NHB Increases Surprise Inspections to Assess Housing Finance Companies’ Operations

The National Housing Bank (NHB) is ramping up surprise inspections of mortgage lenders to ensure they are operating properly, following a recent fraud case at Aviom Housing Finance, according to two officials familiar with the matter. These surprise checks are in addition to the regular annual credit reviews NHB conducts for housing finance companies (HFCs).

The NHB’s focus is on ensuring that refinancing funds are used correctly, with a particular emphasis on their proper allocation.

The agency is also examining whether HFCs are accurately reporting data on non-performing loans and verifying the authenticity of their investment portfolios.

According to one of the officials, NHB’s primary aim with these surprise inspections is to ensure that HFCs are fully transparent about their affordable housing portfolios, report eligible borrowers for refinancing accurately, and provide reliable data on bad loans, investment portfolios, and insurance income.

This move to tighten regulations follows the fraud discovery at Aviom Housing Finance, which occurred late last year. Aviom revealed that it had uncovered fraudulent transactions in its financial records, leading to potential delays in payment.

Subsequently, NHB initiated a third-party forensic audit after an on-site inspection revealed signs of tampered mutual fund account statements.

Sources familiar with the matter revealed that NHB is paying close attention to whether HFCs are correctly reporting data on eligible borrowers for subsidies under schemes targeting economically weaker sections and low-income groups, and whether all accounts are eligible for refinancing programs.

In a previous report, ET highlighted that NHB had instructed HFCs to report bad loan data on the first day of each month after discovering that some lenders were moving loans from one month into the next in an attempt to reduce their bad loan ratios and avoid negative reports to the regulator.

Prior to this, HFCs typically submitted key financial data to NHB by the 10th or 12th of each month, which raised concerns among the regulators.

In another development, NHB had previously reprimanded home financiers for misselling insurance policies bundled with housing loans.

The regulator directed these companies to halt the practice of bundling insurance products without adequately informing borrowers about the terms and conditions.

In two separate communications, one dated March 12, 2025, and the other December 10, 2024, NHB instructed HFCs to ensure explicit customer consent and to offer insurance options from at least two providers, promoting greater transparency and competitive pricing. This move followed a warning to HFC CEOs in January, expressing concern over the growing share of insurance income in these companies’ net interest income.