Page 41 - Banking Finance November 2021

ARTICLE

Indian Accounting Standards will be extended to HFCs. to 3% below prescribed rate for NBFCs depending
Prudential floor for Expected Credit Loss (ECL) will be upon duration and prescription of rate),
based on the extant instruction on provisioning maintenance of liquid assets (13% for HFCs against
applicable to HFCs. 15% for NBFCs), etc.
In addition to the above, there exist certain major In brief, below is the list of major changes proposed in
differences between extant regulations of the HFCs vis- the 'draft guidelines'
à-vis that for NBFCs which are listed below and the Y Classifying HFCs as systemically important (asset
harmonization of same shall be carried out in a phased size of Rs 500 crore and above) and non-systemically
manner over a period of two to three years, until such important (asset size less than Rs 500 crore).
time, the HFCs shall continue to follow the extant Y Directions on Liquidity Risk framework and LCR,
norms. securitization, etc., for non-banking finance
a) Capital requirements (CRAR and risk weights) - The companies (NBFCs), to be made applicable to HFCs.
minimum CRAR prescribed for HFCs currently is Y To address double lending, the revisions propose
12% and which will be progressively increased to
HFCs can either take exposure on the group
14% by March 31, 2021 and to 15% by March 31, company in real estate business or lend to an
2022. Further, the risk weights for assets of HFCs individual, retail homebuyers in group entity
are in the range of 30% to 125% based on asset
projects.
classification, LTV, type of borrower, etc. However,
for NBFCs, the minimum CRAR is 15% and risk Y For loans to individual buyers who choose to buy
housing units from entities in the group, the HFC
weights are broadly under 0%, 20% and 100%
categories. would follow arm's length principles in letter and
spirit.
b) Income Recognition, Asset Classification and
Provisioning (IRACP) norms - There are major Y HFCs exposures, whether in terms of lending and
investment cannot exceed 15 percent of the owned
differences in provisioning norms applicable to
funds in a single entity in the group and 25 percent
standard, substandard and doubtful assets in HFCs' of owned funds for all such group entities.
books.
Y The change in the definition of housing finance
c) Norms on concentration of credit / investment - The brings loans to builders for construction of
credit concentration norms for NBFCs and HFCs are residential dwelling units, schools and hospitals
similar. However, NBFCs enjoy certain exceptions
within its purview while excluding loans against the
in this regard.
property from it.
d) Limits on exposure to Commercial Real Estate (CRE)
Y HFCs will also be required to have a minimum 50
& Capital Market (CME) - The limits prescribed for percent of net assets as "housing finance". A four-
HFCs for exposure to CRE by way of investment in year timeline for individual loan portfolio has also
land & building shall not be more than 20% of
been proposed, of which at least 75 percent must
capital fund and for CME shall not be more than
be housing finance. These conditions if not met
40% of net worth total exposure of which direct would lead to the HFC being categorized as an NBFC
exposure should be 20% of net worth. No limits - Investment and Credit Companies (NBFC-ICCs).
prescribed for NBFCs.
Y Existing home loan lenders will be required to
e) Regulations on acceptance of Public Deposits viz.,
double their minimum net owned fund to Rs 20
period of public deposit (12 months to 120 months crore in two years, in order to strengthen the
for HFCs against 12 months to 60 months for capital base.
NBFCs), ceiling on quantum of deposit (3 times of
NOF for HFCs against 1.5 times for NBFCs with Source:
minimum investment grade rating), interest on RBI "Review of extant regulatory framework for Housing
premature repayment of deposits (ranging from 1% Finance Companies (HFC) - Proposed Changes, Dated
to 4% below prescribed rate for HFCs as against 2% 17.06.2020. T

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