RBI’s draft rules for mortgage lenders leave easy path for compliance

The Reserve Bank of India (RBI) has paved the way for compliance as it seeks to harmonize the rules governing housing finance companies (HFCs) and non-bank finance companies (NBFCs).

The draft standards released on Wednesday largely reiterate existing rules for HFCs on capital adequacy, but sought to define the company more precisely. A gradual path to increase capital adequacy has also been proposed.

The new definition excludes the loan against the property from being labeled as a home loan if the proceeds are used for anything other than the purchase of another residential property. This could encourage some lenders to reclassify.

HFCs should grant 75% of their loans to individuals and lenders who do not meet these criteria until FY 24 to do so. Most HFCs already meet this criterion, analysts say. Some players such as Piramal Enterprises Ltd may not meet the criteria, according to analysts at Motilal Oswal Financial Services. The share of individual loans in Piramal’s book is only 11%, the brokerage firm said.

In addition, to avoid double exposure to a project through a loan to the developer as well as the home buyer, the central bank has proposed some tightening. These are real estate projects belonging to the same group to which the HFC belongs. “The HFC can either undertake an exhibition on the group company in the real estate sector OR lend to retail single-family home buyers in group entity projects, but not do both,” the draft standards say. Here, too, analysts believe that most lenders are fairly cautious about exposures.

However, HFCs belonging to large groups may need to review their exposure.

In addition, HFCs are expected to maintain their liquidity coverage ratio and increase their capital adequacy ratio to 14% in the next year and to 15% by fiscal 22.

The draft standards aim to strengthen HFCs at a time of heightened tensions in the real estate sector. The RBI is prepared to give time for the same.

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