HFC’s Straps On The Safety Belt
India’s National Housing Bank has announced a rise in the Capital Adequacy Ratio for housing finance companies. The move aims at trimming the borrowing permissibility from 16 to 12 times the HFC’s net worth. The revised regulations are likely to be rolled out in phases and will be completed by March 31, 2022.
Revised Norms For Better Risk Management
The new regulations ensure that CAR will be increased to 13% from the previous threshold of 12% by March 31, 2020, to 14 percent by March 31, 2021, and to 15 percent by March 31, 2022.
Capping The Upside Risk
The revised regulation also aims at capping the window of borrowing to 14 times the net owned fund by March 31, 2020, 13 times by March 31, 2021, and 12 times by March 31, 2022.
Precaution Is Better Than Cure
These precautionary moves mark the dawn of a new era of risk management. The new guidelines are likely to breathe fresh life into the economy overburdened with NPAs.
Housing For All
Some sections have suggested that regulators need to make room for easy availability of capital for HFCs with a strong balance sheet, as the liquidity crunch could turn out to be a huge roadblock to the growth of the overall housing market. Going forward, the availability of capital will play a pivotal role in shaping the Modi Government’s goal of housing for all by 2022. This move can also bring the NBFCs and HFCs under the same umbrella of CAR norms.