The Reserve Bank of India (RBI) on Tuesday said housing finance companies (HFCs) would be treated as a category of non-banking financial companies, and that it would come up with revised guidelines for mortgage lenders after reviewing the regulatory framework.
Until the new norms are announced, HFCs have to comply with the framework issued by the National Housing Bank (NHB), the RBI said.
Moreover, the “NHB will continue to carry out supervision of HFCs, and HFCs will continue to submit various returns to NHB as hitherto. The grievance redressal mechanism with regard to HFCs will also continue to be with the NHB,” it said.
In the Union Budget this year, the government took away the powers of the NHB to regulate HFCs and handed those to the RBI, for which the government amended the RBI Act.
“The NHB, besides being the refinancer and lender, is also the regulator of the housing finance sector. This gives a somewhat conflicting and difficult mandate to the NHB. I am proposing to return the regulation authority over the housing finance sector from the NHB to the RBI,” Finance Minister Nirmala Sitharaman had said in her Budget speech.
The government issued a notification, saying the relevant portion of the RBI Act which was amended to give the RBI regulatory powers over the HFCs will come into effect from August 9. The decision stemmed from the fact that HFCs so far have conducted business with light-touch regulations and now with the RBI taking over they will likely face intense scrutiny.
Moreover, it will also allow the RBI to directly give liquidity support to the stressed HFC sector. The sector has been struggling after the Infrastructure Leasing and Financial Services crisis, with big players like Dewan Housing Finance and Indiabulls Housing Finance cutting their disbursement to preserve liquidity.