The RBI has defined the businesses or qualifying assets that can be financed by housing finance companies as it invited public comments for a new set of rules governing HFCs which were brought under its control in August 2019 from the purview of the National Housing Bank.

The RBI has proposed 11 activities or qualifying assets that come under housing finance: these include loans to individuals or group of individuals including co-operative societies for the construction or purchase of new dwelling units; loans to individuals for the purchase of old dwelling units; loans to individuals for the purchase of old or new dwelling units by mortgaging existing dwelling units; and loans to individuals for renovation or reconstruction of existing dwelling units.

It also covers lending to builders for the construction of residential dwelling units and loans given for slum improvement schemes.

At least 50 per cent of the net assets — total assets excluding cash and bank balances and money market instruments — of HFCs should be in the form of the qualifying assets. Of this, at least 75 per cent should be towards individual housing loans.

The 50 per cent net asset rule has to be met by March 31, 2022. HFCs have been given time till March 31, 2024 to meet the norm that 75 per cent of the qualified assets should be in the form of individual housing loans. HFCs which do not fulfil this criteria will be treated as NBFC-Investment and Credit Companies (NBFC-ICCs) and must approach the RBI for the conversion of their registration certificates.

A phased timeline will be given to HFCs which do not currently fulfil the qualifying assets criteria but plans to continue as HFCs in the future.

In a bid to address concerns on double financing where an entity extends finance to construction companies and also to individuals purchasing flats from the construction companies, the RBI said the HFC may choose to lend only at one level. The HFC can either have an exposure to the group company in the real estate business or lend to retail individual home buyers in the projects of the group entities, but not do both.

Besides, the RBI has proposed systemically important HFCs and non-systemically important HFCs . Non-deposit taking HFCs (HFC-ND) with asset size of Rs 500 crore and above; and all deposit taking HFCs (HFC-D) irrespective of asset size will be treated as systemically important.

HFCs with asset size below Rs 500 crore will be treated as non-systemically important HFCs.