NHB directs bigger housing finance firms to appoint chief risk officer

National Housing Bank (NHB) on Wednesday directed bigger housing finance companies (HFCs) to appoint a chief risk officer (CRO) in a bid to improve risk management practices.

“While the boards of HFCs should strive to follow best practices in risk management, it has been decided that HFCs with asset size of more than Rs 5,000 crore shall appoint a CRO with clearly specified role and responsibilities,” NHB said in a circular dated May 29, adding that the CRO will act independently to “ensure highest standards of risk management.”

The circular added that the board of HFCs should put in place policies to “safeguard the independence of the CRO” who should report directly to the managing director and chief executive officer.

The circular will cover top 15 HFCs controlling 95 per cent of the business, including Housing Development Finance Corporation, LIC Housing Finance, Tata Capital, GIC Housing Finance, PNB Housing Finance, Indiabulls Housing Finance, and Dewan Housing Finance (DHFL), among others.

Recently, the liquidity-starved DHFL had said it won’t allow premature withdrawals of its deposits, with immediate effect, in order to reorganise its liability management.

The move follows a similar direction given by the Reserve Bank of India a few days back to appoint a CRO in a non-banking financial company (NBFC) with asset size more than Rs 5,000 crore.

Sources said there are more regulatory instructions in the pipeline in a bid to give comfort to the market, lenders, analysts and in­vestors, following last year’s default by the Infrastructure Leasing & Financial Services, which led to the reporting of a series of defaults by other players in the NBFC and HFC space, dampening market sentiments.

The instructions may ask HFCs to maintain adequate funds in case of a crisis situation. HFCs may also be asked to submit their asset-liability management data on a weekly basis.

“The move to appoint CROs will put a deeper glare on the HFC sector. Many HFCs have approached the NHB, demanding tightening of regulations on them in a bid to boost market sentiments,” said a senior finance ministry official.

The official said that HFCs are complaining of a liquidity crunch and a tight regulation on HFCs may ‘generate confidence among market players to invest in them’.