The Reserve Bank of India has proposed tighter norms for deposit-taking housing finance companies as it looks to harmonise norms with other non-bank finance companies.
The regulator proposed that housing finance companies that accept public deposits maintain at least 15% liquid assets against the public deposits they maintain in a phased manner by March 2025, according to a draft circular issued on Monday.
These companies are currently required to maintain 13% of their liquid assets against public deposits. This requirement would be raised to 14% liquid assets by September 30, if these norms are formalised, and to 15% by the end of the next financial year.
The regulator has also proposed to bring down the ceiling on maximum public deposits to 1.5 times the housing finance company’s net worth, from three times currently. This would greatly limit the company’s capability to accept deposits.
Deposit-taking mortgage lenders holding deposits in excess of the revised limit shall not accept fresh public deposits or renew existing deposits till such time the quantum of public deposits is below the revised limit, the RBI said in its draft. However, the existing excess deposits will be allowed to run off until maturity.
Further, the RBI has proposed to set a shorter 12- to 60-month tenor for such public deposits. Currently, the limit for such deposits is 12–120 months. Existing deposits with maturities above sixty months shall be repaid as per their existing repayment profile.
Currently, nine housing finance companies can accept public deposits, according to the housing finance regulator, the National Housing Bank. These include Can Fin Homes, Cent Bank Home Finance, Aadhar Housing Finance, Housing and Urban Development Corporation, ICICI Home Finance Company, LIC Housing Finance Company, Manipal Housing Finance Syndicate, PNB Housing Finance and Sundaram Home Finance.
Apart from these, Saral Home Finance, GIC Housing and REPCO Home Finance are allowed to accept deposits with the prior written permission of NHB.
The RBI has also proposed that all housing finance companies shall be allowed to invest in currency futures, and those with an asset size of Rs 1,000 crore and above can invest in currency options to hedge their underlying exposures.
For housing finance companies that invest in group companies, any investment in excess of 10% is currently reduced from their net-owned funds. In the draft circular, the central bank has proposed that any group investments through the alternative investment fund route shall also carry similar rules.
These investment rules shall apply to AIFs that receive more than 50% of their funds from the same housing finance company.