The Reserve Bank of India (RBI) has set tighter norms for housing finance companies (HFCs) to bring them at par with non-bank financial companies (NBFCs), including the need to maintain higher liquid assets to back public deposits and to ensure full asset cover on them at all times.

The central bank has allowed HFCs to issue co-branded credit cards and to hedge the risks arising out of their operations, much like the NBFCs.

In the revised guidelines issued today, the RBI has specified that HFCs that raise public deposits need to maintain 15% liquid assets against such deposits in tranches as against 13% right now. These HFCs will need to raise the percentage of liquid assets to 14% by 1 January 2025, and to 15% in another six months.

“Currently, HFCs accepting public deposits are subject to more relaxed prudential parameters on deposit acceptance as compared to NBFCs,” RBI said in a notification. “Since the regulatory concerns associated with deposit acceptance are 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…”

Deposit-taking HFCs will have to obtain a minimum investment-grade credit rating 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 guidelines stated.

HFCs shall ensure that full asset cover is available for public deposits accepted by them at all times. They have to inform the National Housing Bank (NHB) in case the asset cover falls short of the liability on account of public deposits.

While some sections of the guidelines are applicable to deposit-taking HFCs, the rest are for all mortgage lenders. HFCs that can accept deposits include Can Fin Homes, Cent Bank Home Finance, Aadhar Housing Finance, ICICI Home Finance Company and LIC Housing Finance.

As per the revised guidelines, the RBI has lowered the maximum deposit tenure at HFCs to five years. Existing deposits with maturities above sixty months shall be repaid as per their existing repayment profile, it said. Currently, HFCs are allowed to accept or renew public deposits repayable after a period of 12 months or more but not later than 120 months from the date of acceptance or renewal of such deposits.

The RBI  also reduced the ceiling on the quantum of public deposits that a HFC can hold from three times to 1.5 times of net owned funds.

“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," it said.

The RBI has said that regulations governing NBFCs on branches and appointment of agents to collect deposits will be applicable to deposit-taking HFCs as well.

Restrictions on investments in unquoted shares applicable for NBFCs will also become applicable to HFCs, the RBI said, adding deposit taking HFCs shall fix board-approved internal limits separately within the limit of direct investment, for investments in unquoted shares of another company which is not a subsidiary or a company in the same group as HFC.

India has 97 HFCs, while deposit-taking NBFCs, including HFCs, are 26. 

The central bank said the norms were revised in order to harmonise the guidelines for NBFCs and HFCs.