In this Flash editorial, the author begins by referring the provisions of National Housing Bank, Housing Finance Companies. Author tries to discuss the conditions for registration of Housing Finance Company with NHB. It is worth noting that amidst the gradual development of demand in the housing finance sector, the corporate houses have made a significant move in order to grab the win-win situation.
One of the Primary needs of any human being is ‘House’. A house is where new dreams are born and are nurtured, thus making it one of the most basic needs for survival.
The Hon’ble Prime Minister of India, while presenting the Union Budget for 1987-88 on 28 February 1987 announced the decision to establish the National Housing Bank (NHB) as an apex level institution for housing finance. Following that, the National Housing Bank Bill (91 of 1987) providing the legislative framework for the establishment of NHB was passed by Parliament in the winter session of 1987 and with the assent of the Hon’ble President of India on 23 December 1987, became an Act of Parliament. NHB was set up on 9 July 1988 under the National Housing Bank Act, 1987.
NHB is wholly owned by Reserve Bank of India. NHB has been established with an objective to operate as a principal agency to promote housing finance institutions both at local and regional levels and to provide financial and other support incidental to such institutions and for matters connected therewith. NHB registers, regulates and supervises Housing Finance Company (HFCs).
Basics about National Housing Bank:
- The head office of the National Housing Bank shall be at Bombay or at such other place as the Reserve Bank may, by notification, specify.
- The authorized and paid up capital of the National Housing Bank shall be three hundred and fifty crores of rupees
- The National Housing Bank shall have free access to all such records of any institution which seeks to avail of any credit facilities from the National Housing Bank and to all such records of any person who seeks to avail of any credit facilities from such institution, the perusal of which may appear to the National Housing Bank to be necessary in connection with the providing of finance or other assistance to such institution or the refinancing of any loan or advance made to such person by that institution.
Housing Finance Company
♦ What is Housing Finance Company?
A Housing Finance Company is a company registered under the Companies Act, 1956 (1 of 1956) which primarily transacts or has as one of its principal objects, the transacting of the business of providing finance for housing, whether directly or indirectly.
♦ For commencing the housing finance business, an HFC is required to have the following in addition to the requirements under the Companies Act, 2013:
1. Certificate of registration from NHB
2. Minimum net owned fund of Rs. 1000 lakhs ( w.e.f. 01.04.2014)
♦ Type of HFC
HFCs are categorized in terms of the type of liabilities, by NHB, into Deposit and Non-Deposit accepting HFCs and are issued Certificate of Registration accordingly.
♦ Condition for acceptance of deposit by HFC
Companies commencing the business of housing finance can accept public deposits only after:
a. Obtaining certificate of registration from NHB valid for acceptance of deposits; and
b. Having minimum net owned funds (NOF) of rupees ten crores or more.
♦ Ceiling on acceptance of deposit by HFC
◊ HFCs having credit rating from approved credit rating agencies not below ‘A’ and complying with all prudential norms requirements can accept deposit not exceeding five times of its net owned fund.
◊ he HFCs having no credit rating can accept deposit only upto two times of its net owned fund or rupees ten crores whichever is lower provided such HFC complies with all prudential norms and also has capital adequacy ratio of not less than fifteen percent as per the last audited balance sheet.
♦ Ceiling on the rate of interest which can be offered by an HFC on public deposits
On and from 6th July, 2007 no housing finance company shall invite or accept or renew any public deposit at a rate of interest exceeding twelve and half per cent per annum such interest being payable or compounded at rests which should not be shorter than monthly rests.
♦ HFCs are doing functions similar to banks as banks also provide housing loans. What is difference between banks & HFCs?
HFCs lend and make investments and hence their activities are akin to that of banks. However, there are a few differences as given below:
(i) HFCs cannot accept demand deposits;
(ii) HFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself;
(iii) deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of HFCs, unlike in case of banks.
Future of Housing Finance Companies (HFC):
According to the report of Technical group on Urban Housing shortage in India (2012- 17), India will need 18.8 million housing units in the city alone out of which more than 95% are in Economically Weaker Section/Lower Income Group.
The above projection by NHB makes it clear that in the times to come there is a huge scope for HFCs to grow and the trend shall be bullish.
Requirements for registration with NHB:
A Company registered under the Companies Act, 2013 and desirous of commencing business of a housing finance institution, should comply with the following-
(i) either it should primarily transacts or has as one of its principal objects of transacting the business of providing finance for housing, whether directly or indirectly; and
(ii) it should have a minimum net owned fund of Rs. 10 crore.
NHB, after its satisfaction on the fulfillment of following conditions (given below) provided
under sub-section (4) of Section 29A of the National Housing Bank Act, 1987 by a company,
may grant a Certificate of Registration.
(i) HFC is or shall be in a position to pay its present or future depositors in full as and when their claims accrue;
(ii) Affairs of the HFC are not being or are not likely to be conducted in a manner detrimental to the interest of its present or future depositors;
(iii) General character of the management or the proposed management of the HFC shall not be prejudicial to the public interest or to the interests of its depositors;
(iv) HFC has adequate capital structure and earning prospects;
(v) Public interest shall be served by the grant of certificate of registration to the HFC to commence or carry on the business in India;
(vi) Grant of certificate of registration shall not be prejudicial to the operation and growth of the housing finance sector of the country; and
(vii) Any other condition, fulfillment of which in the opinion of the NHB, shall be necessary to ensure that the commencement of or carrying on the business in India by a HFC shall not be prejudicial to the public interest or in the interests of the depositors.
♦ Condition to be satisfied by the HFC u/s 29A:
(a) that housing finance institution is or shall be in a position to pay its present or future depositors in full as and when their claims accrue;
(b) that the affairs of the housing finance institution are not being or are not likely to be conducted in a manner detrimental to the interest of its present or future depositors;
(c) that the general character of the management or the proposed management of the housing finance institution shall not be prejudicial to the public interest or the interests of its depositors;
(d) that the housing finance institution has adequate capital structure and earning prospects;
(e) that the public interest shall be served by the grant of certificate of registration to the housing finance institution to commence or to carry on the business in India;
(f) that the grant of certificate of registration shall not be prejudicial to the operation and growth of the housing finance sector of the country; and
(g) any other condition, fulfilment of which in the opinion of the National Housing Bank, shall be necessary to ensure that the commencement of or carrying on the business in India by a housing finance institution shall not be prejudicial to the public interest or in the interests of the depositors.
♦ Process of filing of Application:
The applicant company is required to submit a physical copy of the application (in duplicate) along with the essentials documents to the Head Office of the National Housing Bank. Further, Company is also required to attach a Demand Draft for Rs. 10,000 favoring National Housing Bank payable at New Delhi.
♦ What are the provisions for regulation of HFCs under the National Housing Bank Act, 1987?
- The provisions for regulation of the HFCs as provided under the NHB Act, 1987 are:
- Requirement of Registration and Net Owned Fund
- Maintenance of percentage of assets in specified securities
- Creation of Reserve Fund by the HFCs
- Regulation or prohibition of issue of prospectus or advertisement soliciting deposits
- Determination of Prudential Norms for HFCs
- Collection of information as to deposits and to give directions
- Issue of directions to the auditors of the HFCs relating to financial statements and disclosure requirements
- Prohibition of acceptance of deposits and alienation of assets
- Penalty for violation of the provisions of the Act or the directions issued thereunder. Filing of winding up petition against erring HFCs.
Maintenance of percentage of ASSETS:
Every housing finance Company shall invest and continue to invest in India in unencumbered approved securities, valued at a price not exceeding the current market price of such securities, an amount which, at the close of business on any day, shall not be less than five per cent. or such higher percentage not exceeding twenty-five percent. as the National Housing Bank may, from time to time and by notification, specify, of the deposits outstanding at the close of business on the last working day of the second preceding quarter
Every such housing finance Company to furnish a return to it in such form, in such a manner and for such period as may be specified by the National Housing Bank.
Every housing finance institution which is a company shall create a reserve fund and transfer therein a sum not less than twenty per cent. of its net profit every year as disclosed in the profit and loss account and before any dividend is declared
Appropriation of Fund:
Any appropriation of funds from reserve fund shall be reported to the National Housing Bank within twenty-one days from the date of such withdrawal.
The returns/ statements required to be submitted by the HFCs to NHB are enumerated below:
◊ Annual Return
◊ Half-yearly Return on Prudential Norms
◊ Quarterly Return on maintenance of Liquid Assets
◊ Auditor’s Certificate on annual basis certifying the capability of the HFC to repay deposits
◊ Copy of financial statements / Annual Report
◊ Returns on changes pertaining to address of the registered office of the HFC, its Directors etc.
◊ Filing a copy of the advertisement soliciting Public Deposits or statement in lieu thereof
In every report of the Board of Directors there shall be included, the following particulars or information, namely
◊ The total number of accounts of public deposit of the housing finance company which have not been claimed by the depositors or not paid by the housing finance company after the date on which the deposit became due for re-payment; and
◊ The total amounts due under such accounts remaining unclaimed or unpaid beyond the dates referred to in clause (a) as aforesaid.
Constitution of Audit Committee :
A housing finance company having assets of Rs 50 crore and above as per its last audited balance sheet shall constitute an Audit Committee consisting of not less than three non-executive Directors of the Board
(Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at email@example.com)
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