Parul
The RBI on Monday issued a draft circular which proposes to harmonise regulations of housing finance companies (HFCs) with that of non-banking finance companies (NBFCs) in several areas such as minimum capital requirement and deposit taking rules.
The RBI said it has carried out a review of deposit directions for deposit-taking HFCs, participation of HFCs in various derivative products for hedging purposes, diversification into other financial products, and adoption of technical specifications under the account aggregator ecosystem.
The draft circular proposes to review certain directions for deposit taking NBFCs as part of further harmonisation of HFC regulations with those of NBFCs.
The draft circular provides for more stringent rules for HFCs going ahead. Currently, HFCs are subject to easier prudential parameters on deposit acceptance as compared to NBFCs. Since the regulatory concerns associated with deposit acceptance is same across all categories of NBFCs, it has been decided to move HFCs towards the regulatory regime on deposit acceptance as applicable to deposit-taking NBFCs, the RBI said.
Accordingly, the revised regulations would be applicable to HFCs accepting or holding public deposits, the RBI said.
Also, currently the deposit taking HFCs are required to maintain 13 per cent of liquid assets against public deposits held by them. It has now been decided that all deposit taking HFCs need to maintain liquid assets to the extent of 15 per cent of the public deposits held by them, in a phased manner.
As per the plan, deposit taking HFCs will need to take the percentage of liquid assets to 14 per cent by September 30, 2024 and to 15 per cent by March 31, 2025, the RBI said. It has also been decided that the regulations on safe custody of liquid assets for HFCs will be aligned with those of NBFCs in the interest of harmonisation of regulations, the RBI said.
Besides, the proposed regulations seek to harmonise regulations regarding appointment of agents, rate and tenure of deposits, participation in exchange traded currency derivatives, interest rate futures, credit default swaps, issue of co-branded credit cards, accounting year and audit, investment through alternative investment funds among other issues, as per the draft circular.
Comments on the draft circular are invited from NBFCs, HFCs and other stakeholders by February 29, 2024.
Speaking up on the RBI circular, Manish Jaiswal, Managing Director and CEO at Grihum Housing Finance Limited (formerly Poonawalla Housing Finance Limited) said that this is a positive move that requires deposit-taking institutions to align with the banks.
“Housing finance companies, facing higher liquidity coverage ratio implications, might face elevated borrowing costs, particularly on liabilities garnered through public deposits. This could prompt the exploration of alternative borrowing avenues, potentially boosting corporate bonds. The resulting shift has the potential to reshape the landscape, propelling corporate bond development—a significant and welcome change.” he said.
