RBI revokes certain exemptions granted to housing finance companies

RBIThe Reserve Bank of India (RBI) has revoked certain exemptions approved for the housing finance companies (HFCs), putting its regulations at the same level as the non-banking financial companies (NBFCs).

This new development comes after the Finance Act, 2019 revised the National Housing Bank Act, 1987, ensuring some new powers for the regulation of HFCs with the Reserve Bank of India.

The central bank said HFCs are as of now exempted from the provisions of Chapter IIIB of Reserve Bank of India Act, 1934. However, post a review, it has been decided to revoke these exemptions and make the provisions of Chapter IIIB except for Section 45-IA of Reserve Bank of India Act relevant to them.

Based on the withdrawal of these exemptions, RBI can, after being convinced that the HFC is unable to clear its debt or if its persistence is detrimental to the public interest, order it’s winding up. It will be perceived that the HFC is not able to pay its debt if it fails to meet within five working days.

Furthermore, the central bank will also be able to inspect any HFC to confirm the accuracy or completeness of any statement, submitted to the RBI. Another exemption removed is the formulation and protection of a reserve fund. Mortgage lenders will now have to formulate a reserve fund and transfer at least 20 percent of its net profit every year prior to the declaration of any dividend.

In her Budget speech on 5 July, the Union finance minister Nirmala Sitharaman had proposed an amendment to Section 45-IA of the RBI Act 1934 in the Finance Bill.

On 13 August, RBI had announced that housing finance companies will now be treated as a category of non-banks.

“HFCs will henceforth be treated as one of the categories of non-banking financial companies (NBFCs) for regulatory purposes. Reserve Bank of India will carry out a review of the extant regulatory framework applicable to HFCs and come out with revised regulations in due course,” the central bank had said.

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