RBI Imposes Stricter Deposit Rules for Housing Finance Companies

Mumbai:

The Reserve Bank of India (RBI) has introduced new regulatory measures for housing finance companies (HFCs), significantly altering how these entities can raise and manage public deposits. Under the new guidelines, HFCs are prohibited from raising public deposits for more than five years. Additionally, the RBI has reduced the permissible limit for raising deposits to 1.5 times their net owned funds, down from the previous limit of three times.

Changes to Deposit Tenure and Liquid Assets

The RBI’s new rules mandate that public deposits accepted by HFCs can be renewed for periods ranging from 12 to 60 months. Existing deposits with maturities exceeding 60 months will be repaid according to their original terms. The central bank has also instructed HFCs to increase their share of liquid assets from 13% to 15% in a phased manner, enhancing their ability to meet short-term obligations.

New Provisions for Early Repayment and Nomination Facilities

In addition to these measures, the RBI has directed non-bank finance companies (NBFCs) to establish a mechanism that provides nomination facilities for depositors, regardless of whether customers explicitly request this service. Furthermore, NBFCs are permitted to repay small deposits, not exceeding ₹10,000, before the three-month maturity period if requested by the depositor. In cases of critical illness, depositors may request the premature repayment of the entire principal sum without interest.

Tighter Regulations for High-Risk Exposures

The RBI has also set new guidelines regarding the risk weightage for HFCs' exposures to commercial real estate. Exposures to residential buildings not classified as standard assets will carry a 100% risk weightage, while standard assets will carry a 75% risk weightage. These measures aim to reduce the risk profile of HFCs and ensure more prudent lending practices. Investment and Market Participation Limits For deposit-taking HFCs, the RBI has imposed stricter controls on investments in unquoted shares of companies that are neither subsidiaries nor part of the same group. These investments must now fall within board-approved internal limits, which will be included in the overall exposure limits to the capital market.

Furthermore, non-deposit-taking HFCs with assets of ₹1,000 crore and above, as per the audited balance sheet of the immediately preceding financial year, are now permitted to participate in the interest rate futures market, provided they adhere to rupee interest rate derivative guidelines.

Compliance and Future Directions

The RBI has directed HFCs that have raised deposits above the new 1.5 times ceiling to cease accepting new deposits until they comply with the revised norms. Excess deposits that exceed the ceiling will be allowed to mature naturally.

These regulatory changes reflect the RBI’s ongoing efforts to ensure financial stability in the housing finance sector, safeguard depositor interests, and enhance the resilience of HFCs in an evolving economic landscape.