The RBI on Monday issued revised guidelines as part of the phased transition towards tighter regulations for housing finance companies (HFCs) to harmonise them with Non-Banking Financial Companies (NBFCs).

The revised regulations shall be applicable with effect from January 1, 2025 and will further harmonise regulations applicable to HFCs and NBFCs, the RBI said.

The Central bank said that currently, HFCs accepting public deposits are subject to more relaxed prudential parameters on deposit acceptance as compared to NBFCs.

Since the regulatory concerns associated with deposit acceptance are the same across all categories of NBFCs, it has been decided to move HFCs towards the regulatory regime on deposit acceptance as applicable to deposit-taking NBFCs and specify uniform prudential parameters.

The new regulations have raised the maintenance of the minimum percentage of liquid assets to be held by HFCs.

The limit of unencumbered approved securities, to be held by HFCs as a per cent of public deposits has been raised from 6.5 per cent to 8 per cent.

Similarly, the limit for total liquid assets along with unencumbered approved securities to be held as a per cent of public deposits has been increased from 13 per cent to 14 per cent.

It has also been decided that the regulations on safe custody of liquid assets for HFCs shall be aligned with those of NBFCs.

The new regulations further state that HFCs shall ensure that full asset cover is available for public deposits accepted by them at all times in terms of para 42.1 of Master Direction – Non-Banking Financial Company – Housing Finance Company (Reserve Bank) Directions, 2021.

Henceforth, it would be incumbent upon the HFC concerned to inform National Housing Bank (NHB) in case the above asset cover falls short of the liability on account of public deposits.

The revised regulations state that to be eligible for accepting public deposits, the deposit-taking HFCs shall invariably obtain a minimum investment grade credit rating as specified in para 25 of Master Direction – Non-Banking Financial Company – Housing Finance Company (Reserve Bank) Directions, 2021 at least once a year.

In case their credit rating is below the minimum investment grade, such HFCs shall not renew existing deposits or accept fresh deposits thereafter, till they obtain an investment grade credit rating.

The ceiling on the quantum of public deposits held by the deposit-taking HFCs, which comply with all prudential norms and minimum investment grade credit rating as specified, shall stand reduced from 3 times to 1.5 times of net owned fund.

Deposit-taking HFCs holding deposits in excess of the revised limit shall not accept fresh public deposits or renew existing deposits till they conform to the revised limit.

However, the existing excess deposits will be allowed to run off till maturity, the regulations add.

The RBI has also decided that henceforth, the public deposits accepted or renewed by HFCs shall be repayable after 12 months or more but not later than 60 months.

Existing deposits with maturities above 60 months shall be repaid as per their existing repayment profile.

Besides, the new guidelines stipulate that HFCs will be subject to the same regulations on the opening of branches and appointment of agents to collect deposits as applicable to NBFCs.

Since the transfer of regulation of HFCs from the NHB to the Reserve Bank with effect from August 9, 2019, various regulations have been issued treating HFCs as a category of NBFCs.

The RBI said it has earlier advised that further harmonisation of regulations applicable to HFCs and NBFCs will be taken up in a phased manner over the next two years to ensure that the transition is achieved with the least disruption.