National Housing Bank plans stronger capital norm for housing finance companies

National Housing Bank (NHB) is planning to raise long term capital requirement for housing finance companies (HFCs) to guard against their liquidity and solvency risks. The housing regulator has proposed to raise their capital adequacy ratio to 13% by March 2020 from 12% now as a fallout of the IL&FS-led crisis which forced several specialised home loan lenders, especially the smaller one, to slow down business to preserve liquidity.

The draft amendments have proposed raising the CAR to 15% in a staggered manner by March 2022, while suggested a higher cap on borrowing. “HFCs are exposed to risks arising out of counter party failures, funding risks and risks pertaining to liquidity and solvency as any other financial sector player. There is thus a need for a review of the regulatory framework of HFCs,’ NHB said in a note to stakeholders. Most of the bigger HFCs carry sufficient capital to meet the proposed norm, experts tracking the sector said.