RBI tightens rules for deposits of Housing Finance Companies

The Reserve Bank of India (RBI) proposed on Monday to tighten standards for housing finance businesses by revising the requirement to retain liquid assets against liabilities and shortening the maturity period for public deposits to five years, among other adjustments.

One of the most significant changes is the requirement for HFCs to raise deposits for no more than 1.5 times their net owned funds, which is half the present ceiling of three times.

“Deposit-taking HFCs with deposits exceeding the revised limit shall not accept new public deposits or renew existing deposits until the quantum of public deposits falls below the revised limit. However, excess deposits will be permitted to run off till maturity,” the RBI stated.

HFCs must hold 10% of their public deposits in unencumbered certified securities by March 2025, up from the existing 6.5% minimum. Simultaneously, the RBI has proposed increasing total liquid assets, including unencumbered securities, from 13% to 15% during the same period.

The RBI has reduced the maximum maturity of public deposits from ten years to five years. However, it has permitted HFCs to refund outstanding deposits with maturities greater than 60 months in accordance with their existing repayment plan.

Only 50% of the deposit amount or Rs 5 lakh, whichever is smaller, can be refunded before the three-month period from the date the deposit was accepted expires. This early payment will not involve any interest.

The remaining funds, as well as the agreed-upon interest rate, will be subject to the normal restrictions for public deposits. However, the guidelines offer an exception for medical emergency.