Proposed regulatory framework for Housing Finance cos

The Reserve Bank of India has come out with draft regulatory framework for the Housing Finance Companies (HFC).

I feel this may the fallout of the various HFC which more act as an NBFC and fund their group companies.

It is proposed to introduce the concept of ‘qualifying assets’ for HFCs as done in case of NBFC-MFIs. The proposed regulations are as under:

Qualifying Assets refer to ‘housing finance’ or ‘providing finance for housing’  subject to the following:

1. Not less than 50% of net assets are in the nature of ‘qualifying assets’ for HFCs
2. 75% of the 50% of net assets should be towards individual housing loans.

“Net assets” shall mean total assets other than cash and bank balances and money market instruments.

The HFC is given 4 years timeframe comply with the requirements.

Timeline	At least 50% of net assets as qualifying assets i.e., towards housing finance	At least 75% of qualifying assets towards housing finance for individuals
March 31, 2022	50%	60%
March 31, 2023	-	70%
March 31, 2024	-	75%

‘Housing Finance” or “providing finance for housing” means:

1. Loans to individuals or group of individuals including co-operative societies for construction/ purchase of new dwelling units.
2. Loans to individuals for purchase of old dwelling units.
3. Loans to individuals for purchasing old/ new dwelling units by mortgaging existing dwelling units.
4. 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.
5. Loans to individuals for renovation/ reconstruction of existing dwelling units.
6. Lending to public agencies including state housing boards for construction of residential dwelling units.
7. Loans to corporates/ Government agencies (through loans for employee housing).
8. Loans for construction of educational, health, social, cultural or other institutions/centres, which are part of housing project in the same complex and which are necessary for the development of settlements or townships;
9. Loans for construction of houses and related infrastructure within the same area, meant for improving the conditions in slum areas for which credit may be extended directly to the slum-dwellers on the guarantee of the Government, or indirectly to them through the State Governments;
10. Loans given for slum improvement schemes to be implemented by Slum Clearance Boards and other public agencies;
11. Lending to builders for construction of residential dwelling units.

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, will be treated as non-housing loans.

Loan foreclosure charges

As a measure of customer protection and also in order to bring in uniformity with regard to repayment of various loans by borrowers of banks and NBFCs, no foreclosure charges/pre-payment penalties shall be levied on any floating rate term loan sanctioned for purposes other than business to individual borrowers with or without co-obligants. Since similar regulations are currently not prescribed for HFCs, it is proposed to extend these instructions to HFCs.