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RBI announces rules for housing finance companies

The Reserve Bank of India has issued Master Direction-Non-Banking Financial CompanyHousing Finance Company (Reserve Bank) Directions, 2021, which pertain to maintenance of liquidity coverage ratio, risk management, asset classification and loan-to-value ratio, among others, for housing finance companies. The directions shall come into force with immediate effect. They are aimed at preventing the affairs of any HFCs from being conducted in a manner detrimental to the interest of investors and depositors. The board of each HFC would ensure that the guidelines are adhered to.

HFCs shall maintain a liquidity buffer in terms of liquidity coverage ratio, which will promote their resilience to potential liquidity disruptions by ensuring that they have sufficient high-quality liquid asset to survive any acute liquidity stress scenario lasting for 30 days. All non-deposit taking HFCs with an asset size of Rs 10,000 crore and above, and all deposit-taking HFCs irrespective of their asset size will have to achieve a minimum liquidity coverage of 50% By Dec. 1, 2021 and gradually to 100% by Dec. 1, 2025. Non-deposit-taking HFCs with an asset size of Rs 5,000 crore and above, but less than Rs 10,000 crore will have to reach a minimum liquidity coverage of 30% by Dec. 1, 2021 and to 100 per cent by Dec. 1, 2025.

The RBI asked HFCs to ensure that at all times, there is full cover available for public deposits accepted by them. In case an HFC fails to repay any public deposit or part thereof as per the terms, it shall not grant any loan or other credit facility or make any investment or create any other asset as long as the default exists, as per the directions. The directions further bar HFCs to lend against their own shares and cannot offer housing loans to individuals above Rs 75 lakh with LTV ratio exceeding 75%. Further, the aggregate exposure of an HFC to the capital market in all forms (both fund based, and non-fund based) should not exceed 40% of its net worth as on March 31 of the previous year.

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