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Frequently Asked Questions
I. Registration
II. Acceptance
of Deposits
III. Regulation
I. Registration
1.
Which company is a Housing Finance Company (HFC) ?
A
HFC is a company which mainly carries on the business of housing
finance or has one of its main object clause in the Memorandum
of Association of carrying on the business of providing finance
for the housing.
2.
What are the requirements for commencing housing finance
business by an HFC under the NHB Act?
For
commencing the housing finance business, an HFC is required
to have the following in addition to the requirements under
the Companies Act, 1956:
(a)
Certificate of registration from NHB
(b)
Minimum net owned fund of Rs. 200 lakhs ( w.e.f. 16.02.2002)
3.
Whether an HFC requires registration from NHB apart from
Registrar of Companies ?
Yes.
An HFC also requires registration with NHB for commencing or
carrying on the business of housing finance.
4. Whether
an HFC can commence business immediately after making an
application for registration with NHB.
No.
Such HFC cannot commence business without obtaining the certificate
of registration from NHB and without having minimum NOF.
5.
Whether an HFC can conduct business without obtaining certificate
of registration from NHB ?
No.
HFCs incorporated after June 12, 2000 cannot conduct business
of housing finance without obtaining a certificate of registration
from NHB. Conduct of business without obtaining certificate
of registration is an offence punishable under the provisions
of the NHB Act. NHB can also file application for winding up
of such HFCs.
6. Whether
an existing HFC (existing as on June 12,2000) without minimum
NOF and registration can continue the housing finance business
?
Such
an HFC can continue to carry on the business of housing finance
provided it has applied for certificate of registration with
NHB before December 12, 2000 and the application has not been
rejected by NHB. Such companies, have to achieve the minimum
NOF of Rs 25.00 lakhs within a period of three years, i.e.
before June 12, 2003 unless further extended by NHB.
7.
How can an HFC obtain a certificate of registration from
NHB ?
To
obtain a certificate of registration from NHB, an HFC, after
incorporation, is required to make an application to NHB in
a specified form. The form is available on this site and also
from the offices of NHB.
8. What
are the considerations for grant or refusal of a certificate
of registration by NHB ?
The
conditions upon the fulfillment of which a certificate of registration
is granted by NHB are given in sub-section (4) of Section 29A
of the National Housing Bank Act, 1987. Briefly, the conditions
are:
(a) The
HFC shall be in a position to pay its depositors in full as
and when their claims accrue;
(b)
The affairs of HFC are conducted in a manner not detrimental
to the interest of its depositors;
(c) The
management of HFC is not prejudicial to the public interest
or to the interests of its depositors;
(d)
HFC had adequate capital and earning prospects;
(e) The
public interest is served by the grant of such certificate
of registration;
(f) Grant
of certificate is not prejudicial to the growth of housing
finance sector;
(g)
Such other conditions which NHB considers necessary for granting
the certificate of registration.
9.
Whether an appeal lies against the order of rejection of
certificate of registration and if so with whom?
Yes.
Such HFC can appeal to the Central Government within a period
of 30 days from the date on which such order of rejection is
communicated to it.
10.
Can the certificate of registration once granted be cancelled
by NHB?
Yes.
The certificate of registration granted to an HFC by NHB can
be cancelled in the following circumstances:-
(a)
where it ceases to carry on the business of housing finance;
(b)
where such HFC has failed to comply with any condition subject
to which the certificate of registration had been issued to
it;
(c)
where at any time it fails to fulfill any of the conditions
enumerated above for the grant of certificate of registration;
(d)
where it fails –
(i)
to comply with any direction issued by NHB;
(ii)
to maintain accounts in accordance with the requirement of
law;
(iii)
to submit or offer for inspection its books of accounts and
other relevant documents to the officials of NHB, when so demanded;
(e) where
it has been prohibited from accepting deposit by an order made
by NHB and such order has been in force for a period of not
less than three months.
11.
Whether an appeal lies against the order of cancellation
of certificate of registration by NHB and if so to whom
?
Yes.
Such HFC can appeal to the Central Government within a period
of 30 days from the date on which such order of rejection is
communicated to it.
12.
What is meant by Net Owned Fund (NOF) ?
(a)
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 therefrom -
(i) accumulated
balance of loss;
(ii) deferred
revenue expenditure, and
(iii) other
intangible assets; and
(b)
further reduced by the amounts representing -
(1) investments
of such institution in shares of-
(i) its
subsidiaries;
(ii) compaines
in the same group;
(iii) all
other housing finance institutions which are companies; and
(2) the
book value of debentures, bonds, outstanding loans and advances
(including hire-purchase and lease finance) made to, and deposits
with,-
(i) subsidiaries
of such company; and
(ii) companies
in the same group, to the extent such amount exceeds ten per
cent. of (a) above;
“subsidiaries” and “companies
in the same group” shall have the same meanings assigned to
them in the Companies Act, 1956.
II. Acceptance
of Deposits
1. What
is a public deposit ?
The
expression public deposit has been defined in detail in clause
(w) of sub-paragraph (1) of paragraph 2 of The Housing Finance
Companies (NHB) Directions, 2001. However, the definition
of public deposit specifically excludes certain deposits
like amount received from Central or State Governments, banks,
publis financial institutions and other institutions, from
other companies, mutual funds etc.
2. Can
all HFCs accept public deposits ?
For
acceptance of public deposits HFCs can be divided into two
categories, i.e. HFCs carrying on the business of housing finance
before June 12, 2000 and HFCs commencing housing finance business
after that date.
(a) Companies
carrying on business of housing finance before June 12, 2000
can accept deposits provided they have NOF of over rupees twenty
five lacs and have applied for certificate of registration
with NHB before December 12, 2000 and either have been granted
the certificate of registration valid for acceptance of deposits
by NHB or their application is still pending for issue of certificate
of registration with NHB.
(b)
Companies commencing the business of housing finance after
June 12, 2000 can accept public deposits only after:
(i)
obtaining certificate of registration from NHB valid for acceptance
of deposits; and
(ii)
having minimum net owned funds (NOF) of [rupees two crores
or more]*.
*this
amount was rupees twenty five lacs or more for HFCs which
commenced business before February 16, 2002.
3 Is
there any ceiling on the maximum amount of public deposit
which can be accepted by an HFC?
Yes.
HFCs having credit rating from approved credit rating agencies
not below ‘A’ and complying with all prudential norms requirements
can accept deposit not exceeding five times of its net owned
fund. The HFCs having no credit rating can accept deposit only
upto two times of its net owned fund or rupees ten crores whichever
is lower provided such HFC complies with all prudential norms
and also has capital adequacy ratio of not less than fifteen
percent as per the last audited balance sheet.
4. Is
credit rating compulsory for acceptance of public deposits
by an HFC?
No.
The HFC having credit rating can accept more deposits as per
the conditions laid down for acceptance of deposits in such
a case as compared to an HFC without such rating. For detail
please see answer to Question No. 3.
5.
What are the credit rating agencies approved for the above
purpose ?
The
following credit rating agencies have been approved for the
purpose
(i) The
Credit Rating Information Services of India Ltd. (CRISIL)
(ii)
ICRA Ltd.
(iii)
Credit Analysis and Research Limited (CARE)
(iv)
FITCH Ratings India Pvt. Ltd.
6. Is
there any ceiling on the rate of interest which can be offered
by an HFC on public deposits ?
The
Housing Finance Companies (NHB) Directions, 2001 provide for
ceiling on the maximum rate of interest which can be offered
by an HFC on public deposits. The present ceiling is twelve
and half per cent per annum compounded at intervals not shorter
than monthly rests. However, there is no stipulation with regard
to the minimum rate of interest required to be offered on public
deposits by an HFC.
7.
Is there any limitation/ restriction on the period for which
public deposit can be accepted by a HFC?
In
terms of the Housing Finance Companies (NHB) Directions, 2001,
HFCs can accept public deposits for periods of one year and
above and upto seven years only.
8.
Whether a depositor can withdraw his deposit prematurely.
If so, are there any conditions attached to the same ?
Subject
to any contract to the contrary an HFC, on a request being
made by a depositor, may consider making premature payment
of the deposit subject to the following:
(i)
No deposit can be repaid within three months from the date
of its acceptance.
(ii)
No interest shall be paid if the deposit is repaid within six
months from the date of deposit.
(iii)
Where deposit has run from six months to one year the interest
not exceeding ten per cent can be paid.
(iv)
Where the deposit has run for a period of twelve months, the
rate of interest applicable shall be one percentage point less
than that HFC’s rate applicable for the period for which the
deposit has actually run.
(v)
In case of death of the depositor the deposit may be repaid
with interest at the contracted rate upto the date of repayment
of such deposit.
9. Can
an HFC on its own repay the deposit prematurely ?
No,
acceptance of public deposit is a contract between the HFC
and the depositor for a definite period of time. However, any
novation of the contract has to be mutually agreed between
the parties and should be in conformity with the provisions
of Housing Finance Companies (NHB) Directions, 2001.
10.
Are public deposits of HFCs guaranteed by NHB ?
No.
The depositor is advised to satisfy himself about the financial
position and all relevant aspects before placing his deposit
with the HFC.
A
person making public deposits with HFCs should satisfy himself
that it holds a valid certificate of registration for accepting
public deposits from NHB. NHB while issuing certificate of
registration to an HFC specifically mentions whether or not
it can accept public deposits.
11.
Can an HFC provide nomination facility to its depositors
?
Yes.
Such facility is permissible to the depositors of HFCs.
12.
What are the remedies available to a depositor when the HFC
does not re-pay the deposits on maturity ?
The
depositor can file a civil suit for recovery of the amount
of deposit. He can also make a complaint to the Consumer Forums
set up under the Consumer Protection Act, 1986. The depositor
should also bring such cases to the notice of NHB for taking
action against the defaulting companies under the provisions
of the NHB Act. On being satisfied that the company has defaulted
in repayment of deposits NHB may issue directions prohibiting
it from acceptance of further deposits and alienation of its
assets. NHB may also impose financial penalties and take action
for imposition of other penalties. NHB may also file winding
up petition against such companies.
13.
What details is an HFC required to furnish in the application
form soliciting public deposits?
While
soliciting public deposits, an HFC has to indicate, inter-alia, the
following:
- Particulars
of the specified category of the depositors,
- Credit
rating assigned for its deposits,
- Information
relating to aggregate exposure to group companies and other
entities in which Directors of the HFC/ HFC have substantial
interest ,
- Other
statements pertaining to Redressal fora available in case
of any deficiency, effect of non-payment of deposits, financial
position of the company, regulatory framework etc. as detailed
in Paragraph 6 to the Housing Finance Companies (NHB) Directions,
2001,
- Particulars
specified in the Non-Banking Financial Companies and Miscellaneous
Non-Banking Companies (Advertisement) Rules, 1977, made under
section 58A of the Companies Act, 1956 (1 of 1956).
III Regulation
1. What
are the provisions for regulation of HFCs under the National
Housing Bank Act, 1987?
The
provisions for regulation of the HFCs as provided under the
NHB Act, 1987 are:
· Requirement
of Registration and Net Owned Fund
· Maintenance
of percentage of assets in specified securities
· Creation
of Reserve Fund by the HFCs
· Regulation
or prohibition of issue of prospectus or advertisement soliciting
deposits
· Determination
of Prudential Norms for HFCs
· Collection
of information as to deposits and to give directions
· Issue
of directions to the auditors of the HFCs relating to financial
statements and disclosure requirements
· Prohibition
of acceptance of deposits and alienation of assets
· Penalty
for violation of the provisions of the Act or the directions
issued thereunder. Filing of winding up petition against erring
HFCs.
2. Are
there any directions issued by NHB to HFCs under the NHB
Act, 1987?
Yes,
NHB has issued general directions to HFCs from time to time.
The Directions currently in force are known as Housing Finance
Companies (NHB) Directions, 2001. . These Directions
relate to Acceptance of deposits by HFCs, Prudential Norms
relating to Income Recognition, Capital Adequacy, Classification
of assets, Credit Concentration etc. They also contain directions
to auditors of the HFCs regarding disclosure requirements.
2. What
is the methodology adopted by NHB to regulate the HFCs under
the NHB Act, 1987 and Housing Finance Companies (NHB) Directions,
2001?
The
methodology adopted by NHB broadly comprises the following:
(i)
Entry level regulation, i.e., scrutiny of the HFC at the time
of Registration
(ii)
Off-site surveillance, i.e., through analysis of the information,
return, periodicals etc. filed by the HFCs from time to time.
(iii)
On-site inspections, i.e., visit by the officers of the NHB
to the offices of HFCs and verification/ scrutiny of the books
of accounts, returns, etc.
(iv)
Constant interaction with other regulatory authorities
3. What
are the periodical returns, statements, etc. required to
be submitted by the HFCs to NHB?
The
returns/ statements required to be submitted by the HFCs to
NHB are enumerated below:
· Annual
Return
· Half-yearly
Return on Prudential Norms
· Quarterly
Return on maintenance of Liquid Assets
· Auditor’s
Certificate on annual basis certifying the capability of the
HFC to repay deposits
· Copy
of financial statements / Annual Report
· Returns
on changes pertaining to address of the registered office of
the HFC, its Directors etc.
· Filing
a copy of the advertisement soliciting Public Deposits or statement
in lieu thereof
4. What
action can NHB take against the HFCs not complying with the
provisions of the Act or the Housing Finance Companies (NHB)
Directions, 2001?
As
per the NHB Act, 1987, NHB is empowered to take the following
actions:
(a) Issuing
specific directions prohibiting acceptance of deposits and
alienation of assets
(b)
Cancellation of certificate of registration.
(c)
Filing of applications for winding up petition
(d)
Imposition of financial penalties on the HFC and its principal
officers
(e)
Filing of complaints before the Magistrate for imposition of
penalties
5. What
are the provisions under the NHB Act, 1987 and Housing Finance
Companies (NHB) Directions, 2001 for safeguarding the interest
of the depositors?
Some
of the safeguards under the NHB Act, 1987 and Housing Finance
Companies (NHB) Directions, 2001 are enumerated below:
(i)
Imposition of ceiling on the amount that can be accepted by
an HFC
(ii)
Imposition of ceiling on the rate of interest on deposits
(iii) Provision
for nomination facility
(iv)
Requirement of disclosures to the depositors
(v)
Imposition of ceiling on brokerage to be paid by HFC for raising
deposits
(vi)
Prohibition on alienation of assets in case of default in repayment
of deposits
(vii)
Requirement of maintenance of Liquid Assets by HFC
(viii)
Creation of Reserve Fund
(ix)
Collection of data periodically to verify compliance with the
provisions of the NHB Act and directions by an HFC to ensure
its soundness
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