Amid one of India's major NBFC crisis, the central government is mooting the idea of giving power to the Reserve Bank of India (RBI) to regulate housing finance companies (HFCs). The move may lead to these lenders facing tough asset quality reviews, news agency Reuters reported.
The HFCs major including Indiabulls Housing Finance Ltd, Housing Development Finance Corporation and Dewan Housing Finance Corporation could face major consequences of such a step as the apex bank may put them under scrutiny and also slap financial penalties and restriction on their activities if found guilty of any malpractices.
Notably, a similar review of the banking assets was carried out by the central bank in 2015 over the allegations that the lenders were not disclosing the extent of their bad loans in their balance sheet. The RBI reviews revealed that lenders were under-reporting bad debts, which had piled up during multiple instances. The penalties were imposed on the lenders for hiding their bad loans but eventually over time, bad debts remained high on loan books of those non-banking financial corporations (NBFCs).
Interestingly, housing finance companies in India are regulated by the National Housing Board and the RBI does have direct authority over them. Over the years, the NBFCs have been loosely regulated by multiple institutions including the RBI but none of them is fully accountable for their role. The government's proposed step to put HFCs under the RBI's purview will certainly put a tighter control over risky shadow banking sector which has witnessed a major default in the recent times, especially the bankruptcy of Infrastructure Leasing and Financial Services (IL&FS).
One of the sources privy of the matter said, "There will be a substantial improvement in regulation and supervision of all entities including NBFCs and HFCs once RBI has direct control over the housing finance firms." In fact, on Monday, Finance Minister Nirmala Sitharaman has also said that the government is thinking of giving more teeth to the RBI to regulate the shadow banking sector which is reeling under heavy cash crunch at the moment. Although, she did not reveal further details. Another government official added "The government is planning to give more regulatory powers to the RBI to regulate housing finance companies. Right now they do not have that."