National Housing Bank- Housing Finance Company
National Housing Bank-
Housing Finance
Company
SHORT SUMMARY:
In this Flash editorial, the author begins by
referring the provisiosn of National Housing Bank, Housing Finance Companies.
Author tries to discuss the conditions for registration of Housing Finance
Company with NHB. It is worth noting that amidst the gradual development of
demand in the housing finance sector, the corporate houses have made a
significant move in order to grab the win-win situation.
This is article no. 225 of the series of editorials
written by the author on corporate laws
{Including
Companies Act, 2013, SEBI, RBI Regulations, IBC, LLP Act, 2008 etc.}.
INTRODUCTION:
One of the Primary needs of
any human being is ‘House’. A house is where new dreams are born and are
nurtured, thus making it one of the most basic needs for survival.
The Hon’ble Prime Minister
of India, while presenting the Union Budget for 1987-88 on 28 February 1987
announced the decision to establish the National Housing Bank (NHB) as an apex
level institution for housing finance. Following that, the National Housing
Bank Bill (91 of 1987) providing the legislative framework for the
establishment of NHB was passed by Parliament in the winter session of 1987 and
with the assent of the Hon’ble President of India on 23 December 1987, became
an Act of Parliament. NHB was set up on 9 July 1988 under the National Housing
Bank Act, 1987.
NHB is wholly owned by
Reserve Bank of India. NHB has been established with an objective to operate as
a principal agency to promote housing finance institutions both at local and
regional levels and to provide financial and other support incidental to such
institutions and for matters connected therewith. NHB registers, regulates and
supervises Housing Finance Company (HFCs).
Basics
about National Housing Bank:
·
The head office of the National Housing Bank
shall be at Bombay or at such other place as the Reserve Bank may, by notification,
specify.
·
The authorized and paid up capital of the
National Housing Bank shall be three hundred and fifty crores of rupees
·
The National Housing Bank shall have free
access to all such records of any institution which seeks to avail of any credit
facilities from the National Housing Bank and to all such records of any person
who seeks to avail of any credit facilities from such institution, the perusal
of which may appear to the National Housing Bank to be necessary in connection
with the providing of finance or other assistance to such institution or the
refinancing of any loan or advance made to such person by that institution.
Housing
Finance Company
v What is Housing
Finance Company?
A Housing Finance Company is a company
registered under the Companies Act, 1956 (1 of 1956) which primarily transacts
or has as one of its principal objects, the transacting of the business of
providing finance for housing, whether directly or indirectly.
v For
commencing the housing finance business, an HFC is required to have the following in addition to
the requirements under the Companies Act, 2013:
1.
Certificate of registration from NHB
2.
Minimum net owned fund of Rs. 1000 lakhs ( w.e.f.
01.04.2014)
v
Type of HFC
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.
v
Condition for acceptance of deposit by HFC
Companies commencing the business of housing
finance can accept public deposits only after:
a. Obtaining
certificate of registration from NHB valid for acceptance of deposits; and
b. Having
minimum net owned funds (NOF) of rupees ten crores or more.
v
Ceiling on acceptance of deposit by HFC
§ 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.
§
he 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.
v
Ceiling on the rate of interest which can be offered by an
HFC on public deposits
On
and from 6th July, 2007 no housing finance company shall invite or
accept or renew any public deposit at a rate of interest exceeding twelve and
half per cent per annum such interest being payable or compounded at rests
which should not be shorter than monthly rests.
v
HFCs are doing functions similar to banks as banks also
provide housing loans. What is difference between banks & HFCs?
HFCs lend and make investments and hence their
activities are akin to that of banks. However, there are a few differences as
given below:
(i) HFCs cannot accept
demand deposits;
(ii) HFCs do not form part of the
payment and settlement system and cannot issue cheques drawn on itself;
(iii) deposit insurance facility of
Deposit Insurance and Credit Guarantee Corporation is not available to
depositors of HFCs, unlike in case of banks.
Future of Housing Finance Companies (HFC):
According to the report of Technical group on
Urban Housing shortage in India (2012- 17), India will need 18.8 million
housing units in the city alone out of which more than 95% are in Economically
Weaker Section/Lower Income Group.
The above projection by NHB makes it clear that
in the times to come there is a huge scope for HFCs to grow and the trend shall
be bullish.
Requirements for registration with NHB:
A Company
registered under the Companies Act, 2013 and desirous of commencing business of
a housing finance institution, should comply with the following-
(i) either it should
primarily transacts or has as one of its principal objects of transacting the
business of providing finance for housing, whether directly or indirectly; and
(ii) it should have a minimum net owned fund of
Rs. 10 crore.
NHB, after its satisfaction on the fulfillment of
following conditions (given below) provided
under sub-section (4) of Section 29A of the National Housing Bank Act,
1987 by a company,
may grant
a Certificate of Registration.
(i) HFC is or shall be in a position
to pay its present or future depositors in full as and when their claims
accrue;
(ii) 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;
(iii) 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;
(iv) HFC has adequate capital structure and earning
prospects;
(v) Public interest shall be served by the grant
of certificate of registration to the HFC to commence or carry on the business
in India;
(vi) Grant of certificate of registration shall not be
prejudicial to the operation and growth of the housing finance sector of the
country; and
(vii) 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 a HFC shall not be prejudicial to the public interest
or in the interests of the depositors.
v
Condition to be satisfied by the HFC u/s 29A:
(a) that housing finance institution is or shall be in a position to pay
its present or future depositors in full as and when their claims accrue;
(b) that the affairs of the housing finance institution are not being or
are not likely to be conducted in a manner detrimental to the interest of its
present or future depositors;
(c) that the general character of the management or the proposed
management of the housing finance institution shall not be prejudicial to the
public interest or the interests of its depositors;
(d) that the housing finance institution has adequate capital structure
and earning prospects;
(e) that the public interest shall be served by the grant of certificate
of registration to the housing finance institution to commence or to carry on
the business in India;
(f) that the grant of certificate of registration shall not be
prejudicial to the operation and growth of the housing finance sector of the
country; and
(g) any other condition, fulfilment of which in the opinion of the
National Housing Bank, shall be necessary to ensure that the commencement of or
carrying on the business in India by a housing finance institution shall not be
prejudicial to the public interest or in the interests of the depositors.
v
Process of filing of Application:
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. Further, Company is also required to attach a Demand
Draft for Rs. 10,000 favoring National Housing Bank payable at New Delhi.
v
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.
Maintenance of percentage of ASSETS:
Every
housing finance Company shall invest and continue to invest in India in
unencumbered approved securities, valued at a price not exceeding the current
market price of such securities, an amount which, at the close of business on
any day, shall not be less than five per cent. or such higher percentage not exceeding
twenty-five percent. as the National Housing Bank may, from time to time and by
notification, specify, of the deposits outstanding at the close of business on
the last working day of the second preceding quarter
Return:
Every such housing finance Company to furnish a return to it in such
form, in such a manner and for such period as may be specified by the National
Housing Bank.
RESERVE FUND:
Every
housing finance institution which is a company shall create a reserve fund and
transfer therein a sum not less than
twenty per cent. of its net profit every year as disclosed in the profit
and loss account and before any dividend is declared
Appropriation of Fund:
Any
appropriation of funds from reserve fund shall be reported to the National
Housing Bank within twenty-one days
from the date of such withdrawal.
Returns:
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
BOARD REPORT:
In every report of the Board of Directors there shall be included, the following particulars or information,
namely
§
The total
number of accounts of public deposit of the housing finance company which have
not been claimed by the depositors or not paid by the housing finance company
after the date on which the deposit became due for re-payment; and
§ The total amounts due under such accounts remaining
unclaimed or unpaid beyond the dates referred to in clause (a) as aforesaid.
Constitution of Audit Committee :
A housing finance company having assets of Rs 50 crore and above as per
its last audited balance sheet shall constitute an Audit Committee consisting
of not less than three non-executive Directors of the Board
(Author
– CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice
from Delhi and can be contacted at csdiveshgoyal@gmail.com)
Disclaimer:
The
entire contents of this document have been prepared on the basis of relevant
provisions and as per the information existing at the time of the preparation.
Although care has been taken to ensure the accuracy, completeness and
reliability of the information provided, I assume no responsibility therefore.
Users of this information are expected to refer to the relevant existing
provisions of applicable Laws. The user of the information agrees that the
information is not a professional advice and is subject to change without
notice. I assume no responsibility for the consequences of use of such
information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT,
SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION
WITH THE USE OF THE INFORMATION.
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