CALCUTTA, July 11: The Finance Ministry has rejected the National Housing Bank's proposal to amend the NHB Act so that it can effectively regulate housing finance companies (HFCs).

The apex bank for housing finance companies is now weighing the alternative of directing all HFCs to obtain a fresh registration to continue in business, on the lines of what has been done for non-banking finance companies.

A top NHB official told The Indian Express: "Now that all non-banking finance companies keen to continue in business have registered themselves with the RBI, there is no reason why there should be a different set of rules for HFCs. Since the RBI registration did not apply to HFCs, we are trying to cover up the vacuum by initiating similar measures for housing finance companies."

The NHB had urged the ministry to introduce an amended Act to enable it to administer HFCs with a firm hand and ensure that funds mopped up are deployed in the earmarked sector. HFCs have an advantage over NBFCs when it comes to raising funds, as they are allowed to mop up 15 times their net- owned funds (NoF) against only 10 times for NBFCs.

Hence, it was felt necessary to ensure that the funds raised were not siphoned off to the non-housing businesses for earning higher returns. Although there are over 450 HFCs in India, only 25 are approved by the NHB for refinance. These 25 firms control as high as 85 per cent of the total business, and the apex bank is often clueless about the activities of small entities who do not obtain refinance facilities from the NHB. The amendment was thus mooted to check the unregulated growth of housing finance companies.

"HFCs are just another type of non-banking finance companies, and if registration is not made mandatory for them un-registered NBFCs may just convert themselves HFCs and continue in business without adhering to the RBI prescribed norms," the NHB official pointed out. The fresh registration norms are likely to be in line with those prescribed under the RBI (Amendment) Act of 1997 for NBFCs. The NoF for HFCs would be pegged at around Rs 25 lakh and HFCs will have to mainitain a minimum capital adequacy ratio of 8 per cent.

"The 8 per cent capital adequacy ratio is reasonable and there is no reason why it should be raised," the NHB source added. Welcoming the move to enforce mandatory registration for HFCs, SBI Home Finance managing director M L Chandra said: "Such measures will go a long way in instilling public confidence in housing finance companies."

The apex bank is working on a revamped Home Loan Account scheme, which would enable scheduled commercial banks, co-op banks and land development banks to act as collection agents.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.