A review of risk weights for undisbursed amount of loans is expected to free up capital for housing finance companies (HFCs) in the range of 2 to 2.5 per cent with the expected capital benefit being higher for HFCs having a greater share of individual housing loans, the CareEdge Ratings has said.
The Reserve Bank of India (RBI) has been harmonising HFC guidelines in line with guidelines for NBFCs and this latest circular is a part of the draft regulations released in January 2024. The recent circular is in continuation of the RBI’s review of the regulatory framework for HFCs seeking to bring about regulatory parity between HFCs and non-banking financial companies (NBFCs).
These norms for deposit-taking HFCs would increase the liquidity buffers and encourage further diversification of the liabilities profile. CareEdge Ratings believes that the liquidity and liability profile of large deposits taking HFCs is comfortable to adhere to changes suggested under the regulations.
The rating agency stated, “A recent review of risk weights for undisbursed amount of loans is expected to free up capital for HFCs in the range of 2 to 2.5 per cent; the expected capital benefit is higher for HFCs having a greater share of individual housing loans.”
Guidelines Regarding Acceptance Of Public Deposits
Currently, HFCs which accept public deposits are subject to relaxed prudential norms on deposit acceptance when compared to NBFCs. The RBI has determined to align HFCs towards the regulatory regime on deposit acceptance which applies to deposit-taking NBFCs and specifies uniform prudential parameters.
The revised guidelines cover maintenance of a minimum percentage of liquid assets, safe custody of liquid assets, full cover for public deposits, rating of deposits, ceiling on quantum of deposits, and period of deposits, branches and appointment of agents to collect deposits and restrictions on investments in unquoted shares.
Talking about the maintenance of a minimum percentage of liquid assets, Currently, deposit-taking HFCs are required to maintain 13 per cent liquid assets against public deposits held by them which would be increased to 15 per cent in a phased manner, it added.
"The deposit-taking HFCs need to maintain an investment-grade credit rating which would be reviewed annually to remain eligible for garnering public deposits. If the credit rating goes into the sub-investment grade, such HFCs would not be able to renew existing deposits or accept fresh deposits until the rating is revised to investment grade," CareEdge stated.
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