On February 17, 2021, the Reserve Bank of India (RBI) has issued “Master Direction – Non-Banking Financial Company – Housing Finance Company (Reserve Bank) Directions, 2021” in exercise of the powers conferred under sections 45L and 45MA of the Reserve Bank of India Act, 1934 and Sections 30, 30A, 32 and 33 of the National Housing Bank Act, 1987.
These directions are come into force with immediate effect.
- These are applicable to every Housing Finance Company (HFC) registered under Section 29 A of the NHB Act, 1987.
Key Points from Guidelines:
Guidelines on Liquidity Risk Management Framework:
All non-deposit taking HFCs with asset size of Rs 100 crore and above and all deposit taking HFCs (irrespective of asset size) require liquidity risk management. It will be the responsibility of the Board of each HFC to ensure that the guidelines are adhered to.
Guidelines on Maintenance of Liquidity Coverage Ratio (LCR):
HFCs need to maintain a liquidity buffer in terms of LCR to ensure sufficient High Quality Liquid Asset (HQLA) to survive any acute liquidity stress scenario lasting for 30 days.
- In this regard, all non-deposit taking HFCs with an asset size of Rs 10,000 crore and above, and all deposit taking HFCs irrespective of their asset size will have to achieve a minimum LCR of 50% by December 1, 2021 and gradually to 100% by December 1, 2025.
- Non-deposit-taking HFCs with an asset size of Rs 5,000 crore and above, but less than Rs 10,000 crore will have to reach a minimum LCR of 30% by December 1, 2021 and to 100% by December 1, 2025.
Guidelines on Maintenance of loan-to-value (LTV):
–HFCs lending against the collateral of listed shares should maintain a loan-to-value (LTV) ratio of 50%.
–For loans granted against the collateral of gold jewellery, HFCs should maintain an LTV ratio not exceeding 75%.
Guidelines on Housing Loans:
–The housing finance company should not grant housing loans to individuals up to Rs 30 lakh with LTV ratio exceeding 90% and above Rs 30 lakh and up to Rs 75 lakh with LTV ratio exceeding 80%.
–They also cannot offer housing loans to individuals above Rs 75 lakh with LTV ratio exceeding 75%.
Guidelines on Minimum Capital Ratio
Every housing finance company should maintain a minimum capital ratio on an ongoing basis consisting of tier-I and tier-II capital, which shall not be less than 13% as on March 31, 2020, 14% on or before March 31, 2021, and 15% on or before March 31, 2022, and thereafter.
Exposure in Group Companies:
HFC exposure in group companies, directly or indirectly, cannot be more than 15% of owned fund for a single entity in the group and 25% of owned fund for all such group entities.
–The central bank barred HFC to accept or renew public deposit unless it has obtained a minimum investment grade rating for fixed deposits from any one of the approved credit rating agencies, at least once a year.
–The central bank also barred HFCs to lend against their own shares.
–HFCs should ensure full cover available for public deposits accepted by them.
–An HFC also cannot lend to any single borrower exceeding 15% of its owned fund, and any single group of borrowers exceeding 25% of its owned fund.
–It also cannot invest in the shares of another company exceeding 15% of its owned fund and in shares of a single group of companies exceeding 25% of its owned funds.
What is HFC?
HFC is an Non-Banking Financial Company (NBFC) whose financial assets, in the business of providing finance for housing, constitute at least 60% of its total assets.
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ii.On October 1, 2020, the Reserve Bank of India (RBI) excluded six public sector banks (PSBs) from the Second Schedule of the RBI Act, 1934 following their merger with other banks with effect from April 01, 2020. The six banks are Syndicate Bank, Oriental Bank of Commerce (OBC), United Bank of India, Andhra Bank, Corporation Bank, and Allahabad Bank.
About Reserve Bank of India (RBI):
Formation– 1 April 1935
Governor– Shaktikanta Das
Headquarters– Mumbai, Maharashtra
Deputy Governors– 4 (Bibhu Prasad Kanungo, Mahesh Kumar Jain, Michael Debabrata Patra, and M Rajeswar Rao)