RBI Proposes Revisions to Regulations for Housing Finance Companies
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

María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer

Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.

Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Related Articles
BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks
The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.
OSFI Finalizes on Climate Risk Guideline, Issues Other Updates
The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.
BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending
BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.
HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks
The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.
BCBS Report Examines Impact of Basel III Framework for Banks
The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.
PRA Consults on Prudential Rules for "Simpler-Regime" Firms
Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.
DNB Publishes Multiple Reporting Updates for Banks
DNB, the central bank of Netherlands, updated the list of additional reporting requests and published additional data quality checks and XBRL-Formula linkbase documents for the first quarter of 2023.
NBB Sets Out Climate Risk Expectations, Issues Reporting Updates
The National Bank of Belgium (NBB) published a communication on climate-related and environmental risks, issued an update on XBRL reporting
EBA Updates Address Securitization Standards and DGS Guidelines
The European Banking Authority (EBA) published the final draft of the regulatory technical standards that set out conditions for assessment of homogeneity of the underlying exposures in simple, transparent, and standardized (STS) securitizations.
FSB Publishes Letter to G20, Sets Out Work Priorities for 2023
The Financial Stability Board (FSB) published a letter intended for the G20 Finance Ministers and Central Bank Governors, highlighting the work that FSB will take forward under the Indian G20 Presidency in 2023