The Reserve Bank of India (RBI) issued a draft circular on January 15 that seeks to harmonize regulations for housing finance companies (HFCs) and non-banking finance companies (NBFCs) in several areas, including minimum capital requirements and deposit taking rules, among others.
The central bank reviewed deposit directions for deposit-taking HFCs, HFC participation in various derivative products for hedging purposes, diversification into other financial products, and HFC adoption of technical specifications under the Account Aggregator ecosystem, among other things, according to a press release issued by the RBI.
Furthermore, the draft circular proposes to revise some instructions for deposit-taking NBFCs, according to the central bank, adding that this exercise is part of greater harmonization of HFC and NBFC laws.
Proposed major modifications include:
According to the draft circular, HFCs will be subject to harsher standards than NBFCs in the future. Currently, HFCs that accept public deposits are subject to more lenient prudential deposit acceptance parameters than NBFCs. Because the regulatory considerations connected with deposit acceptance are the same across all kinds of NBFCs, the RBI has decided to shift HFCs to the deposit acceptance regulatory regime applicable to deposit-taking NBFCs.
As a result, the updated regulations would apply to HFCs taking or holding public deposits, according to the RBI.
Furthermore, deposit-taking HFCs are currently required to hold 13% of liquid assets against public deposits held by them. It has now been decided that all deposit-taking HFCs must hold liquid assets equal to 15% of their public deposits in a staggered way.
According to the proposal, deposit-taking HFCs must increase their ratio of liquid assets to 14 percent by September 30, 2024, and to 15% by March 31, 2025, according to the RBI. In the aim of regulatory harmonization, it has also been agreed that the regulations on safe custody of liquid assets for HFCs will be linked with those of NBFCs.
According to the draft circular, the proposed regulations seek to harmonize regulations regarding the appointment of agents, the rate and tenure of deposits, participation in exchange traded currency derivatives, interest rate futures, credit default swaps, the issue of co-branded credit cards, the accounting year and audit, and investment through alternative investment funds, among other things.
Following the transfer of HFC regulation from the National Housing Bank (NHB), the RBI announced a revised regulatory framework for HFCs in a circular dated October 22, 2020, noting that further harmonization between HFC and NBFC laws will be undertaken in a gradual manner.
NBFCs (including HFCs) and other stakeholders are requested to provide feedback on the proposed circular by February 29, 2024.
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