Compliance of Housing Finance Companies in India

31 Aug, 2020

In India, Housing Finance Companies (HFCs) are regulated by the National Housing Bank (NHB), while bank lending to housing is governed by the Reserve Bank of India (RBI). These housing finance companies need to adhere list of compliances for their operations. In this blog, we will discuss the compliance of housing finance companies in detail.

What are the Compliances of Housing Finance Companies?

For Housing Finance Companies, there are various compliances that need to be followed timely. We have divided these compliances into two categories:

Pre-Incorporation Compliances
Post-Incorporation Compliances

Now let’s discuss both in detail;

Pre Incorporation Compliances of Housing Finance Company

Following are the pre-incorporation compliances:

1.	The first step is to make an application to the national housing bank for the setting up of a housing finance company. The application must include the points mentioned below- You need to prepare the application and collect all the documents to be submitted to national housing bank You have to make a business plan and projections for the prospective housing finance company, you want to start. There is a requirement of liaisoning with the NHB and all the relevant authorities.
2.	Before the receipt of COR (Certificate of registration), there has to be guidance during NHB audit, inspection, and other important processes.
3.	There has to be advisory for the appropriate structure of the board

Post Compliances of Housing Finance Companies

Once the housing finance company is incorporated, here are the following compliances that need to be followed:

1.	You need to recommend, validate and develop/re-engineer the loan process
2.	Recommendation and development or validation of loan policies. In this, you need to include the appraisal techniques and tools.
3.	Development of a product
4.	You need to develop a proper IT infrastructure
5.	There has to be the management of credit risk
6.	There has to be a scoring model in a housing finance company
7.	You have to recruit the CEO /HoDs for a housing finance company. It needs the participation of every valuable member of the company
8.	There is a need to have a proper organizational structure and HR policies
9.	Resource mobilization
10.	Scoring Model
11.	MIS (Management Information System) Format
12.	Legal operations

What is the mandatory compliance for Housing Finance Companies towards NHB?

1.	Every HFC have to file Annual Returns, half yearly return on prudential norms, quarterly returns on maintenance of liquid assets
2.	You need to submit the Auditor’s certificate on annual basis certifying the capability of the HFC to repay deposits
3.	Copy of Financial statements/ Annual report
4.	Returns on changes pertaining to the address of the registered office of the HFC, its director etc
5.	Filing a copy of the advertisement soliciting public deposits or statement in lieu thereof

Compliance Requirement with International Financial Reporting Standards (IFRS)

Additionally, the National Housing Bank (NHB^[1]) has directed Housing Finance Companies (HFC) to comply with IND-AS provisions. IND-AS is basically a set of accounting norms developed by Indian authorities, which coincides with the International Financial Reporting Standards (IFRS).

READ All about registration of Housing Finance Company with NHB

In accordance with the directions issued by the National Housing Bank (NHB), Housing Finance Companies (HFC) has to comply with the provisions of IND-AS= as notified by the Ministry of corporate affairs.

What if the HFC doesn’t comply with the provisions of the Act or the Housing Finance Companies (NHB) Directions, 2001?

If the HFC fails to comply with the regulations, in that case, NHB can take the following actions-

1.	NHB can issue specific directions to prohibit the acceptance of deposits and alienation of assets
2.	It may also cancel your certificate of certification
3.	HFCs may be asked to file the application to end the life of the company
4.	NHB can impose financial penalties on HFC and their principal officers
5.	NHBs will file the complaints before the magistrate, to state the reason for imposing the penalty

As we have already discussed in the beginning, Housing Finance Companies are regulated by the National Housing Bank, so let’s discuss the role National Housing Bank in connection with the Housing Finance Companies in India.

Role of National Housing Bank (regulatory authority) towards House Finance Companies in India

You have to follow certain guidelines to participate in the equity of housing finance companies.

National Housing Bank plays a promotional role in issuing these guidelines and guaranteeing the bonds to be issued by the housing finance companies.
For the development of management capabilities of officials working in the financial sectors, NHB keeps on holding regular training programs.
NHB has also released guidelines for prudential norms for income recognition, asset classification etc
National housing bank performs the task of regulating the deposit-taking activity of the housing finance company
In accordance with the section 29A of the National Housing Bank Act, 1987, it is mandatory for every housing finance company to obtain the registration certificate from before operating the business related to housing finance.

READ How to File Complain Against a Housing Finance Company?

Safeguard Provisions for depositors under the NHB Act, 1987 and Housing Finance Companies (NHB) directions, 2001

Following are the Safeguard Provisions for depositors under the NHB Act, 1987 and Housing Finance Companies (NHB) directions, 2001

Impose a limit on the amount that can be accepted by an HFC
Imposing a limit on the rate of interest on the deposits
Provision for nomination facility/to nominate somebody (to operate at the time of your absence)
The requirement of disclosures to the depositors regarding the whereabouts of the company
Imposing a limit on the brokerage to be paid by HFC for raising deposits
If HFCs fail to repay the deposits, they are not allowed to alienate their assets
HFCs have to maintain the liquidity of the Assets
There has to be a collection of reserve funds
NHB collects the data on a periodical basis to verify the compliance with the provision of the NHB Act and directions by HFC to validate its implementation

Conclusion

Housing Finance Company is a huge entity in itself. Operating a Housing Finance Company is a task, so to make sure that these companies work hassle-free. Enterslice can make the compliance process easy & uncomplicated for you. For more information, please contact.

Read our article:Framework for Housing Finance Companies as per RBI

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