The National Housing Bank’s (NHB) new norms stressing on tighter capital will structurally strengthen the dedicated home finance companies (HFC), a report said on June 24.
The report by domestic ratings agency Crisil found 25 companies accounting for 90 percent of the industry’s assets are already complying with the norms by having their core tier-I capital at 4 percentage points higher.
“The new framework will structurally strengthen the HFC sector and increase investor confidence at a time of liquidity stress among non-banks,” its senior director Krishnan Sitaraman said.
He added stronger balance sheets and increased capital levels will make HFCs better placed to absorb asset-side risks in future.
In the revised guidelines, the NHB has asked HFCs to increase the core capital adequacy to 10 percent from 6 percent and asked them to increase the overall capital adequacy to 15 percent from the present requirement of 12 percent.
The maximum leverage that HFCs can take up has been reduced to 12 times from 16 times over a period of three years and the ceiling on the deposits that HFCs can mobilise has been lowered to three times of net owned funds from five times, Crisil said.
The new norms are not expected to constrain too many players as the mortgage growth expectations are lower, it said.
HFCs have grown at an average of 20 percent over the past three years, despite the slowdown in growth in second half of fiscal 2019.
“Even if this growth were to be maintained over the next couple of years, existing net worth and internal accruals should be adequate for the vast majority of players,” its director Subha Sri Narayanan said.