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New RBI Regulation: Housing Finance Companies to Consider as NBFCs

On August 13, 2019, The Reserve Bank of India stated that Housing Finance Companies(HFCs) are going to be considered as one of the classes of NBFCs for regulative functions and will directly come under their command. This rule came after, the Finance Act, 2019 has amended the National Housing Bank Act, 1987, conferring bound powers for a regulation, regarding Housing Finance firms (HFC) with RBI. It's been said that this revised norms will be implemented once the central government issues the notification for the same.

Overall Impact of Revised HFCs Norms 

Finance Minister Nirmala Sitharaman in her maiden Budget 2019-20 speech had proclaimed that National Housing Banks, apart from being the refinancer and lender, is also a regulator of the HFCs. This has raised a conflicting and difficult mandate to NHB. The revised norms are hence to get back the regulatory authority over the housing finance sector from NHB to RBI. 

RBI can review the surviving regulative framework applicable to the HFCs and can be unleashed with revised laws in due course. In the meanwhile, HFCs shall still go with the directions and notifications issued by the National Housing Bank (NHB) until the Reserve Bank of India publishes a revised framework. As per now, National Housing Bank can still perform superintendence of HFCs, and HFCs can still submit numerous returns to NHB. The grievance redressal mechanism with relevance to HFCs will always be with the NHB.

This Act authorizes RBI to come after the board of NBFCs (other than that closely-held by the government) and alter the resolution of financially troubled NBFCs through a merger or separating them into viable and non-viable units referred to as bridge establishments. RBI may currently take away auditors, incorporate audit of any associate group cluster company of an NBFC and also have the right to act over the compensation of the senior management.

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By Govi