Updated deposit requirements shouldn’t be too burdensome for HFCs: Crisil

NEW DELHI: According to Crisil Ratings, housing finance companies (HFCs) that accept public deposits are expected to navigate the Reserve Bank of India’s (RBI) revised guidelines, announced on August 12, 2024, without significant difficulty.

The revised guidelines, which include several operational adjustments, introduce three main changes for HFCs involved in public deposit-taking.

First, HFCs are required to gradually increase the minimum proportion of liquid assets held against public deposits from the current 13% to 14% by January 1, 2025, and further to 15% by July 1, 2025. Additionally, the percentage of unencumbered approved securities held as a proportion of public deposits has also been raised.

Second, the maximum amount of public deposits that deposit-taking HFCs can hold has been reduced from three times to 1.5 times their net owned funds, effective immediately.

Third, the maximum tenure for public deposits raised by HFCs has been shortened from 10 years to 5 years, and this has also had an immediate effect.

Crisil estimates that deposit-taking HFCs currently hold approximately Rs 25,000 crore in public deposits, which accounts for about 5% of their total borrowings.

Subha Sri Narayanan, Director at CRISIL Ratings, noted, “Most deposit-taking HFCs already meet the new requirements.

A few may need to boost their on-book liquidity to comply with the 15% guideline and adjust their new deposits to maintain the required ratio of public deposits to net-owned funds.

While the reduction in maximum deposit tenure may limit the flexibility of HFCs in managing their asset-liability maturity profiles, most HFCs do not have a significant portion of deposits with over 5-year maturities in their borrowing portfolios.”

HFCs have been granted sufficient time to phase in the liquid asset requirements and can let any excess or non-compliant deposits mature naturally.

The revised guidelines represent another step by the RBI to align the regulatory framework for HFCs with that of non-banking financial companies, a sector that has been under RBI’s supervision since 2019.

This move aims to reduce disparities between different regulatory frameworks and ensure a stronger focus on the core business and operational fundamentals.