What is Housing Finance Company Registration?
The Housing Finance Company is business type of Non-Banking Financial Company (NBFC) which is engaged in the principal business of financing of acquisition or construction of houses that includes the development of plots of lands for the construction of new houses.
A HFC is a company which generally carries on the business of housing finance or has one of its main object clauses 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
- Ministry of Corporate Affairs (MCA)
- Reserve Bank of India (RBI)
- National Housing Bank (NHB)
National Housing Bank (NHB) Regulations on Housing Finance Institutions
In accordance with Section 29A of the National Housing Bank Act, 1987, no HFC shall commence or carry on the business of a housing finance or housing loan without meeting the following conditions -
- A company dully registered under the Companies Act, 2013 and willing of commencing the business of a Housing Finance or housing loan to community at large, should comply with the following-
- Either it should primarily transact or has as one of its principal objects of transacting the business of providing housing loan or housing finance, in any form either directly or indirectly
- COR (Certificate of registration)form National Housing Bank
- Minimum net owned fund of INR 10 crore
National housing board after its review of the application, Background verification and fulfillment of following conditions as per sub-section (4) of Section 29A of NHB act, 1987 by a company, the NHB 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.
- The Business Affairs of the Housing finance company are not being or are not likely to be conducted in a manner adverse to the interest of its present or future depositors.
- The operations and policy of the company should not be against the public interest or against the interest of the depositors.
- HFC (housing finance company) has sufficient capital structure in business and a better earnings 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.
- Approval of COR shall not against the interest of the housing finance sector of the country.
- 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.
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.
Owned Fund (NOF) requirement for Housing Finance Company Registration
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 there from
- Accumulated balance of loss.
- Deferred revenue expenditure.
- Other intangible assets.
Further reduced by the Amounts Representing
Investments of such institution in shares of
- Its subsidiaries;
- Companies in the same group;
- All other housing finance institutions which are companies; and
The book value of debentures, bonds, outstanding loans and advances (including hire-purchase and lease finance) made to and deposits with
- Subsidiaries of such company; and
- Companies in the same group, to the extent such amount exceeds ten per cent of the above;
Difference between banks & Housing Finance Company
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 may cancel a certificate of registration granted to a housing finance company in some circumstances when such HFC failed to comply the directions of NHB or NHB act. Cancellation is subject to certain provisions, if such company
Ceases to carry on the business of housing /loan in India; or
HFC has been found as non-compliance with the terms and condition of NHB directed at time of COR.
At any time found about the non-compliance of following 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
- Mandatory to submit or offer for inspection its books of accounts and other relevant documents as per NHB Act, when it is 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.