New RBI rules have minimal impact on Housing Finance Companies: Crisil

The updated deposit guidelines will not impose significant challenges on housing finance companies (HFCs), according to the latest Crisil report. Analysts highlighted that HFCs generally depend minimally on public deposits, with only a select few potentially needing to bolster their liquidity positions. Additionally, the majority of these companies do not hold deposits with maturities surpassing the newly established limits.

An analysis by CRISIL Ratings of 12 HFCs that accept public deposits revealed that most are already in compliance with the updated guidelines concerning public deposits and liquid assets.

On August 12, the Reserve Bank of India (RBI) introduced revised regulations for non-banking financial companies (NBFCs) and HFCs. These new rules encompass areas such as public deposit acceptance, maintenance of a minimum percentage of liquid assets, full coverage for public deposits, and provisions for meeting unforeseen expenses. The phased implementation of these regulations is set to commence on January 1, 2025.

The Crisil report noted that, overall, HFCs have a limited dependence on public deposits, with only 12 out of 94 holding a deposit-taking licence. It estimated that the total public deposits for these licensed HFCs amount to approximately ₹25,000 crore, representing about 5% of their total borrowings. However, for three of these HFCs, this proportion exceeds 10%.

“Most deposit-taking HFCs already comply with the new norms. A couple of them may have to enhance their on-book liquidity to adhere to the 15% guideline and/or align their incremental deposits to manage the ratio of their public deposits to net owned funds. To be sure, the lowering of the maximum tenure of deposits will reduce the flexibility that HFCs have to manage their asset liability maturity profiles. However, most HFCs do not have a sizable portion of over-5-year-maturity deposits in the borrowing mix," says Subha Sri Narayanan, director, CRISIL Ratings.

The analysts identified three primary amendments in the revised norms for HFCs:

1. Increased Liquid Assets: HFCs are required to gradually elevate 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. There's also an increase in the percentage of unencumbered approved securities held against public deposits.

2. Reduced Public Deposit Limit: Effective immediately, 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.

3. Shortened Deposit Tenure: With immediate effect, the maximum tenure for public deposits raised by HFCs has been curtailed from 10 years to five years.

"HFCs have been given adequate time to implement the guidelines on liquid assets in a phased manner and have been permitted to run down any excess/ non-compliant deposits till maturity," the report states.

The report notes that the new regulations are part of the RBI's continued efforts to unify the regulatory framework for HFCs and NBFCs, especially since HFCs came under its oversight in 2019. It adds that this alignment is intended to minimise regulatory arbitrage and enhance the focus on business and operational fundamentals.