Regulatory Atlas for Housing Finance Companies

NHB Norms for HFCs

HFC Directions

Housing Finance Companies (NHB) Directions, 2010 (As modified up to 1st July, 2013)

Modified up to 1st July 2013, NHB had issued directions for HFCs in respect of matters relating to acceptance of deposits by housing finance companies, prudential norms for income recognition, accounting standards, asset classification, provision for bad and doubtful assets, capital adequacy and concentration of credit/ investments to be observed by the housing finance companies and matters to be included in the Auditors Report by the auditors of such housing finance companies and matters ancillary and incidental thereto and amended the said Directions from time to time.

Circular Type Circular Issue Date
Master Circular Click here to view circular 4-Jul-13

Amendment of the Housing Finance Companies Directions, 2010

NHB has amended the interest rates payable in pre-closed deposits as given below –

Para Number Regulation
Para 12 Interest payable on deposits pre-closed after 3 months but within 6 months fixed at 4% p.a. for individuals, and no interest for other depositors.

Penal rate of interest for deposits pre-closed after 6 months reduced by 1% to 1% & 2% as may be applicable, from 2% & 3%, respectively.

Circular Type Circular Issue Date
Notification Click here to view notification 25-Aug-14

NHB directs that the Housing Finance Companies (NHB) Directions, 2010 be amended for following aspects –

Para Number Regulation
Para 2 With effect from September 30, 2013, the definition of “non-performing asset” has been amended to mean assets overdue for “more than ninety days” instead of “ninety days or more”
Para 4 HFCs allowed to accept deposits only for a tenure between 12 to 120 months
Para 11 (3) Procedure provided in case of payment of interest on deposits seized by government authorities
Para 12 It is obligatory on the part of a HFC to intimate the details of maturity of the deposit to the depositor at least 14 days before the date of maturity of the deposit.
Para 27A Ceiling on Loan to Value Ratios amended:
(a) Upto 90% for loans upto Rs. 20 lakhs
(b) Upto 80% for loans between Rs. 20 lakhs and Rs. 75 lakhs
(c) Upto 75% for loans exceeding Rs. 75 lakhs
Para 28 Changes in provisioning requirements for Commercial Real Estate (CRE) exposures:
(a) Standard Assets for CRE Residential Housing – 0.75%
(b) Standard Assets for other CRE exposures – 1%
Para 29 Additional disclosures in Balance Sheet:
Para 30 Changes in Risk weightages:
(a) Individual Housing Loans upto Rs. 20 lakhs and LTV<= 90%: 50%
(b) Individual Housing Loans between Rs. 20 lakhs and Rs. 75 lakhs and LTV<= 80%: 50%
(c) Individual Housing Loans more than Rs. 75 lakhs and LTV<= 75%: 75%
(d) Loans given for insurance of financed property: Same as corresponding Housing Loan
(e) Exposures to CRE (Residential): 75%
(f) Exposures to CRE (Commercial): 100%
(g) Restructured Housing Loans: Risk Weight as applicable above + 25%
Para 32A HFCs are disallowed from being partners in Limited Liability Partnerships and in Association of Persons
Para 38A HFCs are disallowed from lending against gold including bullion, jewellery etc.
Others Changes in disclosures in balance sheet
Circular Type Circular Issue Date
Notification Click here to view notification 21-Jun-14
Para 2 In clause (e), for the words “SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997”, the words “SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011”, shall be substituted
Para 19 Requirement to obtain prior approval of National Housing Bank for acquisition or transfer of control of housing finance companies
Circular Type Circular Issue Date
Notification Click here to view notification 13-Jun-14
Para 2 Definition of public deposits amended to include unsecured portion of optionally convertible debt instruments as the words “with an option to convert into shares” has been replaced with “compulsorily convertible into equity” in said clause.Further, any hybrid or subordinated debt would also be included in public deposits if the instrument carries a call option within 60 months
Para 12 Amendment to General provisions regarding repayment of deposits
Para 17 Addition to Advertisements and statement in lieu of advertisement
Notification Click here to view notification 19-Apr-14

Minimum Net Owned Funds (NOF) Requirement for existing HFCs

NHB specifies the minimum NOF required to be achieved by a HFC.

  1. Rs. 4 crore by June 30, 2012
  2. Rs. 7 crore by June 30, 2013
  3. Rs. 10 crore by June 30, 2014
Circular Type Circular Issue Date
Master Circular Click here to view notification 23-Jul-11

Registration not required for Section 25 Companies

NHB has declared that non-deposit accepting, Section 25 companies carrying on the business of housing finance providing loans upto Rs. 1.5 lakhs do not require registration under the National Housing Bank Act, 1987.

Circular Type Circular Issue Date
Master Circular Click here to view notification 29-Mar-10

Accounting and Taxation

Creation of Deferred Tax Liability on Special Reserve maintained by Housing Finance Companies under Section 36(1) (viii) of the Income Tax Act, 1961

HFC is required to create Deferred Tax Liability (DTL) on the Special Reserve created and maintained under Section 36(1)(viii)of the Income Tax Act, 1961

Circular Type Circular Issue Date
Notification Click here to view notification 27-May-14

Reserve Fund under Section 29C of the NHB Act, 1987

NHB proposes the format for presentation of Reserve Fund in the Annual Accounts, under the heading ‘Notes forming part of the financial statements’ from the financial year 2013-14.

Circular Type Circular Issue Date
Notification (Revisions) Click here to view notification 7-Apr-14

Calculation of Tier-I Capital (Net Owned Fund) Treatment of Deferred Tax Assets (DTA)

This circular clarifies that creation of DTA results in increase of Tier I Capital of HFC without any tangible asset being added to the Balance Sheet. Hence, DTA should not be considered for calculation of Tier I Capital/ Net Owned Funds.

Circular Type Circular Issue Date
Master Circular Click here to view notification 28-Mar-05

Capital and Funding

HFCs issuance of Non-Convertible Debentures (NCDs) on private placement basis (NHB) Directions, 2014

NHB lays down guidelines for the issuance of NCDs on private placement basis (non-public offering). These guidelines explains various aspects – purpose of issue, eligibility criteria, rating requirements, maturity, number of investors, limits and amount of issue, etc.

Circular Type Circular Issue Date
Notification Cliek here to view notification 19-Apr-14

Terms and conditions applicable to debt capital instruments to qualify for inclusion as upper Tier-II capital

The circular stipulates terms and conditions for debt capital instruments to qualify as Upper Tier II Capital.

Circular Type Circular Issue Date
Master Circular Click here to view notification 24-Apr-08

Know Your Customer (KYC) Guidelines

Revised Guidelines on ‘Know Your Customer (KYC)’ & ‘Anti Money Laundering (AML) Measures’ for HFCs

The circular provides revised guidelines on KYC requirements and AML measures. This circular also iterates that Unique Identification. Authority of India containing details of name, address and Aadhaar number is an officially valid document within the meaning of Rule 2(1)(d) of the Prevention of Money-laundering (Maintenance of Records) Rules, 2005and, therefore, can be relied upon by a HFC for the purposes of Rule 9 of the said Rules.

Circular Type Circular Issue Date
Notification Click here to view notification 06-Feb-14

Central Know Your Customer Registry

The Ministry of Finance, Department of Financial Services (DFS) advised that there be Common KYC Templates for central depository for CKYCR. Common KYC templates (Individual and Non-Individual) were designed for HFCs.

HFCs were requested to furnish their comments/ suggestions, if any, on the Common KYC Templates by 10-02-2014. The final Common KYC Templates and other modalities of availing the services of CKYCR will be intimated to HFCs in due course.

Circular Type Circular Issue Date
Notification (Revision) Click here to view notification 24-Jan-14

Lending – Loan Products and Features

Disbursement of housing loan to individual linked to the stages of construction

HFCs are advised that disbursal of housing loans sanctioned to individuals should be closely linked to the stages of construction of the housing project/houses and upfront disbursal should not be made in cases of incomplete/ under construction/ green field housing project/ houses.

Circular Type Circular Issue Date
Master Circular Click here to view notification 18-Nov-13

Most Important Terms and Conditions

NHB provides guidelines for HFCs to obtain a document containing the most important terms and conditions of such loans in all cases, as per the suggested format.

Circular Type Circular Issue Date
Master Circular Click here to view notification 05-Apr-13

Levy of Foreclosure charges / Pre-payment penalty on floating rate home loans

This circular prohibits HFCs from charging any prepayment penalty / foreclosure charges in case of floating rate home loans to individuals, whether the prepayment is in part or in full. NHB has also clarified that the circular will be applicable in all cases irrespective of the date of sanction of the home loans. Further, this circular is not applicable in case the borrower or co-borrower is a company, firm etc.

Circular Type Circular Issue Date
Policy Circular Click here to view circular 14-Aug-14
Policy Circular Click here to view circular 03-Sep-14

Pre-payment penalty on pre-closure of housing loans on dual/special rates

This circular iterates that all dual/special rate (combination of fixed and floating) housing loans will attract pre-closure norms applicable to fixed/floating rate depending on whether at the time of pre-closure; the loan is fixed or floating rate.

Circular Type Circular Issue Date
Master Circular Click here to view notification 7-Aug-12

Computation of Loan to Value (LTV)

HFCs are advised to compute LTV ratio as a percentage with total outstanding in the account (viz, “principal + accrued interest + other charges pertaining to the loan” without any netting) in the numerator and the realizable value of the residential property mortgaged to the HFC in the denominator.

Circular Type Circular Issue Date
Master Circular Click here to view notification 9-Apr-12

Uniformity in charging interest (floating rate basis) – clarification

This circular clarifies that instructions contained in policy circular no. 44 dated Oct 19, 2011 is mandatory and applies to all housing loans disbursed on and after the date of the issue of the circular. Also, HFCs should apply uniform rates of interest to all borrowers with same credit/risk profile.

Circular Type Circular Issue Date
Master Circular Click here to view notification 9-Apr-12

Exposure to real estate

The circular iterates that the loan disbursal should be made only after the borrower has obtained requisite clearances from the Government authorities.

Circular Type Circular Issue Date
Master Circular Click here to view notification 16-Mar-06

Investments

Ready Forward Transaction in Government Securities and Accounting thereof

This circular clarifies that HFCs can enter into ready forward contracts on government securities subject to the terms and conditions contained in the concerned RBI circular.

Circular Type Circular Issue Date
Master Circular 1 Click here to view notification 04-Jul-13

Participation of HFCs in Ready Forward Contracts in Corporate Debt Securities

This circular clarifies that HFCs not accepting/ holding public deposits, having asset size of Rs. 100 crore and above and registered with the NHB can enter into repo transactions in corporate debt securities.

Circular Type Circular Issue Date
Master Circular Click here to view notification 26-Oct-12

Fair Practices Code

Revised Guidelines on Fair Practices Code for HFCs

NHB provides guidelines to bring more clarity & transparency and to cover all aspects of loan sanctioning, disbursal and repayment issues. The revised Guidelines on Fair Practices that are to be framed and approved by the Board of Directors of HFCs are enclosed.

Circular Type Circular Issue Date
Master Circular Click here to view notification 11-Oct-10

Asset Liability Management

Revised Guidelines on Asset-Liability Management System for HFCs

NHB issued revised guidelines would be applicable to all HFCs irrespective of whether they are accepting / holding public deposits or not. All HFCs are required to put in place the ALM system.

Circular Type Circular Issue Date
Master Circular Click here to view notification 11-Oct-10

Securitisation

Draft Guidelines on Securitization of Standard Assets

NHB issued guidelines for securitisation of standard assets to ensure healthy development of the secondary market for residential mortgages.

Circular Type Circular Issue Date
Notification Click here to view notification 04-07-2005

Credit Ratings

Rating of HFCs

This circular mandates all the HFCs having assets of Rs. 100 crores and above, issuing financial products, furnishes the information about any assigned rating within 15 days of such change to the Department of Regulation and Supervision, NHB.

Circular Type Circular Issue Date
Master Circular Click here to view notification 13-Apr-09

Code of Conduct

Model Code of Conduct for Direct Selling Agents (DSAs)

NHB has designed Model Code of Conduct covering the operations of agents marketing the financial products of HFCs. HFCs are advised to adopt the Code with approval of their Board.

Circular Type Circular Issue Date
Master Circular Click here to view notification 14-Jul-08

Guidelines for recovery agents

NHB has formulated guidelines for engaging Recovery Agents by the HFCs.

Circular Type Circular Issue Date
Master Circular Click here to view notification 14-Jul-08

Reporting

Monthly Return

NHB specifies the format for HFCs to provide basic operational information to the NHB on a monthly basis.

Circular Type Circular Issue Date
Master Circular Click here to view notification 25-Jul-06

Refinance Schemes

Refinance Schemes for Housing Finance Companies

National Housing Bank (NHB) offers refinance assistance to Housing Finance Companies (HFCs) in respect of their loans given to individuals for housing. Loans against property (i.e. loans given against the security of house property but for purposes other than construction / purchase / repairs / up-gradation / extension) are not eligible for refinance. NHB currently has the following refinance schemes in operation for HFCs.

Circular Type Circular Issue Date
Master Circular Click here to view notification 05-Sep-13

Loans under Rural Housing Funds Scheme Urban Housing Fund Scheme – Clarification

NHB has clarified that it is clarified that such loans are not to be regarded as loans given at teaser/special rates within the meaning of item (iv) of sub-paragraph (I) of paragraph 28 of the Housing Finance Companies (NHB) Directions, 2010

Circular Type Circular Issue Date
Notification Click here to view notification 15-May-14

Refinance Scheme for Installation of Solar Water Heating & Lighting Equipment’s in Homes – Revision in Interest Rates & Loan Size

The revised rates and loan size, which shall be applicable on all refinance disbursements made under the Scheme on or after the date of this circular, are as under:

Revised Interest Rates Maximum Loan Size Per Unit
Loan eligible under RHF 7.10% 9.60% Rs. 100,000
Non RHF Loans 7.35% NA
Circular Type Circular Issue Date
Circular Click here to view notification 19-Jun-14
About Scheme Click here to view

Urban Housing Fund – Interest Rates

The revised rates and loan size, which shall be applicable on all refinance disbursements made under the Urban Housing Fund on or after the date of this circular, are as under:

Loan Size Interest Rate on Refinance On Lending Cap
Upto Rs. 10 lakhs 7.10% 9.60%
Circular Type Circular Issue Date
Circular Click here to view circular 12-Sep-13
About Fund Click here to view

Rural Housing Fund – Interest Rates

The revised rates and loan size, which shall be applicable on all refinance disbursements made under the Rural Housing Fund on or after the date of this circular, are as under:

Loan Size Interest Rate on Refinance On Lending Cap
Upto Rs. 10 lakhs 7.10% 9.60%
Circular Type Circular Issue Date
Circular Click here to view circular 05-Sep-13
About Fund Click here to view

Refinance Schemes of NHB

The Scheme aims at popularizing the use of solar water heating and solar lighting equipment in homes by offering suitable incentives in the form of capital subsidies for purchase and installation of the solar equipment. The National Housing Bank has been designated as a nodal agency for administering and monitoring the capital subsidy scheme.

Circular Type Circular Issue Date
Modification Click here to view modification 17-Apr-14
Circular Click here to view circular 17-Jan-14

Special Refinance Scheme for Urban Low Income Housing

The revised terms and conditions, which shall be applicable on all refinance disbursements made under the Urban Low Income Housing Scheme on or after the date of this circular.

Circular Type Circular Issue Date
Circular Click here to view circular 19-Dec-13
About scheme Click here to view

Refinance Scheme for Women

The flow of formal housing finance to women in urban areas, the National Housing Bank has launched a special Refinance Scheme for Women. The Scheme envisages providing funds at concessional rates to the retail lending institutions to encourage them to improve their housing finance to women borrowers.

Circular Type Circular Issue Date
Circular Click here to view circular 18-Dec-13

Refinance Scheme of National Housing Bank

NHB’s refinance assistance can be availed for a variety of purposes and is available at competitive rates for varying tenures, with fixed and floating interest rate options. The Bank has also launched a few new schemes such as the Urban Housing Fund, Refinance scheme for Women, etc. catering to the emerging requirements of the sector.

Circular Type Circular Issue Date
Circular Click here to view circular 23-Oct-13

Relevant RBI Norms

RBI Master Circular for Housing Finance

The Reserve Bank of India has consolidated all the instructions/guidelines issued to banks till June 30, 2014 relating to Housing Finance.

Circular Type Circular Issue Date
Master Circular Click here to view Master Circular 01-Jul-14

RBI Master Circular – Priority Sector Lending – Target and Classification

This Master Circular consolidates the current instructions of all the circulars/mail box clarifications to banks on Priority Sector Lending, issued by Reserve Bank on the subject up to June 30, 2014. The eligibility under priority sector loans to HFCs is restricted to five percent of the individual bank’s total priority sector lending, on an on-going basis.

Circular Type Circular Issue Date
Master Circular Click here to view Master Circular 1-Jul-14

Foreign Investments

Foreign Investment in India

Foreign Portfolio Investment in India

The extant guidelines for Portfolio Investment Scheme for Foreign Institutional Investor (FII) and Qualified Foreign Investor (QFI) have since been reviewed and it has been decided to put in place a framework for investments under a new scheme called ‘Foreign Portfolio Investment’ scheme.

Circular Type Circular Issue Date
Master Circular Click here to view circular 01-Jul-14

Foreign Direct Investment in India

The Foreign Direct Investment (FDI) policy for 2014 has been notified by the Ministry of Finance through the Department of Industrial Policy and Promotion into India

Circular Type Circular Issue Date
Policy Circular Click here to view policy 17-Apr-14

Issue/Transfer of Shares or Convertible Debentures

Foreign Direct Investment (FDI) in India – Issue/Transfer of Shares or Convertible Debentures – Revised pricing guidelines

  1. In case of listed companies – The pricing guidelines for FDI instruments with optionality clauses shall continue to be in accordance with A.P. (DIR Series) Circular No. 86 dated January 9, 2014.
  2. In case of unlisted companies – The guiding principle will be that the non-resident investor is not guaranteed any assured exit price at the time of making such investment/agreement and shall exit at a fair price computed as above at the time of exit subject to lock-in period requirement as applicable in terms of A.P. (DIR Series) Circular No. 86 dated January 9, 2014.
  3. Circular Type Circular Issue Date
    Notification Click here to view notification 15-Jul-14

Partly Paid Shares and Warrants

Issue of Partly Paid Shares and Warrants by Indian Company to Foreign Investors

Partly paid equity shares and warrants issued by an Indian company in accordance with the provision of the Companies Act, 2013 and the SEBI guidelines, as applicable, shall be eligible instruments for the purpose of FDI and foreign portfolio investment (FPI) by Foreign Institutional Investors (FIIs)/Registered Foreign Portfolio Investors(RFPIs) subject to compliance with FDI and FPI schemes

Circular Type Circular Issue Date
Notification Click here to view notification 14-Jul-14

ECB and Trade Credits

External Commercial Borrowings and Trade Credits

This Master Circular consolidates the existing instructions on the subject of “External Commercial Borrowings and Trade Credits” at one place.

Circular Type Circular Issue Date
Notification Click here to view notification 28-Jul-14
Master Circular Click here to view cirular 01-Jul-14

Transfer or Issue of Security by Non-Resident

Transfer or Issue of Security by a Person Resident Outside India

A registered Foreign Portfolio Investor (RFPI) may purchase shares or convertible debentures of an Indian company under the Foreign Portfolio Investment (FPI) Scheme subject to the terms and conditions specified in Schedule 2A and the limits and margin requirements prescribed by RBI/ SEBI as well as the stipulations regarding collateral securities as specified by the Reserve Bank.

A Non-resident Indian may, without limit, purchase on non-repatriation basis, listed non-convertible/redeemable preference shares or debentures.

Instrument Type Limit Eligible Investors Remarks
Corporate Debt including Commercial Papers USD 51 Billion FIIs, QFIs and Long terms investors registered with SEBI – Sovereign Wealth Funds (SWFs), Multilateral Agencies, Pension/ Insurance/ Endowment Funds, Foreign Central Banks. Eligible Investors may invest in Commercial Papers only up to USD 2 billion within the limit of USD 51 billion.
Circular Type Circular Issue Date
Notification (Revision) Click here to view amendment 14-Feb-14
Notification Click here to view amendment 01-Apr-13

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