) was withdrawn. Further, the provisions of sections 29B and 29C of the National Housing Bank Act, 1987 remained to be applicable to HFCs."
The RBI in October 2023, issued Master Direction – Reserve Bank of India (Non-Banking Financial Company– Scale Based Regulation) Directions, 2023, wherein was made applicable to HFCs, and they were classified in NBFC- Middle Layer. Since then harmonization process of regulations as per applicability on the different financial institutions are being undertaken time to time for effective supervision of the Financial Institutions and sound growth of the Financial Sector.
In terms of Section 29B of the NHB Act, 1987, deposit-taking HFCs are required to maintain 13 per cent liquid assets against public deposits on an ongoing basis which has been now revised in phase wise manner and increased to the extent of 15 per cent of the public deposits held by them by July 01, 2025. The minimum 10% of Unencumbered approved securities, to be held along with total 15% of the unencumbered approved securities to be held as a per cent of public deposit.
The regulations on safe custody of liquid assets for HFCs as contained in para 40 of Master Direction – Non-Banking Financial Company – Housing Finance Company (Reserve Bank) Directions, 2021 has been repealed and Directions contained in para 33 of Master Direction – Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 20161 on Safe Custody of Liquid Assets /Collection of Interest on SLR Securities has been made applicable to deposit-taking HFCs.
The ceiling on the quantum of public deposits and tenure to be raised from the Public has been reduced from 3 times to 1.5 times of net owned fund and from 120 months to 60 months. The directions contained in para 30 of Master Direction – Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 20162 on Branches and appointment of agents to collect deposits shall now onward be applicable to deposit-taking HFCs and also full asset cover for public deposits accepted by them at all times is required to be maintained by them.
The Union Cabinet has approved the Pradhan Mantri Awas Yojana-Urban (PMAY-U) 2.0 scheme, under which one crore homes in urban areas will be constructed between 2024-25 and 2028-29. The eligible beneficiaries has to either construct, purchase, or rent affordable housing units in urban areas. Special attention will be given to marginalised groups, including slum dwellers, SC/STs, minorities, widows, persons with disabilities, and other underprivileged sections of society. The regulatory initiatives of the Reserve Bank of India aligns with the Indian government's overarching objective of enhancing the standard of living for all citizens by ensuring access to durable housing solutions.
(Disclaimer: The opinions expressed in this article are those of the writer. The facts and opinions expressed here do not reflect the views of ETV Bharat)
