Housing Finance Companies (HFCs) play a crucial role in the Indian financial sector by providing credit for housing-related activities. These companies are registered and regulated by the National Housing Bank (NHB), which is a wholly owned subsidiary of the Reserve Bank of India (RBI).
A Housing Finance Company (HFC) is a type of Non-Banking Financial Company (NBFC) engaged primarily in the business of housing finance, which includes providing loans for acquiring, constructing, and renovating residential and commercial properties.
• Must be registered under the Companies Act, 2013
• Must have housing finance as its primary objective
• Must obtain Certificate of Registration (CoR) from NHB
• Must adhere to NHB regulatory norms and guidelines
The NHB was established under the National Housing Bank Act, 1987, to regulate and promote housing finance institutions.
Functions of NHB
• Regulating HFCs to ensure financial stability
• Providing refinance support to eligible institutions
• Developing housing finance markets
• Ensuring consumer protection
Under Section 29A of the NHB Act, 1987, an HFC must meet the following criteria before starting its operations:
Company Registration
• The company must be registered under the Companies Act, 2013 or Companies Act, 1956.
Minimum Net Owned Fund (NOF)
• The company must have a minimum NOF of INR 10 crore.
• This should be certified by a professional auditor.
Business Focus
• At least 60% of total assets must be financial assets.
• At least 50% of total assets must be for housing finance.
Good Governance & Compliance
• The company must maintain good management practices.
• The company should not operate in a manner prejudicial to public interest.
Step 1: Company Incorporation
Register a Private Limited or Public Limited Company under the Companies Act, 2013.
Step 2: Preparing the Business Plan
Prepare a detailed business plan for the next three years, including:
• Objectives
• Projected financials
• Capital adequacy planning
Step 3: Application Submission
Submit an application to NHB, along with:
• Company’s MOA and AOA
• Board Resolution approving registration application
• Details of promoters, directors, and key management personnel
• Certificate of NOF compliance
• Audited financial statements (if applicable)
• Demand Draft of INR 10,000 in favor of NHB
Step 4: Verification & Due Diligence
NHB will scrutinize the application, conduct background verification, and check compliance with regulatory norms.
Step 5: Grant of Certificate of Registration
Upon satisfactory verification, NHB grants a Certificate of Registration (CoR), allowing the company to commence housing finance operations.
Capital Adequacy Requirements
• Maintain a Capital Adequacy Ratio (CAR) of at least 15%.
• Ensure that NOF does not fall below INR 10 crore.
Prudential Norms & Governance
• Operate in accordance with NHB guidelines.
• Maintain transparent financial records.
Deposit Acceptance Regulations
• HFCs with a credit rating above ‘A’ can accept deposits up to five times NOF.
• HFCs with credit rating below ‘A’ can accept deposits up to two times NOF or INR 10 crore, whichever is lower.
• No demand deposits are allowed.
• Maximum interest rate on deposits: 12.5%.
Audit & Reporting Requirements
• Annual submission of audited financial statements.
• Quarterly and Half-Yearly filings related to prudential norms, liquid assets, and risk management.
• Auditor certification ensuring repayment capability.
• NHB must be informed of any changes in management, registered office, or key financials.
• Reserve Bank of India (RBI)
• National Housing Bank (NHB)
• Ministry of Corporate Affairs (MCA)
• Securities & Exchange Board of India (SEBI)
• Asset classification norms
• Financial prudence rules
• Income recognition and deposit regulations
HFC registration may be cancelled if:
• The company ceases operations.
• The company fails to maintain NOF and capital adequacy.
• The company violates NHB guidelines or fails to submit regulatory filings.
| Feature | Banks | Housing Finance Companies (HFCs) |
|---|---|---|
| Deposit Acceptance | Accept demand and term deposits (e.g., savings, current, fixed deposits) | Accept only term deposits; demand deposits are not permitted |
| Regulatory Body | Regulated by Reserve Bank of India (RBI) | Regulated initially by NHB, now under RBI supervision |
| Cheque Facility | Cheque book facility is available | Cheque facility is not available |
| Deposit Insurance | Covered by DICGC for up to ₹5 lakh per depositor | No deposit insurance cover |
| Primary Business Objective | Provide broad banking services including savings, loans, credit cards | Specialize in housing loans and property financing |
| Loan Products | Offer personal loans, education loans, home loans, business loans, etc. | Primarily focused on housing loans and loans against property |
| Branch Network | Wide presence across rural and urban India with ATMs and branches | Limited presence; operate mainly in housing finance sectors |
| Credit Assessment | Rely on detailed credit checks, CIBIL score, income proof, banking history | May offer relaxed credit assessment focused on property and repayment capacity |
Facilitates Housing Loans
• Provides affordable loans for home buyers and real estate developers.
Helps in Redevelopment & Infrastructure Growth
• Provides funds for urban redevelopment, slum rehabilitation, and social housing projects.
Business Expansion & Market Opportunity
• Offers a growing market for financial institutions to expand into housing finance.
With expert assistance from Return Filings, you can ensure a smooth registration and compliance process for your Housing Finance Bank registration in India. For professional assistance, reach out to us on email: info@returnfilings.com or on whatsapp: https://wa.me/919910123091.
A Housing Finance Company (HFC) is a Non-Banking Financial Company (NBFC) that specializes in providing finance for the purchase, construction, or renovation of houses. Their primary business is financing housing, directly or indirectly.
Yes, an HFC is a specific type of NBFC.
The National Housing Bank (NHB) is the primary regulator for HFCs in India. The RBI also plays a role, particularly for certain aspects of NBFC regulation that apply to HFCs.
HFCs are categorized by the NHB based on their ability to accept deposits:
o Deposit-accepting HFCs: Can accept deposits from the public, subject to NHB regulations.
o Non-deposit-accepting HFCs: Cannot accept public deposits. They rely on other funding sources.
HFCs are typically structured as companies, registered under the Companies Act.
Key requirements include:
o Registration as a company under the Companies Act, 2013 (or the previous Companies Act, 1956).
o Meeting the minimum Net Owned Fund (NOF) requirement as specified by the NHB.
o Having a primary objective in its Memorandum of Association (MoA) focused on housing finance.
o Obtaining a Certificate of Registration (CoR) from the NHB.
HFCs are different due to their specialized focus on housing finance and the specific regulations they must adhere to, as stipulated by the NHB.
While all HFCs are NBFCs, they are distinct from other NBFCs because their primary business must be housing finance. Other NBFCs can engage in a wider range of financial activities.
Key differences include:
o HFCs cannot accept demand deposits (checking accounts, etc.).
o HFCs do not form part of the payment and settlement system and cannot issue checks drawn on themselves.
o HFCs are regulated by the NHB, while banks are primarily regulated by the RBI.
The process involves:
o Incorporating a company with “housing finance” as a primary objective.
o Meeting the NOF requirement.
o Applying to the NHB for a CoR.
o Submitting required documents and information.
This question is about Small Finance Banks (SFBs), not HFCs. SFBs are a separate category of banks. HFCs primarily provide housing finance.
HFCs are primarily regulated by the NHB, which is a subsidiary of the RBI. The RBI also has some oversight related to NBFC regulations that apply to HFCs.
The performance of HFCs can fluctuate due to various factors, including:
o Interest rate changes.
o Real estate market conditions.
o Economic downturns.
o Asset quality issues (loan defaults).
o Regulatory changes.
Yes, companies can take housing loans, often for employee housing or for real estate investments. The requirements for company housing loans are different from individual housing loans.
Covered in the registration process details.
Check the latest NHB circulars.
Application shall be made to the NHB.
Regular returns, adherence to NHB guidelines, etc.
Home loans, home improvement loans, etc.
Market conditions, borrower’s creditworthiness, loan tenure, etc.
Deductions on principal and interest payments, subject to limits.
Regulator, supervisor, and promoter of housing finance institutions.
