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    Will borrowers benefit if RBI regulates housing finance companies? 4 experts weigh in


    ET Wealth asks industry experts and consumer activists if RBI regulating HFCs will benefit the consumers.

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    The proposal of housing finance companies being regulated by RBI was announced in Budget 2019.
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    The Budget has proposed that the RBI, and not the National Housing Bank, regulate housing finance companies. ET Wealth asks industry experts and consumer activists if this will benefit customers.

    Neera Saxena, MD and CEO, GIC Housing Finance says YES
    "Impact of the move is uncertain in the short term, but is likely to benefit customers in the longer term."

    While the direct and immediate impact of this change is unclear for millions of borrowers from housing finance companies (HFCs), there is optimism that this will work in their favour. Lending rates could potentially come down while transparency at HFCs will certainly increase with the Reserve Bank of India (RBI) at the helm. HFCs could see lower cost of funding— and there is potential for the benefit of lower rates being passed on to the borrowers. With HFCs coming under RBI’s purview, the sector hopes that the RBI will bring in much-needed reforms for financing the real estate sector. This would include giving priority sector status to housing finance and lowering the cost of lending. RBI may advice HFCs to follow a singular external benchmark for lending which will usher in transparency.

    Regulatory powers over HFCs shifting from NHB to RBI will certainly have a significant impact on these companies in the short-term—compliance burden, changes in the operating models for some HFCs, as well as lack of clarity on the refinancing model between the two regulators. Companies and regulators together will have to evolve from this watershed moment and emerge stronger. RBI supervision could result in HFCs facing unprecedented scrutiny and the potential for major financial penalties and restrictions if improper activities are discovered. An asset quality review (AQR) exercise similar to the late 2015 review of bank assets (bad loans) by RBI could lead to financial penalties and tougher restriction on loan books. For customers, the impact in the short-term is uncertain, but it is likely to benefit them in the longer term.

    Deo Shankar Tripathi, MD and CEO, Aadhaar Housing Finance says YES
    Deo-Shankar-Tripathi-CEO-Aadhaar Housing finance
    "With the RBI as the regulator, the liquidity crisis facing the HFCs is expected to get resolved quickly."

    This move may benefit several stakeholders— home loan borrowers, depositors, HFCs as well as equity investors and overseas lenders to some extent. It is positive for depositors as some HFCs are allowed to accept deposits besides extending housing finance, while borrowers will feel minimal impact. Retail non-convertible debenture holders will certainly be more confident with RBI as the regulator. For borrowers, the change will make little difference. NHB has also implemented all necessary guidelines to ensure fairness and transparency. Equity investors and overseas stakeholders, will certainly gain confidence. The liquidity crisis that HFCs are facing for the last 8-9 months, is expected to get resolved quickly with RBI as regulator. Overall it will be a positive development.

    Jehangir Gai, Consumer Activist says NO
    "It’s just a gimmick to make the gullible public believe that some action is being taken to protect them."

    National Housing Board (NHB) is a whollyowned subsidiary of the Reserve Bank of India (RBI), which was established on 9 July 1987. Today, after more than 30 years, we find that the functioning of the NHB is not satisfactory. Since NHB is a subsidiary of the RBI, it is the RBI that should be held responsible for the failure of the NHB to achieve its objective. When the RBI is unable to discharge its existing duties satisfactorily and it has a bad track record of having let down banking consumers and the common citizen, how can merely transferring control and regulation of housing finance companies (HFCs) to the RBI be beneficial to consumers? It will definitely not help. It is nothing but a gimmick to make the gullible public believe that some action is being taken to protect them.

    R.V. Verma, Former Chairman, NHB says NO
    RV-Verma-Former chairman-NHB
    "Promotion and development initiatives work more for borrowers, rather than pure regulation."

    The proposed move, if implemented, will not make any difference to the customers. NHB has played a key role in promoting, developing and nurturing the home finance industry for years since its inception.

    It’s a good story by and large, as the NHB, through its multifunctional mandate as a DFI, shaped the industry, developed the institutions and grew the market to scale, as it stands today, with outstanding mortgage-loans-to -GDPratio at 10+%, from about 4 % in 2002-03.

    Regulation is supposed to bring stability to the sector and enhance confidence in the market—for the borrowers as well as industry player. On the other hand, credit and financing directly impact the life of borrowers and home seekers. Loans to individuals are a function performed by the lenders, primarily banks and HFCs, based on their skill sets, depth, reach, and their level of confidence in lending for housing. Thus, it’s more the promotion and development initiatives such as building the market infrastructure, and right ecosystem, together with the capacity of the lenders that work for borrowers, rather than pure regulation.

    With the regulatory function reverting to RBI, the developmental and promotional role of NHB will be key to the continuing growth and expansion of the market, which NHB will need to focus on. RBI, on its part, will hopefully treat the HFCs as a special category of institutions with special characteristics needing specialised regulations. What will serve the best interests of borrowers and the market is better and closer coordination between NHB and RBI on regulatory and supervisory matters.

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