A housing finance company is required to be in the business of providing housing finance. In India, Housing Finance Companies are regulated by the National Housing Bank (NHB). The funding of HFCs is different from banks. Similarly, NBFC (non-systemically important) have provision for standard assets at 0.25% of the outstanding, which will not be reckoned for arriving at net non-performing assets (NPAs). 15, Surabhiyagam, 12th Cross, Renga Nagar Extension, Vayalur Road, Uyyakondan Thirumalai, Trichy – 620102 (Tamilnadu), B-214, Arjun Centre, Govandi Station Road, Mumbai – 400088, 609, Inizio, Opposite Procter and Gamble, Chakala, Andheri (E), Mumbai 400069, Maharashtra – 400069, No. Pursuant to the above and in order to increase the efficiency of HFCs, the RBI has now placed a draft of the changes proposed in the regulations applicable to HFCs for public comments till July 15, 2020, which we have briefly summarised below: HFCs were granted exemptions from the provisions of Chapter IIIB (Provisions relating to Non-Banking Institutions receiving Deposits and Financial Institutions) of the RBI Act, 1934 (“RBI Act”) vide notification dated June 18, 1997[2]. Since the NHB was the regulator, without the ability to monitor this method, it put a blanket ban on the scheme,” explains Rituraj Verma, partner at Nisus Finance. Furthermore, this may add more trouble to the real estate sector which is currently in liquidity crisis even before the Covid-19 pandemic. The Reserve Bank of India (RBI) and NHB are Nodal Agencies for the Scheme for SCBs and HFCs respectively. 15 crore and 2 years to increase it to Rs. As the new regulator of housing finance companies (HFCs), the Reserve Bank of India (RBI) on Wednesday proposed to modify the rules governing these firms. A Housing Finance Company (HFC) specializes in doling out housing loans. NHB relied on the definition of ‘housing finance institution’ provided under the NHB Act, which states that a housing finance institution includes every institution (whether incorporated or not) that primarily transact or has as one of its principal objects transacting in the business of providing finance for housing, directly or indirectly. Visit our Website. National Housing Bank (NHB), a Government of India owned entity, was set up on 9 July 1988 under the National Housing Bank Act, 1987. – GF, 116-G, Sushant Shopping Arcade Building, Sushant lok, Phase – I, Gurgaon – 122002, Haryana. National Housing Bank (), the regulator for housing finance companies, earlier this week clarified the that the date for implementation of the new Ind-AS accounting standards for these companies is April 1, 2018. Road, Kalina, Mumbai – 400 098, 8B, Doshi Towers, 205, Poonamallee High Road, Kilpauk, Chennai- 10, 511, Acme Plaza, Andheri Kurla Road, Andheri East, Mumbai, MAHARASHTRA, D-305, Ground Floor, Sarvodaya Enclave, New Delhi-110017, TC NO.14/2074-7, Muthoot Centre, Punnen Road, Thiruvananthapuram – 695 034, KERALA, No. The term ‘public deposits’ has been defined under such directions which is similar to the definition given under the RBI Master Direction on ‘Acceptance of Public Deposits’ dated August 25, 2016 (updated as on February 22, 2019) (“Master Directions on Acceptance of Public Deposits”), except that as per the definition in NHB directions, any amount received from NHB or any public housing agency are also exempt from the definition of ‘public deposit’. There are no guidelines in place currently for lending against the security of shares by HFCs. 801, Deron Heights, Sr. No. It is pertinent to note that RBI has not amended the NOF requirement for NBFC-ICC which is only Rs 2 crore as compared to Rs 20 crore for HFCs. 20 crore. It is required for each HFC to file a yearly return, half yearly return and quarterly return in regard of prudential standards, maintain liquid assets respectively; Yearly submission of the auditor’s certificate, affirming the capacity of the HFC … (Mint) NHB proposes to ease CAR of housing finance firms to 15% by March 2022 The government has relaxed risk weightage rules for housing finance companies thereby increasing their liquidity. Further, the exposure of HFCs in capital market should not be more than 40% of its net worth, out of which, direct investment or exposure of HFCs in shares, convertible bonds/debentures, equity-oriented mutual funds and all exposures to venture capital funds should not exceed 20% of its net worth. NHB proposes higher capital adequacy for housing finance companies. Consultant in the Banking & Finance practice at the Mumbai office of Cyril Amarchand Mangaldas. Shweta specialises in structured finance and corporate finance. For those companies that do not currently fulfil the qualifying assets criteria but intends to continue as HFCs in future, the RBI will grant them a phased timeline, which is as follows. NHB.HFC.DIR.18/MD&CEO/2017 dated 02 nd August, 2017 has made certain amendments to the Housing Finance Companies (NHB) Directions, 2010 (‘Directions’). Since then the finance act has been amended conferring certain powers for regulation of Housing Finance Companies (HFCs) with Reserve Bank of India. 112 ED (SG)/1997, [3] http://egazette.nic.in/WriteReadData/2019/214071.pdf, [4] https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/6059.pdf, [5] https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/6059.pdf, [6]https://rbidocs.rbi.org.in/rdocs/notification/PDFs/MD49F29092016392149B3597145A1ACADCF520A1D1A97.PDF, [7]https://rbidocs.rbi.org.in/rdocs/notification/PDFs/MD53E0706201769D6B56245D7457395560CFE72517E0C.PDF, [8] https://nhb.org.in/wp-content/uploads/2018/06/NHBND-DRS-Policy-Circular-90-2017-18.pdf, [9]https://rbidocs.rbi.org.in/rdocs/notification/PDFs/45MD01092016B52D6E12D49F411DB63F67F2344A4E09.PDF, [10] https://nhb.org.in/wp-content/uploads/2019/07/MC01-Master-Circular-The-Housing-Finance-Companies-NHB-Directions-2010.pdf, [11] https://nhb.org.in/wp-content/uploads/2019/07/MC01-Master-Circular-The-Housing-Finance-Companies-NHB-Directions-2010.pdf, [11]https://rbidocs.rbi.org.in/rdocs/notification/PDFs/45MD01092016B52D6E12D49F411DB63F67F2344A4E09.PDF;https://rbidocs.rbi.org.in/rdocs/notification/PDFs/MD44NSIND2E910DD1FBBB471D8CB2E6F4F424F8FF.PDF, [12] https://nhb.org.in/wp-content/uploads/2019/07/MC01-Master-Circular-The-Housing-Finance-Companies-NHB-Directions-2010.pdf, [13]https://rbidocs.rbi.org.in/rdocs/notification/PDFs/45MD01092016B52D6E12D49F411DB63F67F2344A4E09.PDF;https://rbidocs.rbi.org.in/rdocs/notification/PDFs/MD44NSIND2E910DD1FBBB471D8CB2E6F4F424F8FF.PDF, [14] Under direction 31(1) of the NHB Directions 2010, ‘Capital Fund’ means the aggregate of ‘tier-I capital’ and ‘tier-II capital’, [15] https://nhb.org.in/wp-content/uploads/2019/07/MC01-Master-Circular-The-Housing-Finance-Companies-NHB-Directions-2010.pdf, Partner at the Mumbai Office of Cyril Amarchand Mangaldas. “NHB, besides being the refinancer and lender, is also regulator of the housing finance sector. But then in August 2019, the RBI took over. (PBX) 011-3918 7000-35, All HFCs (systemically important and non-systemically important) will fall under the ambit of guidelines on securitisation transaction as applicable to NBFCs contained in Annex XXII to Master Directions – NBFC – Systemically important Non Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016 (updated as on February 17, 2020) (“Master Directions on NBFC-ND-SI”)[9]. Pursuant to this, (i) HFCs will be required to maintain at all times a loan to value (“LTV”) ratio of 50%; (ii) in case where lending is being done for investment in capital markets, HFCs to accept only Group 1 securities as collateral for loans of value more than Rs 5 lakh; and (iii) report on-line to stock exchanges on a quarterly basis, information on the shares pledged in their favour, by borrowers for availing loans in format as given in Annex V of the Master Directions on NBFC-ND-SI. The company conducting … •It should be ensured that the housing finance companies’ total borrowings, including deposits/debentures/bonds raised, loans and advances from banks or from financial c. Limit of exposure on an investment in CRE and capital market – HFCs can invest in land and building in CRE up to 20% of its capital fund[14]. The Finance Act, 2019 amended the National Housing Bank Act,1987, after which the government fully took over NHB. SHORT SUMMARY: In this Flash editorial, the author begins by referring the provisions of National Housing Bank, Housing Finance Companies. 4th floor, Kailash Building, Kasturba Gandhi Marg, Connaught Place, New Delhi- 110001. 810, 8th Floor, Aura Biplex, S. V. Road, Borivali (W), Mumbai – 400 092, 502, Tower A, Peninsula Business Park, Senapati Bapat Marg, Lower Parel, Mumbai, Bajaj Auto Limited Complex, Mumbai-Pune Road, Akrudi, Pune – 411 035 (Maharashtra), No. 203 & 204, 2nd Floor, A Wing, Navbharat Estate, Zakaria Bunder Road, Sewri (West), Mumbai – 400 015, Reliance Centre, 6th Floor, South Wing, Off Western Express Highway, Santacruz (East), Mumbai 400 055, IIFL House, Sun Infotech Park, Road No. NHB is the apex financial institution for housing. After all, housing financing companies were some of the worst affected during the NBFC crisis. In accordance with the Section 29A of the National Housing Bank Act, 1987, no HFC shall commence or carry on the business of a housing finance without meeting the following conditions - Parel ST Depot, Prabhadevi, Mumbai – 400 025, Muthoot Chambers, Kurians Towers, Banerji Road, Ernakulam North, Kochi – 682018, Kerala, Indian Rayon Compound, Veraval, Gujarat 362266, Mentor House, Govind Marg, Sethi Colony,Jaipur- 302004, 107, Best Sky Tower, Netaji Subhash Place, Pitampura, Delhi – 110 034, HTC Towers, No. The provisions of the Directions is applicable to every housing finance company (HFC) registered under section 29A of the National Housing Bank Act, 1987. The National Housing Bank (NHB) vide its notification no. The National Housing Bank (NHB) has tightened its rules on leverage and capital adequacy ratio for housing finance companies (HFCs). LARAM CENTRE,OPP. NHB also has the task of regulating deposits taking activity, of the housing finance companies. It is imperative that both the above mentioned conditions are satisfied in order to determine the constituents of ‘principal business’. NHB RESIDEX, India’s first official housing price index, was an initiative of the National Housing Bank (NHB), undertaken at the behest of the Government of India, Ministry of Finance. The company should obtain a certificate of registration (COR) from the National Housing Bank (NHB). The housing finance companies must maintain registers about the depositors containing all the details, as stated in the deposit. The proposed norms are being issued in the wake of liquidity problem being faced by housing finance companies (HFCs) after IL&FS crisis. Housing finance companies have welcomed the move, but said liquidity is the need of the hour. NHB may write off or set aside loans belonging to housing financing companies A housing finance company is required to be in the business of providing housing finance. It’s self-explanatory, isn’t it? While harmonising the regulations of HFCs with NBFCs as mentioned above will be carried out in a phased manner over a period of 2-3 years, until such time, HFCs will continue to follow the extant norms as prescribed by NHB. There are regulatory differences between the HFCs and NBFCs, which are as follows: a. Further, HFC is required to have a ‘principal business’ of providing housing finance. A general provision of 0.4% of the total outstanding amount of loans. However, all reports as prescribed in the formats given in the said master directions may continue to be forwarded to NHB, New Delhi. New Habitat Housing Finance and Development Limited: M – 4, Mezzanine Floor, South Extension Part-II, New Delhi – 110049: Habitat Micro Build India Housing Finance Company Private Limited: NO 20, 1st Floor, RRK Jayam, 28th Main, 37th Cross, Jayanagar 9th Block, Bangalore: Homeshree Housing Finance Limited *First Floor, P-14, 45/90, P-Block, Connaught Place, New Delhi –110001, MAHINDRA TOWERS, P. K. KURNE CHOWK, WORLI, MUMBAI MH 400018 IN, 4th Floor, Narayan Chambers Behind Patang Hotel, Ashram Road , Ahmedabad-9, Office no 1,2,3,4, Ground floor, Pushpak CHSL, Malaviya Road, Vile Parle (East) Mumbai Mumbai City MH 400057 IN, 106/34 NEW RAMDASPETH NAGPUR Nagpur MH 440010 IN, 46, Dr. Sundari Mohan Avenue, Kolkata – 700 014, West Bengal, 6th floor, Plot No. E-mail: ho@nhb.org.in, Credit Risk Guarantee Fund Trust for Low Income Housing (CRGFTLIH), NHB SUVRIDDHI (Tax Saving ) Term Deposit Scheme, Report On Trend And Progress Of Housing In India, Development House, 24, Park Street, Kolkatta-700016 ( As per HFC’s letter dated 16-04-2019 observed in file). 3.2.2 Lending to Housing Boards and Other Agencies Banks may extend term loans to state level housing boards and other public agencies. 14, 48th Street, 9th Avenue, Ashok Nagar, Chennai – 600083, 2nd Floor, DLF Centre, Sansad Marg, Delhi -110001, Plot No. Mandatory Compliances for Housing Finance Companies towards NHB. She can be reached at shweta.sharma@cyrilshroff.com. The Master Direction on Monitoring of Frauds in NBFCs (Reserve Bank) Directions, 2016 issued on September 29, 2016[6] covers classification and monitoring of frauds as well as reporting to the Board, to the police authorities, RBI, etc. I am proposing to return the regulation authority over the housing finance sector from NHB to RBI”, said Finance Minister Nirmala Sitharaman in her Budget speech. The master direction on Information Technology (IT) Framework for all NBFCs (with asset size above Rs500 crore (systemically important) and NBFCs with asset size below Rs 500 crore) dated June 08, 2017[7] covers IT Governance, IT Policy, Information & Cyber Security, IT Operations, IS Audit, Business Continuity Planning and IT Services Outsourcing. Core 5-A, India Habitat Centre, 4. For extending loans to individuals who choose to buy housing units from entities in the group, the HFC would follow arm’s length principles. The components of Tier I and Tier II capital are similar for NBFCs and HFCs except for the treatment of perpetual debt instruments (“PDI”). Credit concentration norms for NBFCs and HFCs are similar. PDIs will be treated as Tier I/ Tier II capital only by HFCs-ND-SI. Standard assets in respect of individual housing loans. Even a project level restriction as aforesaid could have a negative impact given the current situation. The restriction appears cumbersome and could have implications for developers. Lodha Complex, Near Shastri Circle, Udaipur – 313001, A1/207. The liquidity position of housing finance companies (HFCs) is normalising and growth in the sector post IL&FS default is stabilising, according to the National Housing Bank (NHB). 2.1.1. A list of housing finance companies registered with NHB may be obtained by the banks directly from NHB or downloaded from www.nhb.org.in. However, the term ‘housing finance’ was not defined under the NHB Act. 16V, Plot No. On what basis are home loan interest rates charged by housing finance companies? B-23, MIDC, Thane Industrial Area, Wagle Estate, Thane – 400604, 11th Floor, Tower A, Peninsula Business Park Ganpatrao Kadam Marg, Lower Parel Mumbai Mumbai City MH 400013 IN, 142, Golcha House, New Colony, Sadar, Nagpur, Maharashtra – 440001, Akme Business Centre 4-5, Sub City Centre Savina Circle, Udaipur – 313002, Rajasthan, Near Flyover bridge, Uripok Tourangbam Leikai, IMPHAL-795001, MANIPUR, Room No. 2% provision on total outstanding amounts of such loans. NHB was set up to operate as a principal agency to promote housing finance institutions and to provide financial support to such institutions, both at local and regional levels. Housing Finance Companies – Proposed changes by RBI, NeSL: THE NEW WAY OF ELECTRONIC EXECUTION, Social Distancing while approving financing transactions: MCA, SEBI Relaxations, Battling Covid-19 and Liquidity– The Twin Crisis of NBFC sector, How special are “special equities”- Analysis of invocation of bank guarantee during COVID-19, https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR2510D33641BD388B4D42B16D21F3651FCC32.PDF, https://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/HFC7B2AB6B6997544B88136D80AC3C094F9.PDF, https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR4198DC0F884BC40420B97CFC04971BA9E3E.PDF, http://egazette.nic.in/WriteReadData/2019/214071.pdf, https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/6059.pdf, https://rbidocs.rbi.org.in/rdocs/notification/PDFs/MD49F29092016392149B3597145A1ACADCF520A1D1A97.PDF, https://rbidocs.rbi.org.in/rdocs/notification/PDFs/MD53E0706201769D6B56245D7457395560CFE72517E0C.PDF, https://nhb.org.in/wp-content/uploads/2018/06/NHBND-DRS-Policy-Circular-90-2017-18.pdf, https://rbidocs.rbi.org.in/rdocs/notification/PDFs/45MD01092016B52D6E12D49F411DB63F67F2344A4E09.PDF, https://nhb.org.in/wp-content/uploads/2019/07/MC01-Master-Circular-The-Housing-Finance-Companies-NHB-Directions-2010.pdf, https://rbidocs.rbi.org.in/rdocs/notification/PDFs/MD44NSIND2E910DD1FBBB471D8CB2E6F4F424F8FF.PDF, The Supreme Court Revisits the Consequences of Non-Payment of Stamp Duty on the Arbitration Agreement – Part II, Takeover of Publicly Traded Companies: Flashback 2020, The Supreme Court Revisits the Consequences of Non-Payment of Stamp Duty on the Arbitration Agreement – Part I, RBI Working Group on Digital Lending – Policy Suggestions. NHB was set up to operate as a principal agency to promote housing finance institutions and to provide financial support to such institutions, both at local and regional levels. The Central Government had, with effect from August 09, 2019, transferred regulatory powers of the Housing Finance Companies (“HFCs”) from the National Housing Bank (“NHB”) to the Reserve Bank of India (“RBI”). In the federal budget announced in July this year the government took away powers of the NHB to regulate mortgage finance companies. 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