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Reserve Bank withdraws some exemptions granted to HFCs

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On November 11, 2019, India’s central bank, the Reserve of India (RBI) has come up with a master direction & decided to withdraw some exemptions from the provisions of Chapter IIIB of Reserve Bank of India Act, 1934 applicable to Housing Finance Companies (HFCs) in terms of complying with regulations such as provisions and formation of reserve fund. It also decided to make provisions of Chapter IIIB except Section 45-IA of RBI Act, 1934.This direction will put regulations of HFC’s on a par with those of non-banking financial companies (NBFCs).
RBIKey Points:
i.
This comes after the Finance Act, 2019 amended the National Housing Bank Act, 1987, which conferred certain powers for regulation of HFCs with the RBI.

ii.Mandate: With this, Now the HFCs are mandated to create a reserve fund and it should transfer at least 20% of its net profit every year to the fund before the declaration of dividend. Earlier, they were exempted from this clause.

iii.Prevention: Until any specific direction given by RBI, HFCs required to not appropriate sum from the reserve fund. The winding up clause for NBFC will also be applicable to these entities if one fails to pay the outstanding payment.

iv.Background: In July 2019, The government shifted the regulation of housing finance companies (HFCs) from the National Housing Board (NHB) to the Reserve Bank of India (RBI).

About RBI:
Headquarters- Mumbai, Maharashtra
Formation- 1 April 1935
Governor- Shaktikanta Das
Deputy Governors- 4 (BP Kanungo, N S Vishwanathan, Mahesh Kumar Jain, 1 is yet to be appointed)