On June 17, RBI proposed to tighten the rules governing housing finance companies. This includes putting restrictions on lending to builders and doubling the minimum net owned funds criterion. Along with this, the central bank has also clearly defined home finance firms. RBI said that housing finance firms should not be permitted to lend real estate developers and homebuyers simultaneously in developer projects.
In August 2019, RBI took over as the regulator of mortgage lenders from NHB (National Housing Bank). After the recent review of rules, housing finance firms will now be regulated as NBFC. Defining housing finance through the draft framework, RBI said, “financing, for purchase/construction/reconstruction/ renovation/ repairs of residential dwelling units and some other activities, including giving loans to corporates and government agencies for employee housing projects. All other loans, including those given for furnishing dwelling units, loans given against mortgage of property for any purpose other than buying/construction of a new dwelling unit/s or renovation of the existing dwelling unit/s, will be treated as non-housing loans”.
It added, “Non-deposit taking HFCs with asset size of ₹500 crore and above; and all deposit-taking HFCs irrespective of asset size will be treated as systemically important HFCs. HFCs with asset size below ₹500 crores will be treated as non-systemically important HFCs”.
Banking Sector Expert, Srinath Sridharan said, “RBI’s announcements on draft regulatory changes for HFCs sharpen the definition of what’s ‘housing finance’ or ‘providing finance for housing’ to residential dwellings. It also provides relief to residential developers as lending to builders for construction of residential dwelling units is allowed in this definition. Also, with a few other tightenings of regulations, I anticipate the valuation-driven hunger for HFC licences over the past few years will ebb. Only serious players will stay in this industry.”
According to RBI, to qualify as a housing finance company, a company will need to have a 50 per cent of net assets for real estate lending, of which at least 75 per cent should be towards individual housing loans. And those companies who do not qualify this criterion will be considered as NBFC – investment and credit companies (NBFC-ICCs), also they will be required to get a certificate of registration from RBI.
RBI wants to double the minimum net owned funds for HFCs to Rs 20 crore and align the stipulated capital needs of all HFCs and NBFCs over a period of two years. HFCs minimum capital risk-weighted assets ratio will be increased from 12 per cent to 14 per cent by March 31, next year and to 15 per cent by 2022.