Sunday, July 14, 2024

RBI Proposes Stringent Norms for Housing Finance Companies on Public Deposits

The Reserve Bank of India (RBI) has put forth proposals to tighten regulations for housing finance companies (HFCs), focusing on aspects such as maturity periods for public deposits and enhanced liquid asset requirements. The draft circular, open for comments until February 29, outlines key changes:

Maturity Period Adjustment:

Currently, HFCs can accept or renew public deposits repayable between 12 to 120 months.

The proposed change limits the maturity period to not later than 60 months for deposits accepted or renewed after the circular’s effective date.

Existing deposits with maturities exceeding sixty months will continue per their original repayment terms.

Credit Rating Impact:

HFCs with credit ratings below the minimum investment grade will be barred from renewing existing deposits or accepting fresh deposits until they achieve an investment-grade credit rating.

Deposit Limit Reduction:

The ceiling on the quantum of public deposits held by deposit-taking HFCs is reduced from 3 times to 1.5 times of net owned funds with immediate effect.

Liquid Asset Requirement:

Deposit-taking HFCs must maintain liquid assets equivalent to 15% of public deposits held on an ongoing basis, phased in gradually.

Reporting Obligations:

HFCs are mandated to inform the National Housing Bank if the asset cover falls short of liabilities concerning public deposits.

Co-Branded Credit Cards:

HFCs are allowed to issue co-branded credit cards with scheduled commercial banks, without risk sharing, with RBI approval for an initial two-year period, subject to review.

Pre-mature Withdrawals:

‘Tiny deposits’ can be prematurely paid to individual depositors, without interest, for emergent expenses, subject to satisfaction of the NBFC concerned.

For other public deposits, not more than 50% of the principal sum or Rs 5 lakh, whichever is lower, may be prematurely paid to individual depositors without interest, within three months of acceptance.

Emergency Withdrawals:

Pre-mature withdrawal is allowed for meeting expenses of an emergent nature, including medical emergencies or those arising from natural calamities/disasters.

These proposed measures aim to align HFC regulations with evolving financial norms, ensuring prudential management and safeguarding the interests of depositors in the housing finance sector.

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