New Delhi, Jan 16 (KNN) In a move to align housing finance companies (HFCs) with the regulatory standards applied to non-banking finance companies, the Reserve Bank of India (RBI) is set to tighten deposit mobilisation rules for entities such as PNB Housing Finance and LIC Housing Finance.

Simultaneously, the central bank is considering permitting all HFCs to venture into credit card businesses and specific fee-based activities.

Outlined in a draft regulatory framework, the RBI stipulates that HFCs lacking an investment-grade credit rating will be prohibited from raising public deposits or renewing existing ones.

Furthermore, the ceiling on the quantum of public deposits held by deposit-taking HFCs, adhering to prudential norms and maintaining a minimum investment-grade credit rating, will be reduced from three times to 1.5 times of net-owned funds.

While these rules are slated to take effect from January 15, according to the circular, it remains in a draft stage at this point.

Nine HFCs currently allowed for public deposits must maintain 15 per cent liquid assets, up from 13 per cent, aligning with a phased implementation ending March 2025. Full asset coverage for public deposits is mandatory.

With the revised public deposit ceiling at 1.5 times net-owned funds, HFCs exceeding this limit can't raise new deposits or renew existing ones. Excess deposits will run off until maturity.

RBI plans to limit HFCs from raising public deposits for more than five years, down from the current 10 years. Existing deposits over sixty months will follow their repayment profile.

In contrast, RBI permits HFCs to engage in currency futures, options, interest rate futures, and credit default swaps. This empowers HFCs to hedge risks like NBFCs.

HFCs also gain permission to diversify into fee-based activities without risk participation, aligning with NBFC practices.

(KNN Bureau)