News

RBI tightens rules for deposit-taking HFCs

Submitted by admin on August 14th, 2024

In this announcement, the RBI clarified its guidelines on branches and the appointment of agents to collect deposits for NBFC to also extend to deposit taking HFC.

The RBI on Monday came out with revised regulations for the deposit accepting Housing Finance Companies Asking these to maintain 15% liquid instruments against the public deposits and other amount held by them in stages, up from 13% at present.

The new guidelines, which came into force from January 1, have been designed to align the HFCs with the NBFCs and the Deposit taking NBFCs, as per the RBI.

“As on date, the Big HFCs who accept public deposits have been prescribed less stringent prudential parameter to accept the deposits as compared to NBFCs” the RBI stated in a circular. “Since the regulatory issues related with deposit acceptance is fundamentally similar for all kinds of NBFCs it has been decided to take HFCs to the regulatory mechanism on deposit acceptance as applicable to ‘deposit taking’ NBFCs,” it said.

New regulation also provided that HFCs shall also follow the provision that the full asset cover shall at all time be available for the public deposits accepted by them. They will be under obligation to report to the National Housing Bank if the above asset cover is lesser than the liability on account of public deposits.

While accepting or renewing public deposits, HFCs have to ensure that these deposits are repayable in terms of 12 months to 60 months, as now declared in its notification by the RBI. Any deposits with the original maturity of more than 60 months can be repaid within the stated terms at the time of deposit formation. Currently, HFCs are allowed to take or rollover public deposits which are repayable on and after one year but not exceeding one thousand two hundred months from the date of acceptance or renewal.

The RBI also clarified rules regarding branch expansion and the appointment of agents to collect deposits for NBFCs would apply to deposit taking HFCs likewise. Proposed Allowances Similar to NBFCs, HFCs will be allowed the hedging of risks connected with its business and issue co-branded credit cards.

To address their fundamental risk profiles, the RBI has finally allowed the HFCs to get involved in the currency futures markets. “The above HFCs which are non-deposit taking with asset size of Rs 1000 crore & above will be eligible to undertake currency options exchanges subject to the guidelines to be issued in the matter by the foreign exchange department of the Reserve Bank & subject to disclosures in the balance sheet in terms of the guidelines to be issued by SEBI in this regard,” said the notification.

Conjugating with the new rules it is provided that the deposit taking HFC have to obtain a board approved internal limits separately within the limit of direct investment to purchase unquoted shares of another company which is not subsidiary or a group company.