The Reserve Bank of India (RBI) on Wednesday came out with a new of directions related to Housing Finance Companies with an aim to discourage the actions of any HFCs in a way that is detrimental to the interests of investors and depositors.
A housing Finance company is yet another type of non-banking financial company engaged in the key business of funding the purchase or building of buildings, including the development of plots of land for the construction of new houses, constituting at least 60% of its total assets.
Here are the latest RBI Guidelines for Housing Finance Companies:
Liquidity Risk Management Framework
All non-deposits taking HFCs with an asset size of 100 crores and above and all deposits taking HFCs (regardless of the size of the asset) shall follow liquidity risk management, including compliance with distance thresholds, the use of liquidity risk control software, and the implementation of a liquidity risk management strategy.
Liquidity Coverage Ratio (LCR)
As per the new guidelines, the loan-to-value (LTV) ratio of HFCs to collateral of listed securities is maintained at 50%.
HFCs with an asset size of Rs 10,000 crore and above and all HFCs with a deposit regardless of their asset size will have to reach a minimum LCR of 50 percent by 2021 and progressively to 100 percent by 1 December 2025.
Non-deposited HFCs with an asset size of Rs 5,000 crore and above but less than Rs 10,000 crore will have to hit a minimum LCR of 30% by 1 December 2021 and 100% by 1 December 2025.
Loans against security of shares
HFCs lending against the collateral of listed shares should maintain a Loan to Value (LTV) ratio of 50% for loans issued against the collateral of shares. Any deficit in the preservation of the 50% LTV due to the movement of the share price should be paid within seven working days.
Loans against security of gold jeweller
HFCs shall maintain a Loan-to-Value (LTV) ratio of not more than 75% for loans issued against gold jewelry collateral and shall develop a policy approved by the Board for lending against gold.
It is essential for HFCs to outsource their operations to ensure sound and efficient risk control strategies for accurate monitoring, the RBI said.