RBI Draft Norms: Mortgage Lenders To Diversify Borrowings

The Reserve Bank of India's new proposed regulations for housing finance companies are aimed at reducing strong interconnectedness between non-bank lenders and banks, according to analysts.

Deposit-taking HFCs are required to maintain 15% liquid assets against public deposits by the end of March 2025.

Similarly, the central bank has proposed a lower ceiling on maximum public deposits to 1.5 times the net-owned funds of the HFC. Currently, the ceiling stands at three times NOF.

These are draft norms by the RBI for which the central bank has sought comments by February. The RBI will release final guidelines after considering the comments.

The HFCs will need to tap other avenues for funding, such as non-convertible debentures, external commercial borrowings, commercial papers and other short-term instruments, according to analysts.

"Capping of public deposits at 1.5 times of NOF reduces (the) HFC's reliance on them, necessitating diversification of borrowings for some, like PNB HF and Sundaram HF, whose public deposits are 1.1 times of NOF," IIFL Securities said in a note on Tuesday.

This would also mean a higher cost of funds for the HFCs in comparison with those of banks, analysts said.

Currently, nine HFCs can accept public deposits, according to the National Housing Bank. These include Can Fin Homes, Cent Bank Home Finance, Aadhar Housing Finance, Housing and Urban Development Corp., ICICI Home Finance Co., LIC Housing Finance Co., Manipal Housing Finance Syndicate, PNB Housing Finance and Sundaram Home Finance.

Saral Home Finance, GIC Housing and Repco Home Finance can accept deposits with the prior written permission of the regulator.

The RBI's draft norms propose to introduce limits on the HFCs' exposures to alternative investment funds. If a mortgage lender breaches the central bank's limits, the excess would be deducted from its capital base, according to the proposed norms.

"HFCs' exposure to AIFs: if they own more than 50% of the AIFs, then they will see a reduction in their capital, which will be quite negative for them," Deepak Shenoy, chief executive officer of Capitalmind Financial Services Pvt., told NDTV Profit.

Shenoy said wholesale funding for developers would get more expensive if they routed funds through the AIFs directly. "The RBI is very worried about the evergreening of loans," he said.

For Can Fin Homes, where deposits form 1% of the borrowings while banks contribute 57%, the RBI's tighter norms will slow loan growth and make the fall in net interest margin worse, according to Jefferies Financial Group Inc.

IIFL Finance, which has Rs 160 crore worth of investment in the AIF, is likely to witness a slowdown in core segments, "deterioration in asset quality and potential haircuts to investments in (the) AIFs and asset reconstruction companies," Jefferies said.