Revised Deposit Norms Unlikely To Be Onerous For HFCs: Crisil

The deposit-taking housing finance companies (HFCs) are unlikely to face difficulty in complying with the Reserve Bank of India’s (RBI) revised norms for raising public deposits issued on 12 August 2024. A Crisil Ratings analysis of the 121 HFCs accepting public deposits indicates most of them are de facto compliant with the revised guidelines on public deposits and liquid assets.

Along with various other operational measures, the revised norms contain three key amendments about HFCs accepting public deposits.  First, the minimum proportion of liquid assets held against public deposits by HFCs needs to be increased gradually from 13 per cent currently to 14 per cent by 1 January 2025, and to 15 per cent by 1 July 2025. Unencumbered approved securities held as a percentage of public deposits have also been increased.

Second, the maximum quantum of public deposits held by deposit-taking HFCs has been reduced from 3.0 times to 1.5 times of net owned funds with immediate effect. Third, the maximum tenure of public deposits raised by HFCs has been reduced from ten years to five years with immediate effect.

In general, the reliance on public deposits is limited for HFCs, with only 12 out of 94 HFCs2 having a deposit-taking license. Total public deposits held by deposit-taking HFCs are estimated at Rs 25,000 crore, constituting 5 per cent of their total borrowings; however, for three HFCs, this is higher than 10 per cent.

Subha Sri Narayanan, Director, Crisil Ratings said, “Most deposit-taking HFCs already comply with the new norms. A couple of them may have to enhance their on-book liquidity to adhere to the 15% guideline and/or align their incremental deposits to manage the ratio of their public deposits to net owned funds."

To be sure, the lowering of the maximum tenure of deposits will reduce the flexibility that HFCs have to manage their asset-liability maturity profiles. However, most HFCs do not have a sizeable portion of over-5-year-maturity deposits in the borrowing mix, Narayanan added. 

HFCs have been given adequate time to implement the guidelines on liquid assets in a phased manner and have been permitted to run down any excess/ non-compliant deposits till maturity. The new norms are another step by the RBI to harmonise the regime for HFCs and non-banking financial companies — the former came under its oversight in 2019.

This will reduce the arbitrage between different regulatory structures and ensure a sharper focus on the business and operational fundamentals.