NHB notification asks housing finance companies to increase liquid assets

Housing finance companies asked to improve their liquidity.
The National Housing Bank (NHB) has asked deposit-taking housing finance companies (HFCs) to slightly increase their liquid assets, stepping in as some sector players face a liquidity crisis.

The NHB, through a notification issued on May 25, has asked HFCs to keep 6.5 per cent of the public deposits in debt-free securities, instead of the 6-per cent limit earlier.

HFCs have to in keep 13 per cent as liquid assets--instead of 12.5 per cent earlier--with the remaining share of public deposits to be kept in the form of term deposits or certificate of deposits or in bonds issued by the NHB.

“The move is aimed to hedge the risk of public deposits in these HFCs,” said a finance ministry official. There are 18 HFCs accepting public deposits including ICICI Home Finance Company Ltd, PNB Housing Finance Ltd., L&T Housing Finance Limited, among others.

The NHB notification came four days after cash-stripped Dewan Housing Finance Ltd (DHFL) announced it has stopped accepting fresh public deposits and renewal of existing deposits. DHFL’s credit rating was downgraded last week after the company missed an interest payment deadline on a set of non-convertible debentures.

The NHB is also looking at replicating the Reserve Bank of India’s recent circular asking large non-banking financial companies (NBFCs) to maintain a liquidity coverage ratio (LCR) in line with banks and carry enough collateral that can be used for liquidity needs, starting from April 1 next year.

“We are looking at how we can issue a directive in line with the RBI’s circular for the housing finance companies,” the official said.

The NHB has held a series of meetings recently to deliberate upon the ways to strengthen the regulatory norms for HFCs. Though the NHB is not empowered to place its executive on the board of HFCs,

Recently, NHB directed HFCs with asset size of more than Rs 5,000 crore to appoint a chief risk officer (CRO) in a bid to improve risk management practices. The move followed a similar direction given by the RBI for NBFCs.

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