RBI Revamps HFC Regulatory Framework: Key Changes

RBI/2020-21/60 DOR.NBFC (HFC).CC.No.118/03.10.136/2020-21 October 22, 2020 To, Housing Finance Companies Madam/ Dear Sir, Review of regulatory framework for Housing Finance Companies (HFCs) Please refer to the Bank’s Press Release No.2019-20/419 dated August 13, 2019 and draft regulatory framework placed in public domain on June 17, 2020 seeking comments from stakeholders. Based on the examination of the inputs received, it has been decided to issue the revised regulatory framework for HFCs. 2. In exercise of powers conferred under National Housing Bank Act, 1987, and Reserve Bank of India Act, 1934, and in supersession of relevant regulations issued by National Housing Bank (NHB), the instructions as enumerated in the Annex will be applicable to all HFCs. HFCs shall continue to comply with all extant instructions issued by NHB, which are not covered in the Annex . 3. Exemption granted to HFCs from the provisions of Chapter III B of Reserve Bank of India Act, 1934 except for section 45-IA (Requirement of registration & net owned funds) was withdrawn on November 11, 2019. On a review, it has been decided to additionally exempt HFCs from section 45-IB (Maintenance of percentage of assets) and section 45-IC (Reserve fund) of the Reserve Bank of India Act. Necessary Notification in this regard will be issued in due course. It is clarified that the corresponding provisions of section 29B and 29C of the National Housing Bank Act, 1987 will, however, be applicable to HFCs. 4. As mentioned in para 3 of the public document put out for consultation, further harmonisation between the regulations of HFCs and NBFCs will be taken up in a phased manner in the next two years so as to ensure that the transition is achieved with least disruption. Master Direction for HFCs covering all applicable instructions will be issued shortly. Yours faithfully, (Manoranjan Mishra) Chief General Manager Annex Changes in the regulatory framework for Housing Finance Companies (HFCs) Principal business and housing finance 1. “Housing finance company” shall mean a company incorporated under the Companies Act, 2013 that fulfils the following conditions: It is an NBFC 1 whose financial assets, in the business of providing finance for housing, constitute at least 60% of its total assets (netted off by intangible assets). Housing finance for this purpose shall mean providing finance as stated at clauses (a) to (k) of Para 2 below. Out of the total assets (netted off by intangible assets), not less than 50% should be by way of housing financing for individuals as stated at clauses (a) to (e) of Para 2 below. 2. “Housing Finance” shall mean financing, for purchase/ construction/ reconstruction/ renovation/ repairs of residential dwelling units, which includes: Loans to individuals or group of individuals including co-operative societies for construction/ purchase of new dwelling units. Loans to individuals or group of individuals for purchase of old dwelling units. Loans to individuals or group of individuals for purchasing old/ new dwelling units by mortgaging existing dwelling units. Loans to individuals for purchase of plots for construction of residential dwelling units provided a declaration is obtained from the borrower that he intends to construct a house on the plot within a period of three years from the date of availing of the loan. Loans to individuals or group of individuals for renovation/ reconstruction of existing dwelling units. Lending to public agencies including state housing boards for construction of residential dwelling units. Loans to corporates/ Government agencies for employee housing. Loans for construction of educational, health, social, cultural or other institutions/ centres, which are part of housing projects and which are necessary for the development of settlements or townships (see note below). Loans for construction meant for improving the conditions in slum areas, for which credit may be extended directly to the slum-dwellers on the guarantee of the Central Government, or indirectly to them through the State Governments. Loans given for slum improvement schemes to be implemented by Slum Clearance Boards and other public agencies. Lending to builders for construction of residential dwelling units. 2.1 All other loans including those given for furnishing dwelling units, loans given against mortgage of property for any purpose other than buying/ construction of a new dwelling unit/s or renovation of the existing dwelling unit/s as mentioned above, will be treated as non-housing loans and will not be falling under the definition of “Housing Finance”. Note: Integrated housing project comprising some commercial spaces (e.g. shopping complex, school, etc.) can be treated as residential housing, provided that the commercial area in the residential housing project does not exceed 10 per cent of the total Floor Space Index (FSI) of the project. 3. The above criteria will be applicable from the date of this circular. Registered HFCs which do not currently fulfil the criteria as specified in Para 1, but wish to continue as HFCs, shall be provided with the following timeline for transition: Timeline

Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2020-21/60 · issued 22 Oct 2020. The plain-English explanation above is BankPulse’s own independent summary.

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Topics: Home LoansNBFC Regulations

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