[HFCs cannot conduct business of housing finance without obtaining a Certificate of Registration (CoR) from NHB. Conduct of business without obtaining certificate of registration is an offence punishable under the provisions of the National Housing Bank Act, 1987. NHB can also file application for winding up of such HFCs, under section 33B of the said Act.]

Regulatory Authority for Housing Finance Company

In the Housing Finance Sector, NBH plays the most significant role. In terms of integration with the debt and capital markets, the housing finance sector in India has entered into the second phase of development.

To maintain the credibility and stability in terms of resource development, policy development and institution building of the housing finance sector in the country, NHB placed an effective system of responsive regulation. This has been done to unhindered the free market approach.

For Housing Finance Companies, NHB has come up with a set of guidelines in terms of;

• Financial assistance;
• Prudential norms for income recognition;
• Asset classification;
• Regulating deposits taking activity etc.

To materialize this sector there is a requirement of synchronization between the Government, Reserve Bank of India (RBI) and National Housing Bank (NHB).

• RBI regulates – lending to the housing by Banks
• NHB regulates - lending to the housing by HFCs

What are the basic requirements for obtaining a Housing Finance Company license in India?

In India, Housing Finance Companies are regulated by the National Housing Bank (NHB). In accordance with the Section 29A of the National Housing Bank Act, 1987, no HFC shall commence or carry on the business of a housing finance without meeting the following conditions -

• A company must be registered under the Companies Act, 2013/1956 and who is willing to commence the business of a Housing Finance for the community at large;
• It must have the principal object of providing housing loan or housing finance in any form either directly or indirectly;
• There is a requirement of minimum net owned fund of INR 10 crore;

What are the documents required for Housing Finance Company registration in India?

Below mentioned documents are required to file an application for Housing Finance Company registration:

• Certified Copy of MOA (Memorandum of Association) & AOA (Article of Association);
• Demand Draft of Rs. 10,000/- in favor of NHB, New Delhi;
• Board Resolution specifying the objective of the Company and authorization to file Application before NHB;
• Certificate by professional regarding the meeting the criteria of minimum NOF (Net Owned Fund) of Rs. 10 crores;
• Business Plan of the company for the next 3 years;
• Company profile;
• Business profile of MD/Directors/CEO etc;
• Audited Financials for the last three years, if available;
• Education and experience certificate of directors and employees;
• Certificate by professional regarding the source of the capital of the company;
• Details of the company in which promoters/ directors, associated;

What is the process of Housing Finance Company registration?

For Housing Finance Company Registration, an applicant company has to submit a physical copy of the application (in duplicate) along with the necessary documents which are mentioned above to the Head Office of the “National Housing Bank” along with the Demand Draft of INR 10,000/- in favor of National Housing Bank payable at New Delhi. Our team of expert professionals can help you and can make the process easy for you.

What are the conditions pertaining to the grant of Housing Finance Company license by NHB?

Once a registration application is submitted, NHB (National Housing Board) will review the application and grant a Certificate of Registration after proper background verification and fulfillment of following conditions as per sub-section (4) of Section 29A of NHB act, 1987:

• HFC is or shall be in a position to pay its present or future depositors in full as and when their claims accrue.
• The Business Affairs of the Housing Finance Company are not being or are not likely to be conducted in a manner adverse to the interest of its present or future depositors.
• The operations and policy of the company should not be against the public interest or against the interest of the depositors.
• HFC has sufficient capital structure and better earnings prospects.
• Public interest shall be served, once the certificate of registration is granted to the HFC to commence or carry on the business in India.
• Any other condition, fulfillment of which in the opinion of the NHB, shall be necessary to ensure that the commencement of or carrying on the business in India by an HFC shall not be prejudicial to the public interest or in the interests of the depositors.

How Housing Finance Companies are different from Banks?

The activities of banks and HFCs are alike as both are involved in lending and making investments, but there are a few differences as given below:

• HFCs cannot accept demand deposits;
• HFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself;
• Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of HFCs, unlike banks.

What are the conditions pertaining to the cancellation of the Housing Finance Company License by the NHB?

NHB may cancel a certificate of registration granted to a housing finance company in some of the circumstances when such HFC failed to comply with the directions of NHB or NHB act.

However, cancellation is subject to certain provisions, if such company

• Ceases to carry on the business of financing in India; or
• HFC has not complied with the below-mentioned terms and condition prescribed by the NHB
  • to comply with any direction issued by the National Housing Bank under the provisions of Chapter V of the National Housing Bank Act 1987; or
  • to maintain accounts in accordance with the requirement of any law or any direction or order issued by the National Housing Bank under the provisions of Chapter V of the National Housing Bank Act 1987; or
  • Mandatory to submit its books of accounts and other relevant documents as per NHB Act, when it is demanded by an inspecting authority of the National Housing Bank; or
  • Has been prohibited from accepting deposit by an order made by the National Housing Bank under the provisions of this Chapter V of the National Housing Bank Act, 1987 and such order has been in force for a period of not less than 3 months.

What are the post-incorporation formalities for Housing Finance Company?

Once a certificate of registration is obtained, housing finance companies need to complete the following post incorporation formalities for smooth functioning

• Development of loan processes;
• Development of loan policies, including appraisal techniques & tools;
• Development of IT Infrastructure;
• Board Structure;
• Organizational Structure and Drafting of Policies;
• Product Development;
• Legal Operations;
• NHB regulatory and compliance requirements;
• Resource Mobilization
• Credit Risk Management;
• Scoring Model;
• MIS format;

What are the mandatory compliances for housing Finance Companies towards NHB?

Here are following compliances need to be adhered by Housing Finance Companies:

• It is required for every HFC to file an annual return, half yearly return and quarterly return in respect of prudential norms, maintenance of liquid assets respectively;
• Annual submission of the auditor’s certificate, certifying the capability of the HFC to repay deposits;
• Copy of the financial statement and annual report;
• Timely return in respect of change in registered office, change in directors etc.
• Filing a copy of the advertisement soliciting public deposits or statement in lieu thereof.
• HFCs have to comply with the IND-AS provisions.

Net Owned Fund (NOF) requirement for Housing Finance Company Registration

The aggregate of the paid-up equity share capital and free reserves as disclosed in the latest balance sheet of the housing finance company after deducting the following:

• Accumulated losses;
• Deferred revenue expenditure;
• Other intangible assets.

Further reduced by the amounts representing investments of such companies in the shares of the following:

• Its subsidiaries;
• Companies in the same group;
• All other housing finance institutions which are companies; and

The book value of debentures, bonds, outstanding loans and advances (including hire-purchase and lease finance) made to and deposits with the following:

• Subsidiaries of such company; and
• Companies in the same group, to the extent such amount exceeds ten percent of the above;

Market Size

In comparison to banks, housing finance companies have delivered quite better returns. Let’s understand by taking an example:

• During April 2013- Share price of Dewan Housing Finance jumped over 550 %.
• In the same period, Repco Home Finance, LIC Housing, and HDFC soared 140-260 %.
• While IndusInd Bank NSE -1.05 %, YES Bank NSE -1.05 %, Kotak Mahindra Bank NSE 1.16 %, HDFC Bank NSE 0.26 %, Federal Bank and Axis Bank NSE  1.47% picked up between 100-380%