NHB
(ND)/HFC (DRS-REG)/INS/2072/2000
July 25, 2000
To Chief Executives of housing finance companies
Dear Sir,
Guidelines for Entry of Housing Finance Companies into
Insurance Business
1. Any housing finance company registered with National
Housing Bank and having net owned fund of not less than Rs. 5 crore as
per the last audited balance sheet would be permitted to undertake insurance
business as agent of insurance companies on fee basis without any risk
participation.
2. All HFCs registered with NHB that satisfy the eligibility criteria
given below will be permitted to set up a joint venture company for undertaking
insurance business with risk participation, subject to safeguards. The
maximum equity such an HFC can hold in the joint venture company will
normally be 50 percent of the paid-up capital of the insurance company.
On a selective basis, NHB may permit a higher equity contribution by
a promoter HFC initially, pending divestment of equity within the prescribed
period. The eligibility criteria for joint venture participant will be
as per the latest available audited balance sheet and as under :
| (i) |
The
net owned fund of the HFC should not be less than Rs.
500 crores. |
| (ii) |
The
CRAR of the HFC should not be less than 12 per cent. |
| (iii) |
The
level of net non-performing assets should not be
more than 5 per cent of the total outstanding advances.
|
| (iv) |
The
HFC should have net profit continuously for the last
three years. |
| (v) |
The
track record of the performance of the subsidiaries,
if any, of the concerned HFC should be satisfactory.
|
| (vi) |
Satisfactory
regulatory compliance and servicing of public deposits,
if held. |
3. The provisions of the National Housing Bank Act, 1987 shall be applicable
for such investments while computing the net owned funds of the HFC.
4. In case where a foreign partner contributes to the equity (not exceeding
26 percent) with the approval of Insurance Regulatory and Development
Authority/Foreign Investment Promotion Board, more than one HFC may be
allowed to participate in the equity of the insurance joint venture.
As such participation will also assume Insurance risk, only those HFCs
that satisfy the criteria given in paragraph 2 above, would be eligible.
5. No HFC would be allowed to conduct such business departmentally. A
subsidiary or a company in the same group of an HFC engaged in the business
of housing finance or banking will not normally be allowed to join the
insurance company on risk participation basis.
6. HFCs registered with NHB that are not eligible as joint venture participant,
as above can make investments up to 10 per cent of the net owned fund
of the HFC or Rs. 50 crores, whichever is lower, in the insurance company.
Such participation would be treated as an investment and should be without
any contingent liability for the HFC. The eligibility criteria for these
HFCs will be as under :
i) The CRAR of the HFC should not be less than 12 per cent.
ii) The level of net NPA should not be more than 5% of the total outstanding
advances.
iii) The HFC should have net profit continuously for the last three years.
7. All HFCs registered with NHB entering into insurance business as agents
or investors or on risk participation basis will be required to obtain
prior approval of NHB. The NHB will give permission to HFCs on a case
to case basis keeping in view all relevant factors. It should be ensured
that risks involved in insurance business do not get transferred to the
HFC and that the HFC's business does not get contaminated by any risks
which may arise from the insurance business.
8. The above guidelines will be subject to the following :
(i) Holding of equity by a promoter HFC
in an insurance company or participation in any form in
insurance business will be subject to compliance with any
rules and regulations laid down by the IRDA/Central Government.
This will include compliance with Section 6AA of the Insurance
Act as amended by the IRDA Act, 1999, for divestment of
equity in excess of 26 per cent of a the paid-up capital
within a prescribed period of time.
(ii) For applications received during the financial year 2000-2001,
any fresh capital infused after the audited balance sheet date for
1999-2000 would also be taken into account. The unaudited and certified
balance sheet as on a latest date may be reckoned for determining the
eligibility criteria and the audited balance sheet for the above date
should be submitted to the NHB as soon as possible.
(iii) For subsequent years, the eligibility criteria would be reckoned
with reference to the latest available audited balance sheet for the
previous year.
9. Please acknowledge receipt of this circular.
Yours faithfully,
Sd/-
(P. K. Chattopadhyay)
General Manager