RBI proposes tighter regulations for deposit-taking housing finance firms

RBI regulations: The Reserve Bank of India (RBI) has put forth a proposal to enhance regulations governing housing finance companies (HFCs) that engage in accepting public deposits. This move aims to bring the norms for deposit-taking HFCs in line with those of non-banking financial companies (NBFCs).

Outlined in a draft circular, the RBI suggests that all deposit-taking HFCs should increase their total liquid assets, combined with unencumbered approved securities, to 15 per cent of public deposits by the end of March 2025, up from the current 13 per cent. The rationale behind this adjustment is the uniformity of regulatory concerns associated with deposit acceptance across all categories of NBFCs.

Additionally, the central bank proposes a reduction in the ceiling on public deposits held by HFCs to 1.5 times of net-owned funds, down from the existing 3 times. According to the circular, public deposits made with housing finance companies should have a repayment period ranging from one year to five years.

Since the transfer of regulatory oversight of HFCs from the National Housing Bank to the RBI in August 2019, the central bank has consistently introduced regulations treating HFCs as a category of NBFCs.

The RBI's latest proposal includes recommendations for HFCs to establish limits on investments in unlisted shares and suggests granting them the ability to hedge risks stemming from their operations.

Stakeholders are invited to provide feedback on the draft circular until February 29, as per the RBI's request for comments on these proposed regulatory changes.