Deposit-taking HFCs to face stricter norms, including increased liquidity requirements, smaller deposit caps, and potential for co-branded credit cards
The Reserve Bank of India (RBI) has proposed stricter regulations for housing finance companies (HFCs) in a move to harmonise their treatment with other non-banking lenders. The new rules emphasise higher liquidity requirements, smaller deposit ceilings, and the potential for co-branded credit cards, aiming to strengthen financial stability and offer greater flexibility to HFCs.
One key change involves increasing the liquid assets that deposit-taking HFCs must hold against public deposits. Currently, the requirement stands at 13%, but the RBI proposes a phased climb to 15% by March 2025. This move aims to ensure easier access to funds for HFCs in case of financial strains, further safeguarding depositors’ interests.
While recognising the importance of deposits for long-term funding, the RBI also wants to limit HFCs’ dependence on this source. It proposes shrinking the maximum permitted deposit amount from three times to 1.5 times a company’s net owned funds. This restriction aims to curb potential risks associated with excessive deposit mobilisation and encourage HFCs to diversify their funding sources.
To further manage liquidity risks, the RBI proposes shortening the maximum deposit tenure for HFCs to five years. Existing deposits with longer maturities will be allowed to run off naturally, but new deposits will need to adhere to the shorter timeframe. This measure aligns with the shorter-term nature of housing loans granted by HFCs.
In a welcome change for HFCs, the RBI has proposed allowing them to issue co-branded credit cards in collaboration with scheduled commercial banks. This opens up a new avenue for business growth and expands access to credit for potential borrowers. However, prior approval from the RBI will be required, and risk-sharing between the partners will not be permitted.
Overall, the RBI’s proposed changes signify a more stringent and balanced regulatory framework for HFCs. The focus on higher liquidity, controlled deposits, and innovative product offerings like co-branded credit cards aims to bolster financial stability while allowing HFCs to play a more dynamic role in the mortgage market. As these proposals move towards finalisation, stakeholder feedback and industry adjustments will be crucial in shaping the future of housing finance in India.
