Own funds floor for housing finance companies raised 5-fold to Rs 10 crore

NEW DELHI: The housing finance regulator has increased the own funds requirement for housing finance company by five fold to ensure only serious players enter the business.

The board of the National Housing Bank (NHB) has approved a decision to raise the minimum net owned fund requirement for housing finance firms by five times to 10 crore.

Net owned fund is the aggregate of the paid-up equity capital and free reserves.

Industry says the regulation will not have any impact on most of the big players. "It's a historical number," said head of Retail Finance Edelwiess, Anil Kothuri.

"The large players already have a networth far excess of the current stipulation," he said.

At present, the NOF requirement for housing finance companies ( HFCs) is only 2 crore.

The higher limit will affect the smaller housing finance companies that will now need to bring more funds into the business.

The housing regulators has been tightening the regulatory oversight over home financiers after a sharp spurt in housing loans after the global financial crisis. In 2009-10, housing loans rose 19% and another 16%-17% in 2010-11.

In September 2010, NHB had mandated HFCs to make greater provisions towards loan given to companies and builders.

It had directed that HFCs keep aside 0.4% of the total loans other than individual housing loans by September 2011.

It had topped that with a further 2% provision on teaser loans, including loans given out at special rates where the interest rate is low in the first few years.

NHB has raised its prime lending rates to 10.5 % from 10.25% three months back and has no plans to further hike rates, said Verma. The company has disbursed nearly 12,000 crore as of now.

The tighter rules and higher interest rates have already hurt demand for housing loans. The scams and issues with land acquisition have also stalled progress.

"In markets such as Mumbai there are no new projects coming up because of the Adarsh scam," said Kothuri.