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.
