Home Finance Firms Market Exposure Capped At 15%

National Housing Bank has (NHB) set a cap on the stock markets exposure of housing finance companies (HFCs) at 15 per cent of their net-owned funds (NoFs). It has said investments in shares should not exceed 5 per cent of the incremental deposits.

NHB has stipulated in the case of refinancing, housing loans should not exceed 75 per cent of NoFs.

The same exposure norms are applicable to non-banking financial companies (NBFCs) regulated by the RBI. NHB has directed HFCs to put in place an asset liability management (ALM) system in the next financial year.

The criteria for liquidity risk management and maturity profile on assets and liabilities have been prescribed by NHB. It has made classification criteria for maturities with different duration: from 30 days to over 10 years.

HFCs lend for a longer duration and borrow for a shorter duration. NHB has tried to narrow this mismatch by setting a tolerance level. Any change in maturity duration, structural liquidity statement or tolerance level must be reported to NHB. Outflows should not exceed inflows by over 15 per cent.

A three-tier organisational structure has been prescribed for asset-liability management: an ALM organisation at the board level, an asset liability committee of senior executives and a support group.

NHB has directed HFCs to assess assets and liabilities in a "dynamic way". It said the ALM system should be the basis for taking decisions based on an integrated risk management and corporate strategy.

Having received the intimation, HFCs are introducing the ALM. Madhabi Puri Buch, ICICI Home Finance managing director, said the new guidelines were consistent with the way the financial sector was regulated.