An Overview of Housing Finance Company Registration
The Housing Finance Company is a business type of NBFC (Non-Banking Financial Company), and the Housing Finance Company is involved in the business principle of construction of houses or financing of acquisition that comprises the improvement of plots from the construction of new houses. Normally, a Housing Finance Company is a company that carries on the housing finance business or has one of its primary object clauses in MOA (Memorandum of Association) of carrying on the business of providing housing finance.
These companies are governed and controlled by NHB (National Housing Bank). It is compulsory to obtain a certificate of Housing Finance Company Registration for any housing finance company. This Registration Certificate is vital for any housing finance company to begin activities related to housing finance. According to the guidelines of the National Housing Bank Act, 1987, if any housing finance company didn't obtain Housing Finance Company Registration Certificate, then it is an offence. The Registration Certificate of housing finance is issued as per the classification of Housing Finance Companies, which are further in terms of liabilities types, by National Housing Bank, into deposit & non-deposit accepting Housing Finance Companies.
NHB plays a crucial role in the housing finance sector, and the Indian Housing Finance sector is considered to be entering the 2nd phase of the development in terms of mixing with the debt and capital markets. All because of National Housing Bank placed an operative system of responsive regulation in maintaining stability and credibility in terms of policy & resource development and building of the housing finance section in India.
Regulatory Bodies for Housing Finance Sector in India
- RBI (Reserve Bank of India)
- NABARD (National Bank for Agriculture and Rural Development)
- MCA (Ministry of Corporate Affairs)
- NHB (National Housing Bank)
- SEBI (Securities and Exchange Board of India)
For such financing companies, the National Housing Bank has set up some guidelines in terms of:
- Asset classification;
- Financial support;
- Prudential rules for income acknowledgement;
- Regulation deposits taking activity.
To occur in the housing finance sector, there is a requirement of management between the RBI, NHB, and the Government.
- NHB Regulates – lending to the housing by Housing Finance Companies;
- RBI Regulates – advancing to the housing by Banks.
What are the Regulations of NHB on Housing Finance Companies?
As per Section 29A of the NHB Act, 1987, no Housing Finance Companies shall begin or carry on the business of housing loan/housing finance without fulfilling the following criteria:
- A company should be registered under the Companies Act, 2013 or 1956 and eager to begin the housing loan or housing finance business to the community.
- Either it must be mainly managed or has as one of its principal objects of managing the business by providing housing finance or housing loan, in any form either directly or indirectly.
- Certificate of Registration from NHB (National Housing Bank).
- Minimum of Rs. 10 crores Net Owned Fund (NOF) is required.
Essential Documents Required for Housing Finance Company Registration
Following is the list of all the vital documents required for Housing Finance Company Registration in India:
- Submit a copy of AOA (Article of Association) and MOA (Memorandum of Association);
- Company’s profile;
- Demand Draft of INR 10,000/- for NHB, New Delhi;
- Submit a Board Resolution stating the Company’s objective and approval to record application before National Housing Bank;
- Next three years Business Plan of the Company;
- Submit a certificate issued by a professional related to meeting the conditions of minimum Net Owned Fund of Rs. 20 crores;
- Business profile of CEO or Directors or MD, etc.;
- Details of Company which directors are related;
- Previous three years of a financial audit.
Housing Finance Company Registration Process in India
For Housing Finance Company Registration, an individual needs to submit the hard copy of the application along with all the vital documents as mentioned above to the Head Office of the NHB (National Housing Bank) alongside the DD of Rs. 10,000/- for NHB payable at New Delhi. Our team of professionals at Swarit Advisors will assist you and make the process smooth for you.
Circumstances concerning the grant of HFC License by the National Housing Bank
Once the application for Housing Finance Company Registration is submitted, the National Housing Board will examine the registration application and issue a Registration Certificate after proper examination and fulfilment of all the condition as mentioned below:
- Housing Finance Company will be in a position to pay its current or future depositors in full as and when their claims add;
- Housing Finance Company has enough capital structure and better earnings forecasts;
- HFC shouldn’t conduct any business affairs that will hinder the interest of its current or forthcoming depositors;
- It's the duty of the Housing Finance Company to serve the public interest on receiving the Registration Certificate.
Obligatory Compliances for HFCs toward National Housing Bank
Following are some essential companies that should be followed by Housing Finance Companies:
- It is necessary for every Housing Finance Company to file a yearly return, half-yearly return, and quarterly return concerning provident norms, care of liquid assets, respectively;
- Copy of the Annual Report and Financial Statement;
- Housing Finance Companies have to obey the provisions of IND-AS;
- Yearly submission of the certificate of auditor, certifying the HFC’s capability to repay deposits;
- Filing a copy of a statement in lieu thereof or advertising petitioning public deposits;
- Timely return in respect of change in directors, change in registered office, etc.
Conditions relating to the cancellation of HFC License by the National Housing Bank
National Housing Bank cancels a certificate of Housing Finance Company Registration granted to the HFC in some of the conditions when such companies failed to obey the direction of the National Housing Bank, Act and you can check the condition for the same below:
- Stops to carry on the finance business within India;
- To obey any directions given by the NHB under the Chapter V provisions of NHB, Act, 1987;
- Compulsory to submit their record books and other vital documents as per the National Housing Bank Act, when it is demanded by an examining authority of the NHB;
- In case the Housing Finance Company has failed to obey the terms & conditions suggested by the National Housing Board;
- To maintain accounts as per the requirement of any course or law or demand gave by the NHB under the provisions of Chapter V of the Act.
- Has been forbidden from accepting any deposits by a demand made by NHB under the provisions of Chapter of the Act, and such demands have been in power for a time of at least three months.
What is the difference between Housing Finance Company and Banks?
Activities of both the Housing Finance Company and Banks are involved in making investments and advancing, but there is some difference between, and you can check the same below:
- Housing Finance Companies cannot accept DDs (Demand Drafts);
- Housing Finance Companies don’t form any part of the settlement & payment system and cannot issue cheques drawn on itself;
- The facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of Housing Financing Companies, unlike banks.
Post-Registration Formalities for HFC
Once the certificate of Housing Finance Company Registration is obtained, HFCs require to complete the following post-registration formalities:
- MIS Format;
- Board Structure;
- Development of Loan Processes;
- Product Advancement;
- Lawful Operations;
- Credit Risk Management;
- Advancement of IT Infrastructure;
- Improvement of Loan Policies, comprising appraisal tools and techniques;
- Regulatory of NHB and compliance necessities;
- Policies Drafting and Organizational Structure;
- Resource Mobilization.
Frequently Asked Questions
Yes, it is compulsory for every HFC to get registered under the NHB Act, 1987, for starting the activities of the business of housing finance.
All the banks come under the purview of RBI and are bound by the guidelines framed by the Reserve Bank of India. Therefore, National Housing Bank only regulates the HFCs.
HFC stands for Housing Finance Company, and it is a part of NBFC or Non-Banking Financial Company which is involved in the business principle of construction of houses or financing of acquisition that comprises the improvement of plots from the construction of new houses
Housing Finance Companies are regulated by the National Housing Bank, or NHB and NHB is completely owned by the Reserve Bank of India (RBI).
Housing Finance Companies are categorized in different types of liabilities by NHB into Deposit and Non-Deposit accepting HFCs and are granted Registration Certificate accordingly.
Yes, such Housing Finance Company can appeal to the Central Government of India with thirty days from the date on which the order of rejection is lead into.
To commence an HFC in India, Rs. 20 crores are required.
No, the Housing Finance Company having a credit rating, can accept deposits as per the conditions provided for acceptance of deposits.