RBI to regulate housing finance companies and review assets: report
MUMBAI / NEW DELHI : India will soon give the Reserve Bank of India (RBI) the power to regulate housing finance companies (HFCs), which will almost certainly lead lenders to face rigorous asset quality reviews, have said two sources with direct knowledge of the matter.
This could have a major impact on around 80 HFCs, the largest of which include Indiabulls Housing Finance Ltd, Housing Development Finance Corporation and Dewan Housing Finance Corporation, causing them to face unprecedented scrutiny and the possibility of significant financial penalties. and restrictions on their activities in the event of a mismatch. practices are discovered.
In late 2015, the RBI launched a similar review of bank assets amid allegations that lenders were hiding the extent of bad debts on their books.
During several bank asset quality reviews, the RBI revealed a plethora of areas where lenders underreport their bad debts. This initially resulted in financial penalties for some lenders and eventually resulted in decisions to place tighter restrictions on their loan portfolios while their bad debts remained high.
Housing finance companies, which are part of the larger shadow banking sector known as non-bank finance companies (NBFCs), are currently regulated by the National Housing Board, and the central bank has no direct authority over they.
The other NBFCs are very lightly regulated, with various regulators, including the RBI, playing some role but no one being fully responsible.
The RBI’s oversight of HFCs will be a step towards a firmer grip by Indian authorities over the risky shadow banking sector, which will help contain any systemic problems.
A spate of defaults last year by a large infrastructure finance group, Infrastructure Leasing and Financial Services (IL&FS), showed that much of the industry was heavily in debt.
“There will be a substantial improvement in the regulation and supervision of all entities, including NBFCs and HFCs once the RBI has direct control over housing finance companies,” said one of the sources.
On Monday, Finance Minister Nirmala Sitharaman said the government was considering giving more powers to the central bank to regulate the ailing shadow banking sector, although it was not specific.
A government official, who declined to be named, was more explicit in his comments on Wednesday. “The government is considering giving more regulatory powers to the RBI to regulate housing finance companies. At present, they do not have any.”
One of the sources said the central bank is seeking more regulatory powers so that it can be more effective in dealing with liquidity shortages in the sector, which have affected lending and the economy in general.
The Reserve Bank of India declined to comment on this development.
As credit rating agencies downgraded the ratings of some of the housing finance companies, this fueled credit risk fears and hampered their ability to raise funds for more loans. This made it difficult for consumers and small businesses to obtain loans and, among other things, hurt sales of cars and motorcycles.
The bankruptcy of a large Indian non-bank financial company could cause as much damage as the collapse of a large commercial lender, the RBI said last week, stressing the need for more oversight of these companies.
The government and the RBI have so far refused to provide direct financial support to financially troubled NBFCs. But having regulatory powers over HFCs could make it easier for the RBI to open lines of credit for these companies if needed, two of the three sources said.
The National Housing Council was controlled by the RBI before the government took control of the housing finance regulator on April 29. The transfer of regulatory powers to the RBI will take place later in the year, however, as this will require an amendment to the RBI law, the government official said.
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