Budget 2019: RBI will regulate housing finance companies, tighten hold on NBFCs

Budget 2019: RBI will regulate housing finance companies, tighten hold on NBFCs
  • The government is considering the Reserve Bank of India for regulatory job for Non-banking financial institutions, amid rising crisis.
  • Presently, the National Housing Board (NHB) regulates the non-housing financial institutions with an RBI executive director as a board member.

The Finance Minister empowered the RBI to regulate housing finance companies, in her Budget speech today.

"The National Housing Bank (NHB), besides being the refinancer and lender, is also regulator of the housing finance sector. This gives a somewhat conflicting and difficult mandate to NHB. I am proposing to return the regulation authority over the housing finance sector from NHB to RBI. Necessary proposals have been placed in the Finance Bill," she said.

In addition, Sitharaman also gave more teeth to the RBI to regulate non-banking finance companies (NBFCs). And, these measures will be taken up in the Finance Bill.

"Further, RBI is the regulator for NBFCs. However, RBI has limited regulatory authority over them. Appropriate proposals for strengthening the regulatory authority of RBI over NBFCs are being placed in the Finance Bill," said the FM.

This move comes after Shaktikanta Das, the Governor of the Reserve Bank of India, in a press meeting last month said that the central bank could step in to address the ongoing crisis in the non-banking financial institutions.

“We will not hesitate to take steps to ensure the financial stability is not adversely affected,” the governor said, adding that if some action is required, it will be taken.

Das has then said that while housing finance companies do come under RBI’s purview, they are concerned as they have been affecting the financial health of banks, which they regulate.

Last month, one of country’s largest housing finance companies Dewan Housing Finance Limited (DHFL) entered the red zone as it is as ICRA downgraded its debt further to the default zone. It has piled up as much as ₹ 380 billion in debt, and its lenders are considering re-casting the loan.

The housing finance sector is under stress as very few of them are disbursing loans, and many face their own financial problems. There are 82 HFCs in India, but more than 90 per cent of the housing finance market is controlled by top five companies.

India’s central bank is on high alert amid fears of a ₹8.5 billion default by housing finance major