Housing Finance Company Registration- An Overview
In order to provide loans and speed up the process of housing construction, the government brought out the National Housing Bank Bill in 1987. With this bill the main authority formed was the National Housing Bank which is a body present under the RBI. An applicant going for Housing Finance Company registration would have to register with the National Housing Bank (NHB). With this the applicant would have to follow the eligibility criteria for Housing Finance Company Registration.
A Housing Finance Company is an entity which is registered under the provisions of the Companies Act, 2013 or previous company law (Companies Act, 1956). Such company is termed as a Non Banking Finance Company, whose main business activities are providing finance and loans for housing and construction projects.
There are specific conditions which have to be sufficed by the applicant for Housing Finance Company Registration:
- The activities which are carried out by the registered entity has financial assets that constitute 60% of the total assets.
- 50% of the total assets must be for financing of houses for individuals Housing Finance means the following type of activities:
- Providing loans to individuals and societies for the purposes of construction and finance activities
- Providing Financial Options for construction of dwelling and residential complexes
- Mortgaging Any form of existing dwelling complexes for providing loans to new dwelling complexes
- Loans to individuals having a declaration, that the loan would be utilised for the purposes of constructing the premises in the specific plot within a period of three years. This period would be calculated as three years from the time of availing the loan.
- Loans for reconstruction and renovation of housing complex
- Lending to any form of public institution
- Loans for employee housing- For Corporate
- Any loans for construction of education, infrastructure, health, social and cultural sectors
- Loans for construction and development of slums. Such loans would be provided directly to the slum on a guarantee given by the respective Central Government or State Government
- Loans to Builders.
Such requirements have to be satisfied by the applicant for housing finance company registration. For the purposes of regulation, housing finance companies would be treated as a Non Banking Financial Company under the purview of the Reserve Bank of India (RBI). All housing finance companies which are registered with the NHB would have to comply with the requirement of the NHB.
The RBI brought out certain guidelines on Housing Finance Companies and all companies which are registered would have to follow the above requirements.
Benefits of Housing Finance Company Registration
The following are the benefits of housing finance company registration:
- Providing Housing Loans to Individuals
Such companies are registered and formed for the main purpose of providing housing loans to individuals.
- Provide Housing Loans to Companies
These companies would also provide housing loans for companies to lease out premises to employees.
Such companies can carry out redevelopment activities such as development of slums and rural areas.
Eligibility Criteria for Housing Finance Company Registration
As per the Section 29A of the National Housing Bank Act, 1987, no HFC will start or carry on the matter of a housing finance without meeting the accompanying conditions. The following eligibility criterion has to be considered for Housing Finance Company Registration:
The housing finance company must be registered under the provisions of the Non Banking Financial Company.
- Net Owned Fund (NOF)
The Net owned fund of the Housing Finance Company must be 20 Crores. Hence an applicant has to satisfy the net worth requirement for Housing Finance Company Registration.
- Registration under Companies Act 2013/1956
The Company has to satisfy the requirements of an entity under the Companies Act, 2013 or the Companies Act, 1956.
The objects of this form of company must be for financing housing and other commercial complexes. Apart from providing finance, the company must also have the prospects of earning. The management must act in the good faith of the public and other consumers. They must act in the interests of the public.
Procedure for Housing Finance Company Registration
The following procedure must be followed by the applicant for housing finance company registration:
- First the applicant has to download the application form for Housing Finance company registration from the website nhb.org.in.
- All the documents have to be attached along with the application. The demand draft in Favour of the NHB also must be attached. This must be submitted in the Head Office of the NHB.
- The NBH would check the authenticity of the application. If the documents provided are sufficient then the NBH would go ahead and register the housing finance company.
The following documents are required for Housing Finance Company Registration:
- Board Resolution Passed by the Company
- MOA and AOA of the company. These have to be copies
- Minimum NOF proof of Rs. 20 Crore
- Information and proof of the source of funds
- Business Plan for three years for the company
- Information on financials- Audited financial report for the past three years
- Information on the Directors of the Company- Qualifications and Experience
- If the Directors have any other roles in other organisations, then information on the same must be provided
- DD in Favour of the NBH payable at New Delhi.
What are the conditions pertaining to the grant of Housing Finance Company Registration by NHB?
Once a registration application is submitted, NHB (National Housing Board) will review the application and grant a Certificate of Registration after proper background verification and fulfilment of following conditions as per sub-section (4) of Section 29A of NHB act, 1987:
- HFC is or shall be in a position to pay its present or future depositors in full as and when their claims accrue.
- The Business Affairs of the Housing Finance Company are not being or are not likely to be conducted in a manner adverse to the interest of its present or future depositors.
- The operations and policy of the company should not be against the public interest or against the interest of the depositors.
- HFC has sufficient capital structure and better earnings prospects.
- Public interest shall be served, once the certificate of registration is granted to the HFC to commence or carry on the business in India.
- Any other condition, fulfilment of which in the opinion of the NHB, shall be necessary to ensure that the commencement of or carrying on the business in India by an HFC shall not be prejudicial to the public interest or in the interests of the depositors.
What are the conditions pertaining to the cancellation of the Housing Finance Company License by the NHB?
NHB may cancel a certificate of registration granted to a housing finance company in some of the circumstances when such HFC failed to comply with the directions of NHB or NHB act.
However, cancellation is subject to certain provisions, if such company:
- Ceases to carry on the business of financing in India; or
- HFC has not complied with the below-mentioned terms and condition prescribed by the NHB:
• to comply with any direction issued by the National Housing Bank under the provisions of Chapter V of the National Housing Bank Act 1987; or
• to maintain accounts in accordance with the requirement of any law or any direction or order issued by the National Housing Bank under the provisions of Chapter V of the National Housing Bank Act 1987; or
• Mandatory to submit its books of accounts and other relevant documents as per NHB Act, when it is demanded by an inspecting authority of the National Housing Bank; or
• Has been prohibited from accepting deposit by an order made by the National Housing Bank under the provisions of this Chapter V of the National Housing Bank Act, 1987 and such order has been in force for a period of not less than 3 months.
What are the post-incorporation formalities for Housing Finance Company Registration?
Once a certificate of registration is obtained, housing finance companies need to complete the following post incorporation formalities for smooth functioning:
- Development of loan processes;
- Development of loan policies, including appraisal techniques & tools;
- Development of IT Infrastructure;
- Board Structure;
- Organizational Structure and Drafting of Policies;
- Product Development;
- Legal Operations;
- NHB regulatory and compliance requirements;
- Resource Mobilization
- Credit Risk Management;
- Scoring Model;
- MIS format;
What are the mandatory compliances Housing Finance Company Registration?
Here are following compliances need to be adhered for Housing Finance Company Registration:
- It is required for every HFC to file an annual return, half yearly return and quarterly return in respect of prudential norms, maintenance of liquid assets respectively;
- Annual submission of the auditor’s certificate, certifying the capability of the HFC to repay deposits;
- Copy of the financial statement and annual report;
- Timely return in respect of change in registered office, change in directors etc;
- Filing a copy of the advertisement soliciting public deposits or statement in lieu thereof;
- HFCs have to comply with the IND-AS provisions.
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