The Reserve Bank of India (RBI) intends to tighten the rules for deposit-taking housing finance companies (HFCs), lowering the maximum amount of public deposits that can be held and cutting the maximum duration for which deposits can be taken.
The aforementioned prescriptions are part of the RBI‘s intention to transition HFCs (accepting or holding public deposits) to the deposit acceptance regulatory regime that applies to deposit-taking Non-Banking Financial Company (NBFCs) and set consistent prudential requirements.
The proposed action, detailed in a draft circular, is the outcome of “Review of regulatory framework for HFCs and harmonisation of regulations applicable to HFCs and NBFCs”.
The central bank has asked NBFCs (including HFCs) and other stakeholders to provide feedback on the proposed circular by February 29, 2024.
According to the draft circular, the maximum amount of public deposits held by deposit-taking HFCs that meet all prudential criteria and have a minimum investment grade credit rating will be cut from three times to 1.5 times the net owned fund.
Accepting deposits HFCs with deposits in excess of the revised limit are not permitted to accept new public deposits or renew existing deposits until the amount of public deposits falls below the revised limit. The existing surplus deposits, on the other hand, will be permitted to mature.
The maximum time period for which HFCs can receive deposits will be reduced from 120 months to 60 months. Existing deposits with maturities greater than 60 months can be reimbursed in accordance with their current repayment schedule. The 12-month minimum duration for which HFCs can take deposits remains unchanged.
Deposit-taking housing finance companies (HFCs) may be required to maintain full asset cover for public deposits accepted at all times and to earn a minimum investment grade credit rating at least once a year.
Furthermore, HFCs must notify the NHB (National Housing Bank) if the asset cover falls short of the liability on behalf of public deposits.
According to the RBI, deposit-taking HFCs must achieve a minimum investment grade credit rating at least once a year in order to be eligible for receiving public deposits.
If their credit rating falls below the minimum investment grade, such HFCs will be unable to renew existing deposits or accept new deposits until they achieve an investment grade credit rating.
According to the RBI, deposit-taking HFCs must achieve a minimum investment grade credit rating at least once a year in order to be eligible for receiving public deposits.
If their credit rating falls below the minimum investment grade, such HFCs will be unable to renew existing deposits or accept new deposits until they achieve an investment grade credit rating.
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All deposit-taking HFCs will be obliged to hold on an ongoing basis liquid assets equal to 15% (up from 13% presently) of the public deposits held by them, phased in: 14% by September 30, 2024, and 15% by March 31, 2025.
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