Featured Product

    RBI Proposes Revisions to Regulations for Housing Finance Companies

    June 17, 2020

    RBI has proposed changes in regulations applicable to the Housing Finance Companies or HFCs. The proposal was open for public comments until July 15, 2020. RBI reviewed the extant regulatory framework applicable to Housing Finance Companies, with a view to regulating the Housing Finance Companies as a category of the Non-Banking Financial Companies (NBFCs). For areas in which the extant Housing Finance Company regulation differs from that of the NBFCs, the changes will be introduced in the least disruptive manner. The key proposed changes relate to the classification of Housing Finance Companies as systemically important, the harmonization of definitions of capital with that of the NBFCs, the liquidity risk framework, the securitization framework, the information technology framework, and the implementation of Indian Accounting Standards.

    The regulation of Housing Finance Companies was transferred from the National Housing Bank to RBI, with effect from August 09, 2019. After this transfer, it was decided that RBI will review the extant regulatory framework applicable to the Housing Finance Companies and issue the revised regulations in due course. Until the revised guidelines are issued, the Housing Finance Companies shall continue to comply with the directions and instructions issued by the National Housing Bank. Harmonization of the extant regulations of the Housing Finance Companies will be done in phases, over a period of two to three years. The major changes envisaged in the regulatory framework for Housing Finance Companies, include the following:

    • Defining principal business and qualifying assets for the Housing Finance Companies
    • Defining the phrase "providing finance for housing" or "housing finance"
    • Classifying Housing Finance Companies as systemically important (asset size of INR 5 billion and above) and non-systemically important (asset size of less than INR 5 billion)
    • Harmonizing definitions of capital (Tier I and Tier II) with that of the NBFCs
    • Applying directions on liquidity risk framework and securitization for the NBFCs, to the Housing Finance Companies
    • Extending instructions issued to the NBFCs on implementation of Indian Accounting Standards, to the Housing Finance Companies (Prudential floor for expected credit loss will be based on the extant instructions on provisioning applicable to the Housing Finance Companies.)

    Additionally, the key differences between the extant regulations of the Housing Finance Companies versus the regulations for the NBFCs are as follows:

    • Capital requirements (Capital to Risk-weighted Assets Ratio, or CRAR, and risk-weights)—The minimum CRAR prescribed for the Housing Finance Companies is, at present, 12% and will be progressively increased to 14% by March 31, 2021 and to 15% by March 31, 2022. The risk-weights for assets of the Housing Finance Companies are in the range of 30% to 125%, based on factors such as asset classification, loan-to-value, and type of borrower. However, for the NBFCs, the minimum CRAR is 15% and risk-weights are broadly under the 0%, 20%, and 100% categories.
    • Limits on exposure to commercial real estate and capital markets—The limits prescribed for the Housing Finance Companies shall not be more than 20% of capital fund for exposure to commercial real estate by way of investment in land and building and this limit shall not be more than 40% of net worth total exposure (of which direct exposure should be 20% of net worth) for capital markets exposure. However, no limits have been prescribed for the NBFCs.

     

    Comment Due Date: July 15, 2020

    Keywords: Asia Pacific, India, Banking, HFC, NBFC, Basel, Regulatory Capital, Housing Finance Companies, CRE, RRE, Credit Risk, Systemic Risk, RBI

    Featured Experts
    Related Articles
    News

    EC Rule on Contractual Recognition of Write Down and Conversion Powers

    The European Commission (EC) published the Delegated Regulation 2021/1527 with regard to the regulatory technical standards for the contractual recognition of write down and conversion powers.

    September 17, 2021 WebPage Regulatory News
    News

    APRA Issues Further Guidance on Application of Securitization Standard

    The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to provide guidance to authorized deposit-taking institutions on the interpretation of APS 120, the prudential standard on securitization.

    September 16, 2021 WebPage Regulatory News
    News

    SRB Provides Update on Approach to Prior Permissions Regime

    The Single Resolution Board (SRB) published a Communication on the application of regulatory technical standard provisions on prior permission for reducing eligible liabilities instruments as of January 01, 2022.

    September 16, 2021 WebPage Regulatory News
    News

    APRA Publishes FAQs on Capital Treatment of Overseas Subsidiaries

    The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to clarify the regulatory capital treatment of investments in the overseas deposit-taking and insurance subsidiaries.

    September 15, 2021 WebPage Regulatory News
    News

    EBA Finalizes Guidance to Assess Breaches of Large Exposure Limits

    The European Banking Authority (EBA) published the final report on the guidelines specifying the criteria to assess the exceptional cases when institutions exceed the large exposure limits and the time and measures needed for institutions to return to compliance.

    September 15, 2021 WebPage Regulatory News
    News

    PRA Finalizes Changes to Consolidated Prudential Rules Under CRD5/CRR2

    The Prudential Regulation Authority (PRA) issued the policy statement PS20/21, which contains final rules for the application of existing consolidated prudential requirements to financial holding companies and mixed financial holding companies.

    September 15, 2021 WebPage Regulatory News
    News

    EBA Revises Guidelines on Stress Tests of Deposit Guarantee Schemes

    The European Banking Authority (EBA) revised the guidelines on stress tests to be conducted by the national deposit guarantee schemes under the Deposit Guarantee Schemes Directive (DGSD).

    September 15, 2021 WebPage Regulatory News
    News

    Nordea Bank and EIB Sign Agreement to Fund Green Projects in Nordics

    The European Commission (EC) announced that Nordea Bank has signed a guarantee agreement with the European Investment Bank (EIB) Group to support the sustainable transformation of businesses in the Nordics.

    September 15, 2021 WebPage Regulatory News
    News

    HKMA Endorses Industry Guidance to Support LIBOR Transition

    The Hong Kong Monetary Authority (HKMA) issued a circular, for all authorized institutions, to confirm its support of an information note that sets out various options available in the loan market for replacing USD LIBOR with the Secured Overnight Financing Rate (SOFR).

    September 14, 2021 WebPage Regulatory News
    News

    OCC Issues Booklet on Supervision of Problem Banks

    The Office of the Comptroller of the Currency (OCC) issued a new "Problem Bank Supervision" booklet of the Comptroller's Handbook. The booklet covers information on timely identification and rehabilitation of problem banks and their advanced supervision, enforcement, and resolution when conditions warrant.

    September 13, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7481