According to section 29A of the National Housing Bank Act, 1987 it is mandatory for each proposed housing finance organization to secure an authentication of enrolment from NHB before commencing activities in the housing finance sector.
HFCs can't lead business of lodging fund without acquiring a Certificate of Registration (CoR) from NHB. Lead of business without acquiring declaration of enlistment is an offense culpable under the arrangements of the National Housing Bank Act, 1987. NHB can likewise document application for ending up of such HFCs, under section 33B of the said Act.
What is Housing Finance Company?
The Housing Finance Company is a sort of Non-Banking Financial Company (NBFC) which is involved in the vital business of "financing of obtaining or development of houses". For the most part, Housing Finance Companies are those kinds of organizations who have the primary object of conveying business of giving money for housing whether straightforwardly or in a roundabout way. They are controlled by the National Housing Bank (NHB).
Regulatory Authority for Housing Finance Company
In the Housing Finance Sector, NBH assumes the most critical job. Regarding incorporation with the debts and capital markets, the housing finance sector in India has entered into the second period of improvement.
To keep up the validity and dependability as far as resource development is concerned, strategy improvement and foundation working of the housing finance sector in the nation, NHB set a viable arrangement of responsive guideline. This purpose behind it is to unhinder 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.
- With the aim to materialize this sector there is a need to conduct 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
Basic Requirements for Obtaining A Housing Finance Company License in India
- In India, Housing Finance Companies are directed by the National Housing Bank (NHB). As per the Section 29A of the National Housing Bank Act, 1987, no HFC will start or carry on the matter of a housing finance without meeting the accompanying conditions –
- An organization must be enlisted under the Companies Act, 2013/1956 and who is eager to begin the matter of a Housing Finance for the community at large;
- It must have the chief object of giving housing loan or housing finance in any structure either legitimately or indirectly;
- There is a prerequisite of least net possessed store of INR 10 crore;
Documents Required for Housing Finance Company Registration in India
- Certified copy of MOA (Memorandum of Association) and AOA (Article of Association);
- Request Draft of Rs. 10,000/ - for NHB, New Delhi;
- Board Resolution indicating the goal of the Company and approval to record Application before NHB;
- Certificate issued by professionals related to meeting the criteria of minimum NOF (Net Owned Fund) of Rs 20 crores;
- Company’s business plan for the next three years;
- Profile of the Company;
- Business profile of MD/Directors/CEO etc;
- Financial audit of last three years, if available;
- Experience certificate of employees and directors;
- Company details in which directors are associated;
Process of Housing Finance Company Registration
For Housing Finance Company Registration, an applicant organization needs to give the physical copy of the application alongside the important documents which are referenced above to the Head Office of the "National Housing Bank" alongside the Demand Draft of INR 10,000/ - for National Housing Bank payable at New Delhi. Our team of master experts can support you and can make the procedure simple for you.
Conditions Related to the grant of Housing Finance Company License by NHB
When registration application is submitted, NHB (National Housing Board) will review the application and award a Certificate of Registration after appropriate background verification and satisfaction of following conditions according to sub-section (4) of Section 29A of NHB act, 1987:
- HFC should be in position to pay its present and future depositors whenever their claim arises.
- Housing Finance Company should not conduct business affairs that will hamper the interest of its present or future depositors.
- Make sure HFC has enough capital structure and better earnings prospects.
- It is the responsibility of HFC to serve the public interest on receiving the certification of registration.
Some other condition, satisfaction of which in the assessment of the NHB, will be important to guarantee that the initiation of or carrying on the business in India by a HFC will not be biased keeping the interest of the depositors.
How Housing Finance Companies Are Different from Banks?
The activities of banks and HFCs are similar as both are associated with loaning and making ventures, however there are a couple of contrasts as given beneath:
- HFCs can't acknowledge request stores;
- HFCs don't frame some portion of the payment and settlement system and can't give checks drawn on itself;
- Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation isn't accessible to contributors of HFCs, in contrast to banks
Conditions Pertaining to the Cancellation of the Housing Finance Company License
NHB has the authority to cancel the certificate of registration issued to a housing finance company in some cases when such HFC failed to met with the directions given by NHB or NHB act.
Cancellation Is Subject To Certain Provisions, If Such Company
- Ceases to carry on the business of finance in India
- In case, HFC has failed to comply with the below-mentioned terms and conditions provided by the NHB
- to follow any directions gave by the National Housing Bank under the provision of Chapter V of the National Housing Bank Act 1987; or
- to keep up accounts as per the necessity of any law or any course or request gave by the National Housing Bank under the arrangements of Chapter V of the National Housing Bank Act 1987; or
- Obligatory to submit its books of records and other pertinent documents according to NHB Act, when it is requested by an examining authority of the National Housing Bank; or
- Has been precluded from accepting deposits by a request made by the National Housing Bank under the arrangements of this Chapter V of the National Housing Bank Act, 1987 and such request has been in power for a time of at the very least 3 months.
Post-Incorporation formalities for Housing Finance Company
On receiving certificate of registration, following are the formalities that a housing finance company has to fulfil for smooth functioning:
- Updation in loan processes
- Updation in loan policies, including appraisal techniques and tools
- Development in IT infrastructure
- Board Structure
- Product Development
- Drafting policies and organizational structure
- Resource Mobilization
- Legal Operations
- Scoring Model
- MIS format
- NHB regulatory and compliance requirements
- Credit Risk Management
Mandatory Compliances for Housing Finance Companies towards NHB
- It is required for each HFC to file a yearly return, half yearly return and quarterly return in regard of prudential standards, maintain liquid assets respectively;
- Yearly submission of the auditor’s certificate, affirming the capacity of the HFC to repay deposits;
- A copy of the budget report and yearly report;
- Documenting a copy of the promotion requesting public deposits or articulation in lieu thereof.
- HFCs need to follow the IND-AS provisions.
- Net Owned Fund 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;
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%