What changed
RBI redefined HFCs as NBFCs with at least 60% of total assets (net of intangibles) in housing finance, and at least 50% in individual housing loans. It also exempted HFCs from sections 45-IB (asset maintenance) and 45-IC (reserve fund) of the RBI Act, while keeping corresponding NHB Act provisions applicable. The circular supersedes earlier NHB regulations and outlines a phased two-year plan to align HFC rules with NBFC norms.
What it means for you
HFCs must now meet stricter asset composition criteria to retain their classification, impacting their lending mix and portfolio strategy. The exemption from certain RBI Act provisions reduces compliance burden, but the phased harmonization with NBFC regulations signals tighter oversight ahead. Banks and lenders dealing with HFCs should prepare for potential changes in risk weights, capital adequacy, and reporting standards as alignment progresses.
What you must do
- Review your HFC's asset composition to ensure at least 60% of net total assets are in housing finance and 50% in individual housing loans.
- Update internal policies and reporting systems to comply with the new regulatory framework and upcoming Master Direction.
- Monitor RBI's phased harmonization roadmap to anticipate and prepare for NBFC-like regulations over the next two years.
- Engage with legal and compliance teams to assess the impact of exemptions from sections 45-IB and 45-IC of the RBI Act.
Who it affects
Housing Finance Companies (HFCs), HFCs that do not meet the new criteria and may be reclassified as NBFC-ICC, Banks lending to or investing in HFCs, Regulatory compliance teams at HFCs
What is the new definition of a Housing Finance Company under this circular?
An HFC is now defined as an NBFC where at least 60% of its total assets (net of intangible assets) are in housing finance, and at least 50% of total assets are in housing finance for individuals, covering loans for purchase, construction, renovation, or repair of residential units.
Are HFCs now exempt from all provisions of Chapter III B of the RBI Act?
No. HFCs remain subject to section 45-IA (registration and net owned funds). However, they are now additionally exempt from sections 45-IB (asset maintenance) and 45-IC (reserve fund), though corresponding provisions under the NHB Act (sections 29B and 29C) still apply.
When will the full harmonization of HFC and NBFC regulations take place?
RBI has indicated that further harmonization will be done in a phased manner over the next two years to ensure a smooth transition with minimal disruption. A comprehensive Master Direction for HFCs will be issued shortly.