Comprehensive Guide on Housing Finance Company Registration in India

1. Introduction

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).

2. Understanding Housing Finance Companies

2.1 Definition

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.

2.2 Key Features

• 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

3. Role of National Housing Bank (NHB)

The NHB was established under the National Housing Bank Act, 1987, to regulate and promote housing finance institutions.

3.1 Functions of NHB

• Regulating HFCs to ensure financial stability
• Providing refinance support to eligible institutions
• Developing housing finance markets
• Ensuring consumer protection

4. Eligibility Criteria for Housing Finance Company Registration

Under Section 29A of the NHB Act, 1987, an HFC must meet the following criteria before starting its operations:

4.1 Company Registration

• The company must be registered under the Companies Act, 2013 or Companies Act, 1956.

4.2 Minimum Net Owned Fund (NOF)

• The company must have a minimum NOF of INR 10 crore.
• This should be certified by a professional auditor.

4.3 Business Focus

• At least 60% of total assets must be financial assets.
• At least 50% of total assets must be for housing finance.

4.4 Good Governance & Compliance

• The company must maintain good management practices.
• The company should not operate in a manner prejudicial to public interest.

5. Process of Housing Finance Company Registration

5.1 Step 1: Company Incorporation

Register a Private Limited or Public Limited Company under the Companies Act, 2013.

5.2 Step 2: Preparing the Business Plan

Prepare a detailed business plan for the next three years, including:

• Objectives
• Projected financials
• Capital adequacy planning

5.3 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

5.4 Step 4: Verification & Due Diligence

NHB will scrutinize the application, conduct background verification, and check compliance with regulatory norms.

5.5 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.

6. Post-Registration Compliance for HFCs

6.1 Capital Adequacy Requirements

• Maintain a Capital Adequacy Ratio (CAR) of at least 15%.
• Ensure that NOF does not fall below INR 10 crore.

6.2 Prudential Norms & Governance

• Operate in accordance with NHB guidelines.
• Maintain transparent financial records.

6.3 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%.

6.4 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.

7. Regulatory Framework for Housing Finance Companies

7.1 Governing Bodies

• Reserve Bank of India (RBI)
• National Housing Bank (NHB)
• Ministry of Corporate Affairs (MCA)
• Securities & Exchange Board of India (SEBI)

7.2 Key Regulations

• Asset classification norms
• Financial prudence rules
• Income recognition and deposit regulations

8. Situations Leading to Cancellation of HFC Registration

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.

9. Difference Between Banks and Housing Finance Companies

10. Benefits of Registering a Housing Finance Company

10.1 Facilitates Housing Loans

• Provides affordable loans for home buyers and real estate developers.

10.2 Helps in Redevelopment & Infrastructure Growth

• Provides funds for urban redevelopment, slum rehabilitation, and social housing projects.

10.3 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.

11. Additional Resources

For further reading, explore:

• Guide on NBFC Registration in India
• Registration guideline for Housing Co-operative societies registration
• Detailed step-by-step process for Small Finance Bank License
• Understanding on statutory returns and annual compliances for NBFC

Frequently Asked Questions (FAQs) on Housing Finance Company (HFC) Registration in India

A. General Information about HFCs

1. What is a Housing Finance Company (HFC)?

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.  

2. Is a Housing Finance Company an NBFC?

Yes, an HFC is a specific type of NBFC.  

3. What is the main authority that regulates housing finance company registration in India?

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.  

4. What are the different types of housing finance companies?

HFCs are categorized by the NHB based on their ability to accept deposits:

4. • Deposit-accepting HFCs: Can accept deposits from the public, subject to NHB regulations.  
   • Non-deposit-accepting HFCs: Cannot accept public deposits. They rely on other funding sources.
5. What is the type of structure utilized by this entity?

HFCs are typically structured as companies, registered under the Companies Act.  

B. Registration and Requirements

6. What are the requirements for Housing finance company registration?

Key requirements include:

6. • Registration as a company under the Companies Act, 2013 (or the previous Companies Act, 1956).  
   • Meeting the minimum Net Owned Fund (NOF) requirement as specified by the NHB.
   • Having a primary objective in its Memorandum of Association (MoA) focused on housing finance.
   • Obtaining a Certificate of Registration (CoR) from the NHB.
7. How is a housing finance company different from other companies?

HFCs are different due to their specialized focus on housing finance and the specific regulations they must adhere to, as stipulated by the NHB.

8. How is a housing finance company different from other NBFCs?

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.

9. How is a housing finance company different from banks?

Key differences include:

9. • HFCs cannot accept demand deposits (checking accounts, etc.).  
   • HFCs do not form part of the payment and settlement system and cannot issue checks drawn on themselves.  
   • HFCs are regulated by the NHB, while banks are primarily regulated by the RBI.
10. What is the process for HFC registration?

The process involves:

10. • Incorporating a company with “housing finance” as a primary objective.
    • Meeting the NOF requirement.  
    • Applying to the NHB for a CoR.
    • Submitting required documents and information.

C. Operations and Regulations

11. What are the primary activities carried out by a small finance bank?

This question is about Small Finance Banks (SFBs), not HFCs. SFBs are a separate category of banks. HFCs primarily provide housing finance.  

12. Are Housing Finance Companies regulated by RBI?

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.  

13. Why Housing Finance Companies are down?

The performance of HFCs can fluctuate due to various factors, including:

13. • Interest rate changes.  
    • Real estate market conditions.
    • Economic downturns.
    • Asset quality issues (loan defaults).
    • Regulatory changes.
14. Can a company take a housing loan?

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.

D. Other generally asked questions related to Housing Finance Bank registration:

          15.   How do I register a housing finance company in India?

           Covered in the registration process details.

16. What is the NOF requirement for HFCs?

Check the latest NHB circulars.

17. How do I apply for an HFC license?

Application shall be made to the NHB.

18. What are the compliance requirements for HFCs?

Regular returns, adherence to NHB guidelines, etc.

19. What are the different types of housing loans offered by HFCs?

Home loans, home improvement loans, etc.

20. How is the interest rate on housing loans determined?

Market conditions, borrower’s creditworthiness, loan tenure, etc.

21. What are the tax benefits of taking a housing loan?

Deductions on principal and interest payments, subject to limits.

22. What is the role of the NHB in the housing finance sector?

Regulator, supervisor, and promoter of housing finance institutions.