Page 220 - NHB AR 2020-21-3 complete- Print (1)
P. 220
Box 1.5: Revised Framework of HFCs – February 2021
The Reserve Bank of India took several steps during the year to strengthen the regulatory
framework for HFCs. With the objective of aligning the regulatory/supervisory framework
with global best practices, the regulatory framework for the HFCs was comprehensively re-
viewed after a consultation process with the stakeholders and a revised regulatory framework
was announced in October 2020 and have come into effect in February 2021. As part of this,
definition of housing finance business was introduced and Principal Business Criteria (PBC)
were laid down with timelines for its phased introduction for entities to qualify as non-banking
financial company-Housing Finance Companies (NBFC-HFCs), failing which the entities were
to be treated as NBFC-Investment and Credit Companies (NBFC-ICCs). Instructions were also
provided for enhancing net owned fund (NOF) and for the phased introduction of Liquidity
Risk Management Framework (LRM) and Liquidity Coverage Ratio (LCR). The guidelines also
covered loan-to-value (LTV) requirements and levy of foreclosure charges. With these changes
HFC regulations were harmonised with the regulations for other NBFCs to some extent. With
the revised framework, the foundation has been provided for an orderly growth of the housing
finance in pursuit of economic and social objectives, especially as the housing construction and
housing markets have a multiplier effect on economic activity and job creation.
Source: RBI
1.7 Outlook
India’s economy grew at a record of 20.1 per cent year-on-year in April-June quarter of 2021,
rebounding from a deep slump last year, despite a devastating second wave of COVID-19
cases. The economy had contracted 24.4 per cent in the same quarter a year earlier. “The
broad-based swift recovery of both demand and supply side components to prepandemic
levels as reflected in Q1: FY 2021-22 estimates bear testimony to India’s strong macroeconomic
fundamentals, barely shaken in FY 2020-21 amid the worst pandemic of the century. The
macro-economic fundamentals are stronger in FY 2020-21 amid a ravaging COVID-19
pandemic as compared to 2008-09 when the Global Financial Crisis (GFC) had pulled down
the world economy into recession”. (Monthly Economic Report, August 2021, Department of
Economic Affairs).
A broad-based rebound in several leading macroeconomic indicators in July and August
offer bright prospects for India’s continued economic recovery. Economic activity to start
normalising from quarter ending September, supported by pent-up demand, ramp-up
of the vaccination drive and favourable policy mix. Although investment demand is still
anaemic, improving capacity utilisation and congenial monetary and financial conditions are
200 | Annual Report 2020-21
The Reserve Bank of India took several steps during the year to strengthen the regulatory
framework for HFCs. With the objective of aligning the regulatory/supervisory framework
with global best practices, the regulatory framework for the HFCs was comprehensively re-
viewed after a consultation process with the stakeholders and a revised regulatory framework
was announced in October 2020 and have come into effect in February 2021. As part of this,
definition of housing finance business was introduced and Principal Business Criteria (PBC)
were laid down with timelines for its phased introduction for entities to qualify as non-banking
financial company-Housing Finance Companies (NBFC-HFCs), failing which the entities were
to be treated as NBFC-Investment and Credit Companies (NBFC-ICCs). Instructions were also
provided for enhancing net owned fund (NOF) and for the phased introduction of Liquidity
Risk Management Framework (LRM) and Liquidity Coverage Ratio (LCR). The guidelines also
covered loan-to-value (LTV) requirements and levy of foreclosure charges. With these changes
HFC regulations were harmonised with the regulations for other NBFCs to some extent. With
the revised framework, the foundation has been provided for an orderly growth of the housing
finance in pursuit of economic and social objectives, especially as the housing construction and
housing markets have a multiplier effect on economic activity and job creation.
Source: RBI
1.7 Outlook
India’s economy grew at a record of 20.1 per cent year-on-year in April-June quarter of 2021,
rebounding from a deep slump last year, despite a devastating second wave of COVID-19
cases. The economy had contracted 24.4 per cent in the same quarter a year earlier. “The
broad-based swift recovery of both demand and supply side components to prepandemic
levels as reflected in Q1: FY 2021-22 estimates bear testimony to India’s strong macroeconomic
fundamentals, barely shaken in FY 2020-21 amid the worst pandemic of the century. The
macro-economic fundamentals are stronger in FY 2020-21 amid a ravaging COVID-19
pandemic as compared to 2008-09 when the Global Financial Crisis (GFC) had pulled down
the world economy into recession”. (Monthly Economic Report, August 2021, Department of
Economic Affairs).
A broad-based rebound in several leading macroeconomic indicators in July and August
offer bright prospects for India’s continued economic recovery. Economic activity to start
normalising from quarter ending September, supported by pent-up demand, ramp-up
of the vaccination drive and favourable policy mix. Although investment demand is still
anaemic, improving capacity utilisation and congenial monetary and financial conditions are
200 | Annual Report 2020-21
