RBI withdraws certain exemptions from HFCs and puts them at par with NBFCs

Certain exemptions granted to housing finance companies (HFCs) have been withdrawn by the Reserve Bank of India (RBI) putting the HFC regulations on a par with those of non-banking financial companies (NBFCs). HFCs are currently exempt from the provisions of Chapter IIIB of Reserve Bank of India Act, 1934. A review was conducted and now it has been decided to withdraw these exemptions and make the provisions of Chapter IIIB except Section 45-IA of Reserve Bank of India Act, 1934 applicable to them.

This move is the result of the Finance Act, 2019 that revised and amended the National Housing Bank Act, 1987, conferring certain powers for regulation of HFCs with the central bank of the country.

The withdrawal of these exemptions has empowered RBI to order winding up of any HFC, on being satisfied that the HFC is unable to pay its debt or if its continuance is detrimental to public interest. It will be considered that the HFC is unable to pay its debt if it fails to meet any lawful demand within five working days.

Moreover, the RBI can now inspect any HFC to verify the accuracy or completeness of any statement, furnished to RBI. Another exemption taken away is with regard to the creation and maintenance of a reserve fund. Mortgage lenders will have to create a reserve fund and transfer at least 20% of its net profit every year before any dividend is declared.

With the amendment of the Finance Act, 2019, the National Housing Bank Act, 1987, was revised and amended conferring certain powers for regulation of HFCs with the RBI.

On 13 August, 2019, the RBI had announced that housing finance companies will be treated at par with NBFCs.