Finance & Accounting

Regulatory for Home credit finance India

Credit is one of the contractual arrangement in which a debtor accepts the value now & approves to repay the creditor at some date in the future, usually with interest. Credit also denotes to an accounting entry that either decreases assets or increases liabilities and equity on the company’s balance sheet. Housing finance is a model which can differ across continents, regions & countries, particularly in terms of the areas it covers. For instance, what is understood by the term housing finance in a developed country may be very different to what is understood by the term in a developing country. The Sector of housing finance is a wide-ranging topic, the idea of which can vary across continents, regions & countries, mostly in terms of the areas it covers. Housing finance brings together complex & multi-sector issues that are driven by constantly changing local features, such as a country’s legal environment or culture, economic makeup, regulatory environment, or political system. The drive of a housing finance system is to offer the funds which home-based purchasers require to acquire their homes. This is a simple objective, & the number of ways in which it can be achieved is limited. However, this basic ease, in a number of countries, mainly as a result of government action, very complex housing finance systems have been developed. However, the vital feature of any system, that is, the ability to channel the funds of investors to those purchasing their homes, must remain.

The Housing Finance Company is an additional form of Non-Banking Financial Company (NBFC) which is involved in the principal business of financing of acquisition or construction of houses that comprises the development of plots of lands for the construction of new houses. An HFC is a company which generally carries on the business of housing finance or has one of its main object clause in the Memorandum of Association (MOA) of carrying on the business of providing finance for the housing.

Governing and Regulatory Bodies for Housing Finance Sector in India

• Reserve Bank of India (RBI)
• National Housing Bank (NHB)
• National Bank for Agriculture and Rural Development (NABARD)
• Securities and Exchange Board of India (SEBI)
• Ministry of Corporate Affairs (MCA)

National Housing Bank (NHB) Regulations on Housing Finance Institutions in India

In terms of Section 29A of the National Housing Bank Act, 1987, no Housing Finance Company (HFC) shall commence or carry on the business of a housing finance institution without –

• Obtaining a certificate of registration from National Housing Bank
• Having the net owned fund of INR 10 crore

A company registered under the Companies Act, 1956 and desirous of commencing business of a Housing Finance Institution, should comply with the following-

• Either it should primarily transact or has as one of its principal objects of transacting the business of providing finance for housing, whether directly or indirectly; and
• It should have a minimum net owned fund of INR 10 crore.

NHB, after its satisfaction on the fulfillment of following conditions provided under sub-section (4) of Section 29A of the National Housing Bank Act, 1987 by a company, may grant a Certificate of Registration.

• HFC is or shall be in a position to pay its present or future depositors in full as and when their claims accrue;
• Affairs of the HFC are not being or are not likely to be conducted in a manner detrimental to the interest of its present or future depositors;
• General character of the management or the proposed management of the HFC shall not be prejudicial to the public interest or to the interests of its depositors;
• HFC has adequate capital structure and earning prospects;
• Public interest shall be served by the grant of certificate of registration to the HFC to commence or carry on the business in India;
• Granting of certificate of registration shall not be prejudicial to the operation and growth of the housing finance sector of the country; and
• Any other condition, fulfillment 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.
• The applicant company is required to submit a physical copy of the application (in duplicate) along with the essentials documents to the Head Office of the National Housing Bank along with the Demand Draft for INR 10,000 in favor of National Housing Bank payable at New Delhi.
• HFCs are categorized in terms of the type of liabilities, by NHB, into Deposit and Non-Deposit accepting HFCs and are issued Certificate of Registration accordingly.

Net Owned Fund (NOF)

• The aggregate of the paid-up equity capital and free reserves as disclosed in the latest balance-sheet of the housing finance institution after deducting therefrom –
  • Accumulated balance of loss;
  • Deferred revenue expenditure, and
  • Other intangible assets; and
• further reduced by the amounts representing –

Investments of Such Institution in Shares of-

• It’s subsidiaries;
• Companies in the same group;
• All other housing finance institutions which are companies; and

The BV of debentures, bonds, outstanding loans and advances (together with hire-purchase & lease finance) made to and deposits with, –

• Subsidiaries of such company; and
• Companies in the same group, to the extent such amount exceeds ten percent of the above;

Difference Between Banks & HFCs

The activities of banks and HFCs are alike as both are involved in lending and making investments, but there are a few differences as given below:

• HFCs cannot accept demand deposits;
• HFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself;
• Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of HFCs, unlike in case of banks.

NHB can Cancel the Certificate of Registration Granted to an HFC Under the Following Circumstances

NHB may cancel a certificate of registration granted to a housing finance company, subject to certain provisions if such company

• Ceases to carry on the business of a housing finance institution in India; or
• Has failed to comply with any condition subject to which the certificate of registration had been issued to it; or
• At any time fails to fulfill any of the conditions
• 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
• to submit or offer for inspection its books of account and other relevant documents when so 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.

The 3 Main Function of NHB in the Housing Finance Business in the Country are as follows –

• Promotion and Development Function

The institution had been set up when regional and local level housing finance institution were nearly absent and the banking sector was not willing to do housing finance on any significant level. As a result, the sector was grossly capital deficient and the housing shortage in the country was growing at an alarming level. There was a need to set up local and regional level financial institutions for the supply of housing credit. NHB is of the view that interference by institutional credit which can be made more operative by the adoption of different methods to cater to the wants of different income groups.

• Regulatory Function

The second most important function of NHB is the regulatory role assigned to it & it’s a role assumes more significance as the housing finance system in India arrives a subordinate phase of development in terms of integration with the debt & capital markets. The circumstance for guideline also originates from the requirement for credible & stable housing finance system in the country. NHB has attempted to put in place an effective system of responsive regulation, without in any method in contradiction of the free market approach. The housing finance system as such is still developing in the country and thus there needs to be a great amount of stability in terms of resource development, policy development, and institution building.

• Financial Function

The other significant role of NHB is to offer financial assistance to the numerous banks & housing finance institutions. the principal focus is to generate large-scale involvement of primary lending institutions falling in various categories to serve as dedicated outlets for assistance to the housing sector & it supports housing finance sector by extending refinance to various lenders in respect of eligible housing loans extended by them to individual beneficiaries and for project loans extended by them to various implementing agencies. It also supports by lending directly in respect of projects undertaken by public housing agencies for housing construction and development of housing-related infrastructure.

Key Features and Home Loan Solutions

Home loan is replete with features that are aimed at making it easy for all to avail a home loan that is perfect for one. Features of Home Loan include inter alia –

• Loan granted for the purchase of a site for construction, construction of the house, purchase a built apartment or house, renovation, extension or transfer of the existing loan.
• The inclusion of a family member as a co-applicant which enables you to take a higher loan amount.
• Option of choosing fresh loan, adding to existing loan with top-up facility, and transfer a loan from another lender
• Option of repaying through ECS, Post Dated Cheques, auto debit and deduction against salary
• Option of choosing EMIs
• Option to purchase or construct a house in rural areas under our rural housing finance scheme
• Low home loan interest (4%) scheme under the Pradhan Mantri Yojna Scheme 2017

Above Home Loan Features, that Make Taking a Home Loan Effortless.

Benefits of Home Loan

• Provides additional features such as unlimited additional repayments, unlimited redraw (up to the number of additional repayments) and full interest offset.
• An interest offset facility is a link between a transaction account and a home loan which reduces the interest charged on the home loan.
• The home loan you avail qualifies for the following tax benefits

Under Section 80C of the IT Act – on repayment of principal amount towards home loan every year

U/s 24 of the Income Tax Act – on repayment of interest towards home loan

U/s 80EE of the Income-tax Act – additional benefit over and above under Section 24 on repayment of interest towards home loan for first-time buyers

The IT Act prescribes the rules under which the home loan borrower can avail the above tax benefits.

Pradhan Mantri Awas Yojana (PMAY) Housing Loan Schemes by Banks

One who is looking for housing loan under Pradhan Mantri Awas Yojana can now do so by contacting any of the primary lending institutions which include public & private sector banks, NBHFC, regional banks & co-operative banks. The government has allowed online submission of application forms for PMAY – Urban. The eligible candidates can apply for Pradhan Mantri Awas Yojana – Urban through common service centers & the facility to apply online for Pradhan Mantri Awas Yojana will be accessible at around 60000 common service centers in urban areas across the country.

An application cost of ₹ 25 will be charged by the CSC’s per application. Each application will be thoroughly reviewed and accepted only if the candidature of the applicant is found eligible as per the criteria. Once the application is approved, the applicants who have opted for subsidized housing loan will be provided facility to avail loan at the subsidized interest rate. However, subsidy on interest will be provided on a loan of maximum ₹ 6 Lakh availed for a tenure of up to 15 years. In case the beneficiary avails more loan amount, then normal bank interest rate will be applicable on rest of the amount.

Conclusion

Today’s digital natives expect banks & financial institutions to offer personalized products, fast & user-friendly loan services, delivered in an experience similar to that offered in industries such as travel, hotel, retail & entertainment. & they expect them to be digital, they don’t expect to fill in lots of complex paper-based forms. Housing finance companies need to change their strategy, enhance their product offerings, streamline processes & deliver an end-to-end customer experience. The trend now is to move away from lengthy, paper-based application forms to web/mobile based forms & digitized Know Your Customer (KYC) documents. With speed & trust on top of customers’ agendas, financial institutions need to use capabilities such as workflow-based automated processing, comprehensive credit scorecards (incorporating non-traditional data sources), analytics-based decision making & self-servicing for an effective partnership. Technology can be an enabler but a successful transformation requires a change, in the end, to end business processes & more importantly a forward-looking customer-centric mindset. Housing finance is rapidly changing & it is imperative that service providers keep pace if they do not want to be left out.

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