NHB Regulations on Housing Finance Institutions

National Housing Bank (NHB) has following rules and regulations in controlling the Housing finance Institutions. They are as follows

NHB issues Certificate of Registration:

NHB regulations demands that all the housing finance institutions, set up as a company must obtain a certificate of registration from the National Housing Bank.

Requirement on Net-owned funds:

Companies who apply for Certificate of registration should have net owned funds of Rs. 25 lakhs, consisting of paid up capital, free reserve, etc.

Regulation on Period of deposits:

The housing finance companies can accept deposits which are subject to certain regulations. According to NHB, a public deposit is a deposit received by a housing company from the public and it will not include the amount received from governments, RBl, insurance companies, state governments and amount received from any other company and amount raised by issue of shares, stocks, bonds and debentures. It also includes amount brought in by the promoters. Minimum period of deposits should be 12 months and the maximum period is 84 months.

NHB regulation stipulates that for accepting deposits, the housing finance company must have net owned funds of Rs. 25 lakhs and must have obtained a credit rating of ‘A’ from any of the credit rating companies such as CRISIL, ICRA, CARE, etc.

NHB regulation about Ceiling on deposits:

There is a ceiling for acceptance of deposits by housing finance companies with a credit rating of ‘A’ which has net owned funds (NOF) of Rs. 25 lakhs and above.

NHB regulation about formats for application forms:

Regulation of NHB demands that Public deposits can be accepted by housing finance companies (HFCs) on the basis of submission of written application form by depositors. This is governed by Section 58-A of the Companies Act of India. The application form should contain the following details

• Credit rating assigned for deposits,
• name of the credit rating agency,
• in the case of default by the company, whom the depositor should approach for claiming the deposit.
• financial position of the company with a declaration by the Board of directors.
• a statement by the company, stating that the deposits are regulated by National Housing bank.

NHB regulation on Receipt to deposits:

As per the regulation of NHB, every deposit received by housing finance companies must be acknowledged by the company which should be signed by an officer recognized by the company. The deposit receipt should contain

1. date of deposit,
2. period of deposit,
3. date of maturity,
4. names and addresses of the deposit holders,
5. rate of interest; and
6. amount of deposit, both in words and figures.

NHB regulation on Register of Deposits:

The housing finance companies must maintain registers about the depositors containing all the details, as stated in the deposit.

NHB regulation regarding Report of Board of Directors:

The Board of directors of the housing finance company will have to submit a report on the last working day of a financial year, details regarding

• deposits received,
• amount repaid,
• details of amount unclaimed, especially those exceeding Rs. 5 lakhs.

NHB regulation regarding Interest and Brokerage:

The interest rate on deposits which stood at 15% as on 1.1.1999 has been reduced now, as per the regulations of RBI. A Housing Finance Company cannot pay more than the stipulated rate of interest by NHB. A brokerage of 2% and a commission of 0.5% are payable to brokers through whom deposits are collected or received.

Regulation about Investment in liquid assets:

The housing finance companies may invest in unencumbered approved securities which normally consist of Central government and state government securities. The company shall invest not less than 6% of the total deposit amount and not more than 25%. To ensure that such investments are made, the directors of the company will have to submit a written declaration. If the above statutory investments are not maintained, then the National Housing Bank will levy a penalty interest rate of 3% over and above the bank rate for the shortfall on the loans taken from the NHB by the housing finance company.

Regulation about Accounts and audit reports:

Audited balance sheet on the last date of the financial year with the audited profit and loss account with the signature of the Board of directors have to be submitted to the NHB by the housing finance company. Along with these, audit reports and audited certificates must also be filed.

Regulations about Sending of periodical returns:

Every month, the housing finance company have to submit to the NHB details of deposits and furnish details of housing loans dispersed by them. The position of net owned funds and the statement of investment on approved securities have to be signed by authorized signatories of the company. Names and addresses of the directors of the company must also be furnished.

NHB regulations Publishing of advertisements by HFCs:

The advertisements for accepting deposits by the housing finance company should comply with the rules of NBFCs and Miscellaneous NBCs (Advertisement) Rules, 1977. The advertisement should contain details about the company, types of deposits accepted, interest rate offered, duration of deposits, and the working of the company in previous years. The advertisement should be signed by a person not less than the rank of a director of the company.

The updated rules and regulations of NHB could be found in this link NHB Regulations – Circular