Exposures of housing finance companies (HFCs) to the capital market and to land and buildings have been capped by the Reserve Bank of India, which has regulated them since 2019.

The RBI on Wednesday also strengthened the disclosure standards. Every HFC must disclose details of capital adequacy ratio and exposure to the real estate sector, both direct and indirect, in their notes to the balance sheet.

They must disclose the maturity pattern of assets and liabilities and the percentage of outstanding loans against collateral of gold jewellery to their assets. They must also give details of penalty by the RBI or the National Housing Bank or any adverse comments made in writing by the RBI or the NHB on regulatory compliances.

A housing finance company is an NBFC whose financial assets in housing loans constitute at least 60 per cent of its total assets.

HFCs should have a minimum capital adequacy ratio of 14 per cent by March 31, 2021 which will rise to 15 per cent by March 31, 2022. According to the RBI, the Tier-I or core capital at any point of time should not be less than 10 per cent.

Besides, HFCs must ensure that at all times there is full cover available for public deposits accepted by them. In case HFC fails to repay any public deposit or part thereof as per the terms, it shall not grant any loan or other credit facility or make any investment or create any other asset as long as the default exists. The central bank also barred HFCs to lend against their own shares.

Capital markets

The aggregate exposure of a housing finance company to the capital market in all forms, both fund based and non-fund based should not exceed 40 per cent of its net worth as on March 31 of the previous year.

Within this overall ceiling, direct investment in shares, convertible bonds or debentures, units of equity-oriented mutual funds and all exposures to venture capital Funds (VCFs) should not exceed 20 per cent of its net worth.

The capital market exposure will also include advances against shares/ bonds/debentures or other securities to individuals for investment in shares, including IPOs and ESOPs, convertible bonds, and secured and unsecured advances to stockbrokers.