Impact of RBI’s New Guidelines on Housing Finance Companies: Increased Borrowing Costs and Regulatory Oversight

RBI’s New Guidelines Put Housing Finance Companies Under Stricter Regulatory Oversight

With the Reserve Bank of India’s (RBI) new guidelines coming into effect, housing finance companies (HFCs) are gearing up for a challenging year ahead. The revised norms, announced last year, are set to have a significant impact on the operations of HFCs.

One of the key changes is the reduction in the ceiling on the quantum of public deposits that deposit-taking HFCs can hold. This reduction from three times to 1.5 times of net-owned funds is expected to limit the ability of HFCs to raise deposits, pushing them towards borrowing from the money market.

Experts predict that this shift to the money market for funds could increase borrowing costs by 20-30 basis points for HFCs. This, in turn, is likely to impact the profit margins of these companies, as borrowing from sources like non-convertible debentures (NCDs) comes at a higher cost compared to traditional bank borrowing.

Major players in the HFC sector, such as LIC Housing Finance, PNB Housing Finance, Can Fin Homes, and Sundaram Home Finance, will need to adapt to these new regulations. With only 26 deposit-taking HFCs out of a total of 97 in the country, the impact of the revised norms will be felt across the sector.

The new rules aim to bring deposit-taking HFCs on par with non-banking financial companies, ensuring greater transparency and accountability in the sector. HFCs will now have to maintain a higher percentage of liquid assets against public deposits and ensure full asset cover for deposits at all times.

As HFCs navigate these new regulatory challenges, the industry is bracing for a period of adjustment and innovation to meet the changing financial landscape.
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