Reserve Bank of India issues guidelines for housing finance companies

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MUMBAI: The Reserve Bank of India (RBI) on Wednesday released a series of guidance related to maintaining the liquidity coverage ratio, risk management, asset classification and loan-to-value ratio, among others, to housing finance companies (HFCs). The central bank said the guidelines, which will take effect immediately, are aimed at preventing the business of any HFCs from being conducted in a manner detrimental to the interests of investors and depositors.

“All HFCs not accepting deposits with an asset size of Rs 100 crore and above and all HFCs accepting deposits (regardless of asset size) should continue to manage liquidity risk,” which must in particular cover compliance with the spread limits, using liquidity risk monitoring tools and adopting a stock market approach to liquidity risk, ”said the RBI.

The board of directors of each HFC would ensure that the guidelines are followed.

On Wednesday, the RBI released a main directive – Non-bank finance company – Housing finance company (reserve bank), 2021.

By definition, an HFC is an NBFC whose financial assets, as part of housing finance, constitute at least 60 percent of its total assets.

The RBI said HFCs will maintain a liquidity buffer in terms of liquidity coverage ratio (LCR), which will promote their resilience to potential liquidity disruptions by ensuring they have sufficient liquid assets of high quality (HQLA) to survive any acute liquidity crisis scenario lasting for 30 days.

All HFCs not accepting deposits with an asset size of Rs 10,000 crore and above, and all HFCs accepting deposits, regardless of their asset size, will need to achieve a minimum LCR of 50 percent of the deposit. ‘by December 1, 2021 and gradually to 100 percent by December 1, 2025.

No deposit HFCs with an asset size of Rs 5,000 crore and above but less than Rs 10,000 crore will need to achieve a minimum LCR of 30% by December 1, 2021 and 100% by December 1, 2021. December 1, 2025.

In accordance with the new guidelines, HFCs lending against the guarantee of listed shares will maintain a loan-to-value (LTV) ratio of 50%.

“Any breach in maintaining the 50 percent LTV that occurs due to a movement in the share price will be closed within seven business days,” the central bank said.

For loans made against the collateral for gold jewelry, HFCs will maintain an LTV ratio of no more than 75 percent.

The central bank has also prevented HFC from accepting or renewing government deposits unless it has obtained a minimum investment grade rating for term deposits from one of the approved credit rating agencies, at least once a year.

“No HFC will invite, accept or renew a public deposit at an interest rate greater than twelve and a half percent per annum or as revised by the Reserve Bank,” said the RBI.

The RBI has asked HFCs to ensure that at all times there is full coverage available for the public deposits they accept.

In the event that an HFC does not repay a public deposit or part of it in accordance with the conditions, it shall not grant any loan or other credit facility, or make any investment or create any other asset while the default exists, according to the instructions.

The central bank has also banned HFCs from lending against their own stock.

“No housing finance company will grant home loans to individuals up to Rs 30 lakh with an LTV ratio greater than 90% and greater than Rs 30 lakh and up to Rs 75 lakh with an LTV ratio greater than 80 %, ”the management said.

These entities also cannot offer home loans to individuals above Rs 75 lakh with an LTV ratio above 75%.

Each housing finance company must maintain a minimum capital ratio on an ongoing basis consisting of Level I and Level II capital, which must not be less than 13% by March 31, 2020, 14% by March 31 at the latest. . 2021, and 15% by March 31, 2022 and thereafter, the RBI said.

Nor can an HFC lend more than 15 percent of its equity to a single borrower, and to a single group of borrowers more than twenty-five percent of its equity.

It also cannot invest in the shares of another company exceeding 15 percent of its equity and in the shares of a single group of companies exceeding 25 percent of its equity.

“In the case of group companies carrying out real estate activities, HFCs may be exposed either to the group company carrying out real estate activities or lending to retail buyers of single-family homes as part of the projects of these companies of the group “, indicated the new directions.

In the event that HFC prefers exposure to group companies, this exposure through loans and investments, directly or indirectly, cannot exceed 15% of the funds held for a single group entity and 25% of the funds held for all these group entities.

The RBI has said that an HFC’s overall exposure to the capital market in all its forms (fund-based and non-fund-based) should not exceed 40% of its net worth as of March 31 of the previous year.

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