The rating agency Icra in a report has said that changes in risk weights for Housing finance companies (HFCs) are unlikely to impact reported capital significantly. It added that the affordable housing finance companies (AHFCs) could witness marginal capital release.
The report added that no material impact was envisaged on the deposit-accepting HFCs, given their adequate on-balance sheet liquidity and their deposits being within the prescribed ceiling.
The Reserve Bank of India (RBI) released two notifications on 12 August 2024 announcing the change in risk weights for the HFCs and harmonising regulations applicable to deposit-accepting HFCs and NBFCs. The latter notification is the final guidelines after the draft issued in January 2024 and applicable from 1 January 2025.
The changes in the risk-weighted assets for undisbursed amounts of housing loans/other loans would lead to some increase in reported tier I capital (0.5 to 2 per cent) for the AHFCs, which have a significant share of the portfolio at 35 per cent risk weight.
However, the impact is unlikely to be significant as the share of undisbursed loans is relatively low at 5 to 10 per cent for most AHFCs and these AHFCs are comfortably placed on the capital front.
The final norms for deposit-accepting HFCs are broadly in line with the draft norms issued earlier, except that of entities being given additional time to comply with the requirements. The changes for deposit-accepting HFCs are largely around improving the security cover for deposit holders, better-operating controls and restricting the leverage of HFCs by way of public deposits.
In Icra's view, the notified changes are unlikely to have any material impact on the deposit accepting HFCs given the already adequate on-balance sheet liquidity available and their deposits also being within the prescribed ceiling. However, there could be a higher cost of compliance.
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