Reserve Bank of India issues directions for housing finance companies


MUMBAI: The Reserve Bank of India (RBI) on Wednesday got here out with a slew of directions associated to upkeep of liquidity protection ratio, danger administration, asset classification and loan-to-value ratio, amongst others, for housing finance companies (HFCs). The central financial institution stated these directions, which shall come into pressure with an instantaneous impact, are geared toward stopping the affairs of any HFCs from being carried out in a fashion detrimental to the curiosity of traders and depositors.

“All non-deposit taking HFCs with asset size of Rs 100 crore and above and all deposit taking HFCs (irrespective of asset size) shall pursue liquidity risk management, which inter alia should cover adherence to gap limits, making use of liquidity risk monitoring tools and adoption of stock approach to liquidity risk,” the RBI stated.

The board of every HFC would make sure that the rules are adhered to.

The RBI issued a Master Direction-Non-Banking Financial Company-Housing Finance Company (Reserve Bank) Directions, 2021, on Wednesday.

As per the definition, an HFC is an NBFC whose monetary belongings, within the enterprise of offering finance for housing, represent no less than 60 per cent of its complete belongings.

The RBI stated HFCs shall preserve a liquidity buffer in phrases of liquidity protection ratio (LCR), which is able to promote their resilience to potential liquidity disruptions by making certain that they’ve enough high-quality liquid asset (HQLA) to outlive any acute liquidity stress situation lasting for 30 days.

All non-deposit taking HFCs with an asset measurement of Rs 10,000 crore and above, and all deposit taking HFCs irrespective of their asset measurement must obtain a minimal LCR of 50 per cent By December 1, 2021 and step by step to 100 per cent by December 1, 2025.

Non-deposit-taking HFCs with an asset measurement of Rs 5,000 crore and above, however lower than Rs 10,000 crore must attain a minimal LCR of 30 per cent by December 1, 2021 and to 100 per cent by December 1, 2025.

As per the brand new directions, HFCs lending in opposition to the collateral of listed shares shall preserve a loan-to-value (LTV) ratio of 50 per cent.

“Any shortfall in the maintenance of the 50 per cent LTV occurring on account of movement in the share price shall be made good within seven working days,” the central financial institution stated.

For loans granted in opposition to the collateral of gold jewelry, HFCs shall preserve an LTV ratio not exceeding 75 per cent.

The central financial institution additionally prevented HFC to just accept or renew public deposit until it has obtained a minimal funding grade ranking for fastened deposits from anybody of the authorised credit standing companies, no less than annually.

“No HFC shall invite or accept or renew public deposit at a rate of interest exceeding twelve and half per cent per annum or as revised by the Reserve Bank,” the RBI stated.

The RBI requested HFCs to make sure that always, there’s full cowl obtainable for public deposits accepted by them.

In case an HFC fails to repay any public deposit or half thereof as per the phrases, it shall not grant any mortgage or different credit score facility or make any funding or create another asset so long as the default exists, as per the directions.

The central financial institution additionally barred HFCs to lend in opposition to their very own shares.

“No housing finance company shall grant housing loans to individuals up to Rs 30 lakh with LTV ratio exceeding 90 per cent and above Rs 30 lakh and up to Rs 75 lakh with LTV ratio exceeding 80 per cent,” the directions stated.

These entities additionally can not supply housing loans to people above Rs 75 lakh with LTV ratio exceeding 75 per cent.

Every housing finance firm shall preserve a minimal capital ratio on an ongoing foundation consisting of tier-I and tier-II capital, which shall not be lower than 13 per cent as on March 31, 2020, 14 per cent on or earlier than March 31, 2021, and 15 per cent on or earlier than March 31, 2022, and thereafter, the RBI stated.

An HFC additionally can not lend to any single borrower exceeding 15 per cent of its owned fund, and any single group of debtors exceeding twenty-five per cent of its owned fund.

It additionally can not spend money on the shares of one other firm exceeding 15 per cent of its owned fund and in shares of a single group of companies exceeding 25 per cent of its owned funds.

“In case of companies in a group engaged in real estate business, HFCs may undertake exposure either to the group company engaged in real estate business or lend to retail individual home buyers in the projects of such group companies,” the brand new directions stated.

In case HFC prefers to undertake publicity in group companies, such publicity by manner of lending and investing, immediately or not directly, can’t be greater than 15 per cent of owned fund for a single entity within the group and 25 per cent of owned fund for all such group entities.

The RBI stated the combination publicity of an HFC to the capital market in all varieties (each fund based mostly, and non-fund based mostly) shouldn’t exceed 40 per cent of its web value as on March 31 of the earlier yr.

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