The RBI suggests strengthening the requirements for HFCs to take public deposits.

MUMBAI: On Monday, the Reserve Bank suggested tightening regulations for housing financing organizations by raising the necessity of retaining liquid assets against liabilities and shortening the maturity period for public deposits to five years.

According to the RBI’s draft circular, which is open for comments until February 29th, housing finance companies (HFCs) are now permitted to accept or renew public deposits that are repayable after 12 months or more but not later than 120 months from the date of acceptance or renewal of such deposits.

It has been determined that public deposits accepted or renewed by HFCs will now, as of the date of this circular, be repayable after 12 months or more, but not later than 60 months. The existing repayment profile for existing deposits with maturities longer than sixty months will be followed,” the statement stated.

According to the statement, HFCs that have a credit rating below the required investment grade will not be able to renew current deposits or take on new ones unless they have an investment-grade credit rating.

It stated that, as of right now, the maximum amount of public deposits that deposit-taking HFCs may hold is no longer three times but rather 1.5 times net owned funds.

The decision has now been made for all deposit-taking HFCs to continuously keep liquid assets up to 15% of the total amount of public deposits they hold, according to the statement.

The draft report further said that if the aforementioned asset cover is insufficient to meet the liability of public deposits, the concerned HFC would have to notify the National Housing Bank.

According to the draft report, if the asset cover mentioned above is insufficient to satisfy the liability resulting from public deposits, the responsible HFC must notify the National Housing Bank.

It stated that HFCs are permitted to selectively issue co-branded credit cards with scheduled commercial banks, subject to a review after the first two years and without risk sharing, with prior clearance from the Reserve Bank.

It said “tiny deposits” may be prematurely paid to individual depositors at the depositor’s request, before the expiration of three months from the date of acceptance of such deposits, in full, without interest, to meet certain emergent expenses, subject to the satisfaction of the NBFC concerned.

In the case of other public deposits, the circular stated that, at the request of the depositors, individual deposits may be prematurely paid to each other before the expiration of three months from the date of acceptance of such deposits, without interest, up to fifty percent of the principal amount of the deposit or Rs 5 lakh, whichever is lower.

The remaining sum, along with interest at the agreed rate, will be subject to the current instructions’ requirements, which also apply to public deposits, it stated.

If you need to pay for urgent needs, such as medical emergencies, you might withdraw money early. The Reserve Bank released a revised regulatory framework for HFCs circular on October 22, 2020, following the transfer of regulation of HFCs from the National Housing Bank (NHB).

The circular stated that further harmonization between the regulations of HFCs and NBFCs will be undertaken gradually. or costs brought on by natural disasters.