RBI has decided to go tougher on the housing finance companies after having announced in August that it is going to treat them on par with the non-banking finance companies (NBFCs) as far as supervision and regulations are concerned, a Livemint report states.
Whether this is a fallout of the DHFL crisis or not is not very clear, but the banking regulator is keen that the companies involved in lending home loans remain stable and solvent. With this in the background the RBI, in its latest action, has announced the withdrawal of certain exemptions given earlier to the housing finance companies.
RBI now has powers to ask for the winding up of an HFC if the company is unable to pay its debts and fails to pay up within 5 working days when called upon to clear any such dues. RBI will employ the public interest principle to while invoking this power.
The other impact of this fresh move by the regulator is that the RBI can choose to inspect the company at any time if it suspects the veracity of the information submitted by the HFC.
Lastly, housing finance companies here onward will have to transfer 20% of the net profit earned each year to a reserve fund. The reserve fund has to be created by each of the housing finance companies and the transfer to this reserve fund must be made before any dividend is declared/distributed.
The story goes back to the Union Budget presented by the Finance Minister Nirmala Sitharaman in the Parliament as soon as the new government took over after the elections. She had made certain amendments in the Finance Act, 2019 relating to the National Housing Bank Act, 1987, conferring certain powers for regulation of the housing finance companies with the Reserve Bank of India. It is these powers that the RBI has now invoked to issue the latest orders.
The RBI has decided to make changes in its own Reserve Bank of India Act, 1934, which gives exemptions to the housing finance companies under Chapter IIIB. The provisions of this chapter have now been made applicable to the HFCs, lifting the exemption they were enjoying so far. Only Section 45-IA of the RBI Act will be applicable to them as far as the exemptions are concerned.