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 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.
A Yes, an HFC is a specific type of NBFC.
A 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.
A HFCs are categorized by the NHB based on their ability to accept deposits:
• 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.
A HFCs are typically structured as companies, registered under the Companies Act.
A Key requirements include:
• 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.
A HFCs are different due to their specialized focus on housing finance and the specific regulations they must adhere to, as stipulated by the NHB.
A 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.
A Key differences include:
• 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.
A The process involves:
• 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.
A This question is about Small Finance Banks (SFBs), not HFCs. HFCs primarily provide housing finance.
A 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.
A The performance of HFCs can fluctuate due to various factors, including:
• Interest rate changes.
• Real estate market conditions.
• Economic downturns.
• Asset quality issues (loan defaults).
• Regulatory changes.
A 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.
A Covered in the registration process details.
A Check the latest NHB circulars.
A Application shall be made to the NHB.
A Regular returns, adherence to NHB guidelines, etc.
A Home loans, home improvement loans, etc.
A Market conditions, borrower's creditworthiness, loan tenure, etc.
A Deductions on principal and interest payments, subject to limits.
A Regulator, supervisor, and promoter of housing finance institutions.
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