The Reserve Bank of India (RBI) has recently introduced new guidelines for deposit-taking housing finance companies (HFCs), effective from August 12, 2024. While the revised regulations introduce certain changes, Crisil Ratings believes that the overall impact on the sector will be minimal. The new norms primarily focus on increasing the minimum liquidity requirement for public deposits, restricting the total amount of public deposits an HFC can hold, and reducing the maximum duration for public deposits.
Most HFCs are already in compliance with the new liquidity requirements and have sufficient time to adjust their public deposit ratios. The reduction in deposit tenure from 10 years to 5 years may limit the flexibility of HFCs in managing their asset-liability profiles. However, many HFCs do not heavily rely on deposits exceeding five years in maturity. The RBI has allowed HFCs ample time to phase in the new liquid asset requirements and gradually reduce any excess or non-compliant deposits as they mature. This gradual implementation will help mitigate any potential disruptions to the sector.
The new deposit norms are part of the RBI’s ongoing efforts to standardize the regulatory framework for HFCs and non-banking financial companies (NBFCs). By aligning the regulatory requirements for these entities, the RBI aims to minimize regulatory arbitrage and enhance the focus on core business and operational fundamentals. While the revised deposit norms may require some adjustments, the overall transition for most HFCs is expected to be relatively smooth. The sector’s ability to adapt to these changes reflects its resilience and preparedness to navigate evolving regulatory landscapes.
