An Overview of Housing Finance Company Registration
The HFC (Housing Finance Company) is a type of NBFC (Non-Banking Financial Company), and these companies are primarily involved in the business of constructing houses or financing acquisition that comprises the improvement of plots from the construction of new houses. NHB (National Housing Bank) governs and controls these companies in India. As per the National Housing Bank Act, 1987, it is compulsory to obtain a Housing Finance Company Registration Certificate from the National Housing Bank before starting any housing finance company in India.
What is National Housing Bank (NHB)?
National Housing Bank (NHB) is a statutory body introduced by the Parliament of India with an aim to function as a principal agency to promote housing finance institutions in India, both at the ground and regional levels. Moreover, this institution also works to provide financial & assistance incidental to such financial institutions & for the matters connected therewith. Besides this, if any housing finance company in India has not obtained the Housing Finance Company Registration Certificate but still carrying out the activities of housing finance, then the same will be liable for the levy of hefty penalties.
The following is the objective of the National Housing Bank:
- To promote a healthy, visible and cost-effective housing finance system to cater for all segments of the population & to combine the housing finance system with the financial system.
- To enhance resources for the sector & channelize them for housing;
- To encourage or boost public agencies to emerge as facilitators & suppliers of service land for housing finance;
- To promote a network of dedicated housing finance institutions & supervise their activities.
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).
Criteria for Obtaining Housing Finance Company Registration
As per Section 29A of the NHB Act, 1987, no Housing Finance Companies shall carry on the business of housing loan/housing finance without fulfilling the following criteria:
- The said Company should be registered under the Companies Act, 2013 or 1956;
- A minimum of 20 crores Net Owned Fund (NOF) is required;
- The business entity or a company that wants to operate as a Housing Finance Company must acquire Registration as an NBFC from the Apex Bank (RBI);
- The primary object of this type of Company must be to finance housing and other commercial complexes. Apart from providing finance, the Company must also have the prospects of earning and the management must act in good faith to the public and must act in the interest of the public.
Conditions for the Grant of HFC License by NHB
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 fulfillment of all the conditions 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 upon receiving the Registration Certificate.
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:
- A copy of the AOA (Article of Association) and MOA (Memorandum of Association) of the proposed Company;
- Details regarding the Company’s profile;
- Demand Draft in favour of the NHB payable at New Delhi;
- 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.
Procedure for Housing Finance Company Registration
Following is the step-by-step procedure for Housing Finance Company Registration:
Step 1: File the Application: The first step is to download the application form and fill out all the vital details asked in the application form.
Step 2: Attach all the Documents: After filling the application form correctly, you need to arrange all the documents mentioned above and attach all these documents with the application form and submit the same to the National Housing Bank.
Step 3: Verification: Once the applicant submits the application form and documents to the National Housing Bank, then the officials of the NHB will verify all the documents and applications submitted by the applicant.
Step 4: Issuance of the Certificate: Once the officials of the NHB are satisfied with the application and documents submitted by the applicant, the NHB will issue the Registration Certificate and 6he same will act as the proof for the HFC Registration.
Reasons Behind the Cancellation of Housing Finance Company Registration
National Housing Bank can cancel the Housing Finance Company Registration in some of the conditions when such companies fail to obey the direction of the National Housing Bank, Act and you can check the condition for the same below:
- Stops carrying on the finance business within India;
- Housing Finance Company hasn’t complied with the following terms & conditions prescribed by the NHB:
- To follow the direction issued by the NHB under the Provisions of Chapter V of the NHB Act, 1987;
- Mandatory to submit its books of accounts & other relevant documents as per NHB Act, when it is demanded by an inspecting authority of the NHB;
- To maintain accounts as per the requirement of any law or any direction or order issued by the NHB under the Provisions of Chapter V of the NHB Act, 1987.
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.
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.
What is the primary difference between Housing Finance Companies and Banks?
Activities of both the Housing Finance Company and Banks are involved in making investments and advancing, but there is some difference between them, and you can check the same below:
- Housing Finance Companies cannot accept DDs (Demand Drafts);
- Housing Finance Companies are not eligible to 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.
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.