Housing Finance Company
“Housing Finance” shall mean financing, for purchase/ construction/ reconstruction/ renovation/ repairs of residential dwelling units, which includes:
a. Loans to individuals or group of individuals including co-operative societies for construction/ purchase of new dwelling units.
b. Loans to individuals or group of individuals for purchase of old dwelling units.
c. Loans to individuals or group of individuals for purchasing old/ new dwelling units by mortgaging existing dwelling units.
d. 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.
e. Loans to individuals or group of individuals for renovation/ reconstruction of existing dwelling units.
f. Lending to public agencies including state housing boards for construction of residential dwelling units.
g. Loans to corporates/ Government agencies for employee housing.
h. 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.
i. 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.
j. Loans given for slum improvement schemes to be implemented by Slum Clearance Boards and other public agencies.
k. 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 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.
“Housing finance company” shall mean a company incorporated under the Companies Act, 2013 that fulfils the following conditions:
a. It is an NBFC2 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 aforesaid para.
b. Out of the total assets (netted off by intangible assets), not less than 50% should be by way of housing finance for individuals.
Net Owned Fund (NOF) Requirement
the Reserve Bank hereby specifies Rupees Twenty crore as the minimum net owned funds required for a company to commence housing finance as its principal business or carry on the business of housing finance as its principal business.
Accounting Standards
HFCs that are required to implement Indian Accounting Standards (Ind AS) as per the Companies (Indian Accounting Standards) Rules, 2015 shall prepare their financial statements in accordance with Ind AS notified by the Government of India and shall comply with the regulatory guidance. Other HFCs shall comply with the requirements of notified Accounting
Standards (AS) insofar as they are not inconsistent with any of these directions.
HFCs will be included in Middle Layer or the Upper Layer (and not in the Base layer), as the case may be.
a.Upper Layer
The Upper Layer shall comprise of those HFCs which are specifically identified by the Reserve Bank as warranting enhanced regulatory requirement based on a set of parameters and scoring methodology. The top ten eligible NBFCs (including HFCs)
in terms of their asset size shall always reside in the upper layer, irrespective of any other factor.
b.Top Layer
The Top Layer will ideally remain empty. This layer can get populated if the Reserve Bank is of the opinion that there is a substantial increase in the potential systemic risk from specific HFCs in the Upper Layer. Such HFCs shall move to the Top Layer from the Upper Layer.
c. Multiple NBFCs in a Group - Classification in Middle Layer
NBFCs that are part of a common Group or are floated by a common set of promoters shall not be viewed on a standalone basis. The total assets of all the NBFCs, including HFCs, in a Group shall be consolidated to determine the threshold for classification of NBFCs in the Middle Layer. The provision shall not be applicable for classifying an NBFC in the Upper Layer.
Guidelines on Liquidity Risk Management Framework:
All non-deposit taking HFCs with asset size of ₹100 crore and above and all deposit taking HFCs (irrespective of asset size) shall pursue liquidity risk management, which inter alia should cover adherence to gap limits, making use of liquidity risk monitoring tools and adoption of stock approach to liquidity risk. It will be the responsibility of the Board of each HFC to ensure that the guidelines are adhered to. The internal controls required to be put in place by HFCs as per these guidelines shall be subject to supervisory review.
Acquisition/ Transfer of Control
Prior written permission of Reserve Bank of India shall be required for the following:
1. any takeover or acquisition of control of an HFC, which may or may not result in change of management;
2. any change in the shareholding of an HFC accepting/ holding public deposits, including progressive increases over time, which would result in acquisition/ transfer of shareholding of 10 per cent or more of the paid-up equity capital of the
HFC by/to a foreign investor or any change in the shareholding of an HFC, including progressive increases over time, which would result in acquisition/ transfer of shareholding of 26 per cent or more of the paid-up equity capital of the HFC;
Provided that, prior approval would not be required in case of any shareholding going beyond 10 per cent or 26 per cent, as applicable, due to buyback of shares/ reduction in capital where it has approval of a competent Court. However, the
same is to be reported to the NHB not later than one month from the date of its occurrence.
3. any change in the management of the HFC which would result in change in more than 30 per cent of the directors, excluding independent directors.
Provided that, prior approval would not be required in case of directors who get re-elected on retirement by rotation.