Affordable housing finance companies to gain from RBI norms tweak

The RBI tweaked the risk weights for undisbursed loans by capping them at par with those of disbursed loans to address a potential anomaly in the computation of risk-weighted assets of these loans

Changes in the risk-weighted assets for undisbursed loans of housing finance companies (HFCs) introduced by the Reserve Bank of India (RBI) on Monday will help improve the capital availability of these companies, said experts.

“Changes in the risk-weighted assets for undisbursed housing loans or other loans would lead to some increase in reported Tier-I capital (0.5–2 per cent) for affordable housing finance companies (AHFCs). They have a significant share of the portfolio at 35 per cent risk weight. However, the impact is unlikely to be significant as the share of undisbursed loans is relatively low at 5-10 per cent. And, these AHFCs are comfortably placed on the capital front,” said Manushree Saggar, senior vice-president & sector head — financial sector ratings, ICRA.

The RBI tweaked the risk weights for undisbursed loans by capping it at par with disbursed loans. This was to address a potential anomaly in the computation of risk-weighted assets of these loans.

“Housing loans generally have a lower risk weight. Earlier, people were keeping it at 50 per cent risk weight for undisbursed amounts. Now, it will be aligned with the disbursed amount. It will have a minor impact on capital, nothing major for the companies,” said an official from a housing finance company.

The regulator segregated risk weights for standard and stressed commercial real estate-residential buildings. The RBI said the risk weight for commercial real estate-residential buildings classified as standard would continue to be 75 per cent.

For exposures under this category, which are not classified as standard, the risk weight will be 100 per cent.

Meanwhile, according to experts, a separate circular introduced to bring harmonisation between NBFCs and HFCs are broadly in line with the draft circular with most of the HFCs being compliant with it.

The RBI had reduced the ceiling on the quantum of public deposits that a deposit-taking HFC can hold from 3 times to 1.5 times of its net-owned fund (NoF).

“The final guidelines regarding acceptance of public deposits by HFCs are largely in line with the draft norms issued in January 2024, except that of entities being given an additional time of six months (till January 2025 and July 2025) to comply with the requirements. In ICRA’s view, the changes are unlikely to materially impact deposit-accepting HFCs, given the adequate on-balance sheet liquidity available and their deposits being within the prescribed ceiling. However, there could be a higher cost of compliance,” Saggar said.

The banking regulator also directed deposit-taking HFCs to maintain 15 per cent of their liquid assets against public deposits instead of the existing 13 per cent which most of the companies are largely following.

Major Changes

> The revised risk-weight guidelines to increase Tier-I capital up to 200 basis points for affordable housing finance companies (AHFCs)

> The share of undisbursed loans is nearly at 10% for AHFCs

> The housing finance companies are likely to see higher cost of compliance

> Although, broadly compliant with new deposit taking norms, few may see marginal adjustments to meet  15% public deposit norm