Amid growing concerns about solvency as well as asset-liability mismatch in the shadow banking space following the IL&FS crisis, the National Housing Bank (NHB) has proposed to gradually raise the capital adequacy requirement of housing finance companies (HFCs) to 15% by March 2022 from the current 12%.
In its proposed amendments to regulations, reviewed by FE, the housing finance regulator has also decided to reduce the limit of borrowings by HFCs to 12 times of their net-owned funds (NOF) by March 2022 from 16 times now.
Analysts said the proposal on steady improvement in solvency parameters, such as capital adequacy, will ensure HFCs remain in fine shape and their capacity to absorb shock rises.
Similarly, tightening their borrowing limit will basically prevent HFCs from getting into the unavoidable debt trap where they will ultimately default on their payment obligation, just like some of the IL&FS entities. The proposal to implement the changes fully over a three-year period is aimed at giving HFCs enough time to get their act together and stay afloat, at a time when they are already facing liquidity constraints.
