1. Which company is a Housing Finance Company (HFC) ?

A HFC is a company which mainly carries on the business of housing finance or has  one of its main object clause in the Memorandum of Association of carrying on the business of providing finance for the housing.

2. What are the requirements for commencing housing finance business by an HFC under the NHB Act?

For commencing the housing finance business, an HFC is required to have the following in addition to the requirements under the Companies Act, 1956:

1. Certificate of registration from NHB
2. Minimum net owned fund of Rs. 200 lakhs ( w.e.f. 16.02.2002)

3. Whether an HFC requires registration from NHB apart from Registrar of Companies ?

Yes. An HFC also requires registration with NHB for commencing or carrying on the business of housing finance.

4. Whether an HFC can commence business immediately after making an application for registration with NHB.

No. Such HFC cannot commence business without obtaining the certificate of registration from NHB and without having minimum NOF.

5. Whether an HFC can conduct business without obtaining certificate of registration from NHB ?

No. HFCs incorporated after June 12, 2000 cannot conduct business of housing finance without obtaining a certificate of registration from NHB. Conduct of business without obtaining certificate of registration is an offence punishable  under the provisions of the NHB Act. NHB can also file application for winding up of such HFCs.

6.   Whether an existing HFC (existing as on June 12,2000) without minimum NOF and registration can continue the housing finance business ?

Such an HFC can continue to carry on the business of housing finance provided it has applied for certificate of  registration with NHB before December 12, 2000 and the application has not been rejected by NHB. Such companies, have to achieve the minimum NOF of Rs 25.00 lakhs within a period of three years, i.e. before June 12, 2003 unless further extended by NHB.

7. How can an HFC obtain a certificate of registration from NHB ?

To obtain a certificate of registration from NHB, an HFC, after incorporation, is required to make an application to NHB in a specified form. The form is available on this site and also from the offices of NHB.

8.   What are the considerations for grant or refusal of a certificate of registration by NHB ?

The conditions upon the fulfillment of which a certificate of registration is granted by NHB are given in sub-section (4) of Section 29A of the National Housing Bank Act, 1987. Briefly, the conditions are:

1. The HFC shall be in a position to pay its depositors in full as and when their claims accrue;
2. The affairs of HFC are conducted in a manner not detrimental to the interest of its depositors;
3. The management of HFC is not prejudicial to the public interest or to the interests of its depositors;
4. HFC had adequate capital and earning prospects;
5. The public interest is served by the grant of such certificate of registration;
6. Grant of certificate is not prejudicial to the growth of housing finance sector;
7. Such other conditions which  NHB considers necessary for granting the certificate of registration.

9. Whether an appeal lies against the order of rejection of certificate of registration and if so with whom?

Yes. Such HFC can appeal to the Central Government within a period of 30 days from the date on which such order of rejection is communicated to it.

10. Can the certificate of registration once granted be cancelled by NHB?

Yes. The certificate of registration granted to an HFC by NHB can be cancelled in the following circumstances:-

(a) where it ceases  to carry on the business of housing finance;

(b) where such HFC has failed to comply with any condition subject to which the certificate of registration had been issued to it;

(c) where at any time it fails to fulfill any of the conditions enumerated above for the grant of certificate of registration;

(d) where it fails –

1. to comply with any direction issued by NHB;
2. to maintain accounts in accordance with the requirement of law;
3. to submit or offer for inspection its books of accounts and other relevant documents to the officials of NHB, when so demanded;

(e)  where it has been prohibited from accepting deposit by an order made by NHB and such order has been in force for a period of not less than three months.

11. Whether an appeal lies against the order of cancellation of certificate of registration by NHB  and if so to whom ?

Yes. Such HFC can appeal to the Central Government within a period of 30 days from the date on which such order of rejection is communicated to it.

12. What is meant by Net Owned Fund (NOF) ?

(a) 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 -

1. accumulated balance of loss;
2. deferred revenue expenditure, and
3. other intangible assets; and

(b) further reduced by the amounts representing -

(1) investments of such institution in shares of-

1. its subsidiaries;
2. compaines in the same group;
3. all other housing finance institutions which are companies; and

(2)  the book value of debentures, bonds, outstanding loans and advances (including hire-purchase and lease finance) made to, and deposits with,-

1. subsidiaries of such company; and
2. companies in the same group, to the extent such amount exceeds ten per cent. of (a) above;

“subsidiaries” and “companies in the same group” shall have the same meanings assigned to them in the Companies Act, 1956.

1.   What is a public deposit ?

The expression public deposit has been defined in detail in clause (w) of sub-paragraph (1) of paragraph 2 of The Housing Finance Companies (NHB) Directions, 2001. However, the definition of public deposit specifically excludes certain deposits like amount received from Central or State Governments, banks, publis financial institutions and other institutions, from other companies, mutual funds etc.

2.   Can all HFCs accept public deposits ?

For acceptance of public deposits HFCs can be divided into two categories, i.e. HFCs carrying on the business of housing finance before June 12, 2000 and HFCs commencing housing finance business after that date.

(a)  Companies carrying on business of housing finance before June 12, 2000 can accept deposits provided they have NOF of over rupees twenty five lacs and have applied for certificate of registration with NHB before December 12, 2000 and either have been granted the certificate of registration valid for acceptance of deposits by NHB or their application is still pending for issue of certificate of registration  with NHB.

(b) Companies commencing the business of housing finance after June 12, 2000 can accept public deposits only after:

(i) obtaining certificate of registration from NHB valid for acceptance of deposits; and

(ii) having minimum net owned funds (NOF) of [rupees two crores or more]*. 

*this amount was rupees twenty five lacs or more for HFCs which commenced business before February 16, 2002.

3    Is there any ceiling on the maximum amount of public deposit which can be accepted by an HFC?

Yes. HFCs having credit rating from approved credit rating agencies not below ‘A’ and complying with all prudential norms requirements can accept deposit not exceeding five times of its net owned fund. The HFCs having no credit rating can accept deposit only upto two times of its net owned fund or rupees ten crores whichever is lower provided such HFC complies with all prudential norms and also has capital adequacy ratio of not less than fifteen percent as per the last audited balance sheet.

4.   Is credit rating compulsory for acceptance of public deposits by an HFC?

No. The HFC having credit rating can accept more deposits as per the conditions laid down for acceptance of deposits in such a case as compared to an HFC without such rating. For detail please see answer to Question No. 3.

5. What are the credit rating agencies approved for the above purpose ?

The following credit rating agencies have been approved for the purpose

1. The Credit Rating Information Services of India Ltd. (CRISIL)
2. ICRA Ltd.
3. Credit Analysis and Research Limited (CARE)
4. FITCH Ratings India Pvt. Ltd.

6.   Is there any ceiling on the rate of interest which can be offered by an HFC on public deposits ?

The Housing Finance Companies (NHB) Directions, 2001 provide for ceiling on the maximum rate of interest which can be offered by an HFC on public deposits. The present ceiling is twelve and half per cent per annum compounded at intervals not shorter than monthly rests. However, there is no stipulation with regard to the minimum rate of interest required to be offered on public deposits by an HFC. 

7. Is there any limitation/ restriction on the period for which public deposit can be accepted by a HFC?

In terms of the Housing Finance Companies (NHB) Directions, 2001, HFCs can accept public deposits for periods of one year and above and  upto seven years only.

8. Whether a depositor can withdraw his deposit prematurely. If so, are there any conditions attached to the same ?

Subject to any contract to the contrary  an HFC, on a request being made by a depositor, may consider making premature payment of the deposit subject to the following:

1. No deposit can be repaid within three months from the date of its acceptance.
2. No interest shall be paid if the deposit is repaid within six months from the date of deposit.
3. Where deposit has run from six months to one year the interest not exceeding ten per cent  can be paid.
4. Where the deposit has run for a period of twelve months, the rate of interest applicable shall be one percentage point less than that HFC’s rate applicable for the period for which the deposit has actually run.
5. In case of death of the depositor the deposit may be repaid with interest at the contracted rate upto the date of repayment of such deposit.

9.   Can an HFC on its own repay the deposit prematurely ?

No, acceptance of public deposit is a contract between the HFC and the depositor for a definite period of time. However, any novation of the contract has to be mutually agreed between the parties and should be in conformity with the provisions of Housing Finance Companies (NHB) Directions, 2001.

10. Are public deposits of HFCs guaranteed by NHB ?

No. The depositor is advised to satisfy himself about the financial position and all relevant aspects before placing his deposit with the HFC.

 A person making public deposits with HFCs should satisfy himself that it holds a valid certificate of registration for accepting public deposits from NHB. NHB while issuing certificate of registration to an HFC specifically mentions whether or not it can accept public deposits.

11. Can an HFC provide nomination facility to its depositors ?

Yes. Such facility is permissible to the depositors of HFCs.

12. What are the remedies available to a depositor when the HFC does not re-pay the deposits on maturity ?

The depositor can file a civil suit for recovery of the amount of deposit. He can also make a complaint to the Consumer Forums set up under the Consumer Protection Act, 1986. The depositor should also bring such cases to the notice of NHB for taking action against the defaulting companies under the provisions of the NHB Act. On being satisfied that the company has defaulted in repayment of deposits NHB may issue directions prohibiting it from acceptance of further deposits and alienation of its assets. NHB may also impose financial penalties and take action for imposition of other penalties. NHB may also file winding up petition against such companies.   

13. What details is an HFC required to furnish in the application form soliciting public deposits?

While soliciting public deposits, an HFC has to indicate, inter-alia, the following:

• Particulars of the specified category of the depositors,
• Credit rating assigned for its deposits,
• Information relating to aggregate exposure to group companies and other entities in which Directors of the HFC/ HFC have substantial interest ,
• Other statements pertaining to Redressal fora available in case of  any deficiency, effect of non-payment of deposits, financial position of the company, regulatory framework etc. as detailed in Paragraph 6 to the Housing Finance Companies (NHB) Directions, 2001,
• Particulars specified in the Non-Banking Financial Companies and Miscellaneous Non-Banking Companies (Advertisement) Rules, 1977, made under section 58A of the Companies Act, 1956 (1 of 1956).

1.   What are the provisions for regulation of HFCs under the National Housing Bank Act, 1987?

The provisions for regulation of the HFCs as provided under the NHB Act, 1987 are:

• Requirement of Registration and Net Owned Fund
• Maintenance of percentage of assets in specified securities
• Creation of Reserve Fund by the HFCs
• Regulation or prohibition of issue of prospectus or advertisement soliciting deposits
• Determination of  Prudential Norms for HFCs
• Collection of information as to deposits and to give directions
• Issue of directions to the auditors of the HFCs relating to financial statements and disclosure requirements
• Prohibition of acceptance of deposits and alienation of assets
• Penalty for violation of the provisions of the Act or the directions issued thereunder. Filing  of winding up petition against erring HFCs.

2.   Are there any directions issued by NHB to HFCs under the NHB Act, 1987?

Yes, NHB has issued general directions to HFCs from time to time. The Directions currently in force are known as Housing Finance Companies (NHB) Directions, 2001. . These Directions relate to Acceptance of deposits by HFCs, Prudential Norms relating to Income Recognition, Capital Adequacy, Classification of assets, Credit Concentration etc. They also contain directions to auditors of the HFCs regarding disclosure requirements.  

3.   What is the methodology adopted by NHB to regulate the HFCs under the NHB Act, 1987 and Housing Finance Companies (NHB) Directions, 2001?

The methodology adopted by NHB broadly comprises the following:

1. Entry level regulation, i.e., scrutiny of the HFC at the time of Registration
2. Off-site surveillance, i.e., through analysis of the information, return, periodicals etc. filed by the HFCs from time to time.
3. On-site inspections, i.e., visit by the officers of the NHB to the offices of HFCs and verification/ scrutiny of the books of accounts, returns, etc.
4. Constant interaction with other regulatory authorities  

4.   What are the periodical returns, statements, etc. required to be submitted by the HFCs to NHB?

The returns/ statements required to be submitted by the HFCs to NHB are enumerated below:

• Annual Return
• Half-yearly Return on Prudential Norms
• Quarterly Return on maintenance of Liquid Assets
• Auditor’s Certificate on annual basis certifying the capability of the HFC to repay deposits
• Copy of financial statements / Annual Report
• Returns on changes pertaining to address of the registered office of the HFC, its Directors etc.
• Filing a copy of the advertisement soliciting Public Deposits or statement in lieu thereof

5.   What action can NHB take against the HFCs not complying with the provisions of the Act or the Housing Finance Companies (NHB) Directions, 2001?

As per the NHB Act, 1987, NHB is empowered to take the following actions:

1. Issuing specific directions prohibiting acceptance of deposits and alienation of assets
2. Cancellation of certificate of registration.
3. Filing of applications for winding up petition
4. Imposition of financial penalties  on the HFC and its principal officers
5. Filing of complaints before the Magistrate for imposition of penalties

6.   What are the provisions under the NHB Act, 1987 and Housing Finance Companies (NHB) Directions, 2001 for safeguarding the interest of the depositors?

Some of the safeguards under the NHB Act, 1987 and Housing Finance Companies (NHB) Directions, 2001 are enumerated below:

1. Imposition of ceiling on the amount that can be accepted by an HFC
2. Imposition of ceiling on the rate of interest on deposits
3. Provision for nomination facility
4. Requirement of disclosures to the depositors
5. Imposition of ceiling on brokerage to be paid by HFC for raising deposits
6. Prohibition on alienation of assets in case of default in repayment of deposits
7. Requirement of maintenance of Liquid Assets by HFC
8. Creation of Reserve Fund
9. Collection of data periodically to verify compliance with the provisions of the NHB Act and directions by an HFC to ensure its soundness