on Feb 18, 2021)Mumbai: The Reserve Bank of India (RBI) has tightened norms for housing finance companies (HFCs), particularly those raising public deposits. In terms of the master directions issued on Wednesday, HFCs must cease lending if they are not in a position to repay fixed deposit holders.
The central bank on Wednesday came out with a comprehensive rule book for HFCs. The comprehensive rule book for HFCs is in the wake of the central bank taking over the regulation and supervision of these specialised lenders from the National Housing Bank in 2019. The norms require all HFCs to have a minimum capital adequacy ratio of 14% by March 31, 2021. The master directions include prescriptions on liquidity coverage, asset classification and other prudential norms that are almost in line with what is prescribed for banks.
The guidelines also incorporate a fair practices code, which requires all communications to the borrower to be in a language that is easily understood. HFCs must disclose upfront to the borrower all fees and conditions under which the interest would be reset. The central bank has also come out with rules for engaging recovery agents.
For maintaining the prescribed liquidity coverage ratio, the RBI has given banks until 2025 to meet the target in a phased manner. If an HFC extends loans to a group company, the total exposure cannot be more than 15% of its net-owned fund for a single entity and 25% of owned funds for group entities.
