The proposal to stipulate minimum exposure criteria to housing finance for recognition as a housing finance company (HFC) could have ramifications for companies such as Piramal Capital and Housing Finance Ltd, Reliance Home Finance Ltd, and Dewan Housing Finance Corporation Ltd.

As per changes proposed by the Reserve Bank of India to the HFC regulatory framework, only those entities with at least 50 per cent exposure in ‘qualifying assets’ (housing finance) will be treated as HFCs. Of this, at least 75 per cent should be towards individual housing loans.

As at March-end 2020, the share of housing finance loans in overall loans for Piramal Capital and Housing Finance Ltd stood at 11 per cent.

Reliance Home Finance Ltd (RHFL), which is under severe financial stress, during FY20, said the that its proportion of non-housing loans is higher than housing loans.

As per RHFL’s annual report, there is a material shift in primary business of the company from housing finance to non-housing finance which comprise more than 50 per cent of total loan portfolio, raising concern about the company continuing as a HFC.

Lenders have entered into an inter-creditor agreement (ICA) for resolution of RHFL’s debt.

Scam-hit Dewan Housing Finance Corporation Ltd’s home loan portfolio would now be around 40 per cent of its overall portfolio. The company is undergoing corporate insolvency resolution process (CIRP).

Going by the proposed RBI criteria for HFCs, the three aforementioned companies will have to re-balance their loan portfolio to continue to have the HFC tag and avail themselves of re-finance from the National Housing Bank.

According to the central bank, HFCs which do not fulfil the above criteria will be treated as NBFC- Investment and Credit Companies (NBFC-ICCs) and will be required to approach RBI for conversion of their Certificate of Registration from HFCs to NBFC-ICC.

Entities interested in buying DHFL under CIRP and lenders resolving RHFL’s debt under ICA will have to weigh the possibility of the proposed criteria becoming a reality.

ICICI Securities, in a report, said most of the listed HFCs pass the muster with respect to 50 per cent qualifying asset requirement and 75 per cent of that being individual loans.

“These proposed guidelines are not disruptive to the way listed HFCs are currently operating but it does seek to streamline regulations in a defined manner and reduce the regulatory arbitrage which HFCs have traditionally had over their NBFC counterparts,” said ICICI Securities research analysts Kunal Shah, Abhijit Tibrewal, Renish Bhuva and Sandeep Joshi.

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