Topics Covered: Inclusive growth and associated issues.
Housing Finance Companies
Context:
The Reserve Bank of India (RBI) has proposed stringent norms for housing finance companies.
Proposed norms include:
- At least 50% of net assets should be in the nature of ‘qualifying assets’ for HFCs, of which at least 75% should be towards individual housing loans.
- Such HFCs which do not fulfil the criteria will be treated as NBFC – Investment and Credit Companies (NBFC-ICCs) and will be required to approach the RBI for conversion of their Certificate of Registration from HFC to NBFC-ICC.
- The NBFC-ICCs which want to continue as HFCs would have to follow a roadmap to make 75% of their assets individual housing loans.
- The target has been set at 60% by March 31, 2022, 70% by March 31, 2023, and 75% by March 31, 2024.
- It has also proposed a minimum net-owned fund (NOF) of ₹20 crore as compared to ₹10 crore now. Existing HFCs would have to reach ₹15 crore within a year and ₹20 crore within two years.
What are qualifying assets?
The RBI defined ‘qualifying assets’ as loans to individuals or a group of individuals, including co-operative societies, for construction/purchase of new dwelling units, loans to individuals for renovation of existing dwelling units, lending to builders for construction of residential dwelling units.
Regulatory oversight:
- A housing finance company is considered a non-banking financial company (NBFC) under the RBI’s regulations.
- A company is treated as an NBFC if its financial assets are more than 50% of its total assets and income from financial assets is more than 50% of the gross income.
Sources: the Hindu.
