New RBI Rules for Housing Finance Companies: What You Need to Know
The Reserve Bank of India (RBI) has introduced new rules for housing finance companies (HFCs) that take public deposits. These rules were announced on August 12, 2024, and include several important changes.
Key Changes in the Rules
According to Crisil Ratings, the new rules include three main changes:
- Increasing the minimum proportion of liquid assets held against public deposits from 13% to 14% by January 1, 2025, and to 15% by July 1, 2025.
- Reducing the maximum amount of public deposits that HFCs can hold from 3 times to 1.5 times their net owned funds.
- Shortening the maximum tenure of public deposits from 10 years to 5 years.
These changes are aimed at making the regulations for HFCs and non-banking financial companies more consistent. Crisil Ratings noted that most HFCs are already following these new rules and have enough time to fully comply.
Impact on Housing Finance Companies
Out of 121 HFCs that accept public deposits, most are already compliant with the new guidelines. Only 12 out of 94 HFCs have a deposit-taking license, and the total public deposits held by these companies are estimated at Rs 25,000 crore, which is about 5% of their total borrowings. For three HFCs, this percentage is higher than 10%.
Subha Sri Narayanan, Director at Crisil Ratings, said that the new norms will help reduce the differences between various regulatory structures and ensure a sharper focus on business and operational fundamentals.
Doubts Revealed
RBI -: RBI stands for Reserve Bank of India. It is the central bank of India, which means it controls the money supply and interest rates in the country.
Housing Finance Companies -: Housing Finance Companies (HFCs) are companies that provide loans to people so they can buy houses. They help people get the money they need to purchase a home.
Public Deposits -: Public deposits are money that people put into financial institutions like banks or HFCs. These institutions then use this money to give loans to others.
Minimum Liquid Assets -: Minimum liquid assets are the least amount of cash or easily sellable assets that a company must have. This ensures the company can pay back its depositors if needed.
Crisil Ratings -: Crisil Ratings is a company that evaluates the financial health of other companies. They give ratings that help people understand how safe it is to invest in or lend money to these companies.
Non-Banking Financial Companies -: Non-Banking Financial Companies (NBFCs) are financial institutions that offer various banking services but do not have a full banking license. They provide loans and other financial services but cannot accept deposits from the public like traditional banks.
Tenure of Deposits -: Tenure of deposits refers to the length of time for which money is deposited in a financial institution. Shortening the tenure means people can get their money back sooner.