RBI initiates regulatory harmonisation, HFCs move closer to NBFC deposit rules

In a strategic move towards aligning housing finance companies (HFCs) with non-banking finance companies (NBFCs), the Reserve Bank of India (RBI) has opted to transition HFCs into the regulatory framework for deposit acceptance, akin to deposit-taking NBFCs.

Shares of PNB Housing Finance exhibited a 3 percent surge, trading at Rs 824.7, and Can Fin Homes experienced a 0.32 percent uptick, reaching Rs 765.75 per share in response to the regulatory development. Conversely, LIC Housing Finance witnessed a marginal decline of 0.2 percent, settling at Rs 577.5 per share.

As part of the regulatory adjustments, the RBI has curtailed the upper cap for public deposit tenure to five years from the previous 10 years. Additionally, deposit-taking HFCs are mandated to maintain 15 percent liquid assets by March 2025, up from the previous 13 percent, aligning with the regulations for NBFCs.

Addressing the stock-specific perspective, brokerage reports indicate that deposit-taking HFCs within their coverage remain well within the stipulated limits. PNB Housing Finance, LIC Housing Finance, and Can Fin Homes reported Q2FY24 deposits/equity at 1.2x/0.4x/0.1x, respectively.

Citi, a leading brokerage firm, clarified that while LIC Housing Finance and Can Fin Home Finance have less than 2 percent of borrowings through public deposits, PNB Housing Finance relies significantly on deposits, constituting almost one-third of its borrowings.