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Reserve Bank of India (Housing Finance Companies) Directions, 2025

DRAFT FOR COMMENTS

RBI/2025-26/--
DoR.FIN.REC.No./ 00-00-000/2025-26

XX, 2025

Reserve Bank of India (Housing Finance Companies) Directions, 2025

Table of Contents

Chapter-I – Preliminary

Chapter-II – Role of Board and Registration

Chapter-III – Prudential Regulation – Capital

Chapter-IV – Prudential Regulation - Asset Classification and Provisioning

Chapter-V – Prudential Regulation- Regulatory Restrictions and Limits

Chapter-VI – Prudential Regulation- Acceptance of Public Deposits

Chapter-VII – Governance- Acquisition/ Transfer of Control

Chapter-VIII – Corporate Governance

Chapter-IX –Opening of Branches / Offices

Chapter-X – Fair Practices Code

Chapter-XI – Miscellaneous Instructions

Chapter-XII – Regulations applicable for HFCs in Upper Layer

Chapter-XIII – Regulations applicable for HFCs in Top Layer

Chapter-XIV – Reporting Requirements

Chapter-XV - Repeal and Other Provisions

Introduction

In exercise of the powers conferred under sections 45L and 45MA of the Reserve Bank of India Act, 1934 and Sections 30, 30A, 32 and 33 of the National Housing Bank Act, 1987, the Reserve Bank having considered it necessary in the public interest, and being satisfied that, for the purpose of enabling the Reserve Bank to regulate the financial system to the advantage of the country and to prevent the affairs of any Housing Finance Company (HFC) from being conducted in a manner detrimental to the interest of investors and depositors or in any manner prejudicial to the interest of such HFC, hereby issues to every HFC, the Reserve Bank of India (Housing Finance Companies) Directions, 2025 hereinafter specified.

Chapter-I – Preliminary

A. Short Title and Commencement

1. These directions shall be called the Reserve Bank of India (Housing Finance Companies) Directions, 2025.

2. These directions shall come into effect on the day they are placed on the website of the Reserve Bank.

B. Applicability

3. These Directions (except directions contained in paragraphs 200 to 205) shall be applicable to Housing Finance Companies (hereinafter collectively referred to as ‘HFCs’ and individually as an ‘HFC’) registered under Section 29 A of the NHB Act, 1987.

4. The Directions contained in paragraphs 200 to 205 shall be applicable to auditors of HFCs.

C. Regulatory Structure under Scale Based Regulation for NBFCs

5. An HFC will be included in Middle Layer or the Upper Layer (and not in the Base layer) depending on the parameters of the scale based regulatory framework specified in Reserve Bank of India (Non-Banking Financial Companies – Registration, Exemptions and Framework for Scale Based Regulation) Directions, 2025. The HFC shall adhere to the applicable scale-based regulation as specified in the directions above, ibid, also, in addition to the directions specified in this Master Direction.

D. Applicability of directions

6. A HFC shall ensure compliance to following directions:

(1) Guidelines on Liquidity Risk Management Framework: All non-deposit taking HFCs with asset size of ₹100 crore and above and all deposit taking HFCs (irrespective of asset size) shall pursue liquidity risk management, which inter alia should cover adherence to gap limits, making use of liquidity risk monitoring tools and adoption of stock approach to liquidity risk. It will be the responsibility of the Board of each HFC to ensure that the guidelines are adhered to. The internal controls required to be put in place by HFCs as per these guidelines shall be subject to supervisory review. The directions on ‘Liquidity Risk Management Framework’ as prescribed in Reserve Bank of India (Non-Banking Financial Companies – Asset Liability Management) Directions, 2025 shall be applicable mutatis mutandis.

(2) Guidelines on Maintenance of Liquidity Coverage Ratio (LCR): HFCs shall maintain a liquidity buffer in terms of LCR, which will promote resilience of HFCs to potential liquidity disruptions by ensuring that they have sufficient High Quality Liquid Asset (HQLA) to survive any acute liquidity stress scenario lasting for 30 days. Guidelines on LCR will be applicable to HFCs as per the following timeline:

(i) All non-deposit taking HFCs with asset size of ₹10,000 crore & above, and all deposit taking HFCs irrespective of their asset size:

From	Dec 01, 2021	Dec 01, 2022	Dec 01, 2023	Dec 01, 2024	Dec 01, 2025
Minimum LCR	50%	60%	70%	85%	100%

(ii) All non-deposit taking HFCs with asset size of ₹5,000 crore and above, but

less than ₹10,000 crore:

From	Dec 01, 2021	Dec 01, 2022	Dec 01, 2023	Dec 01, 2024	Dec 01, 2025
Minimum LCR	30%	50%	60%	85%	100%

The directions on ‘Maintenance of Liquidity Coverage Ratio’ as prescribed in Reserve Bank of India (Non-Banking Financial Companies – Asset Liability Management) Directions, 2025 shall be applicable mutatis mutandis.

(3) Loans against security of shares: HFCs lending against the collateral of listed shares shall maintain a Loan to Value (LTV) ratio of 50% for loans granted against the collateral of shares. Any shortfall in the maintenance of the 50% LTV occurring on account of movement in the share price shall be made good within seven working days. The directions on ‘Loans against security of shares’ as prescribed in Reserve Bank of India (Non-Banking Financial Companies – Credit Facilities) Directions, 2025 shall be applicable mutatis mutandis.

(4) Loans against security of single product - gold jewellery: HFCs shall maintain a Loan-to-Value (LTV) Ratio not exceeding 75 per cent for loans granted against the collateral of gold jewellery, and shall put in place a Board approved policy for lending against gold. HFCs shall also ensure compliance with the instructions on Lending Against Gold and Silver Collateral issued under Reserve Bank of India (Non-Banking Finance Companies – Credit Facilities) Directions, 2025, as expeditiously as possible but no later than April 1, 2026. The directions on ‘Loans against security of single product – gold jewellery’ as prescribed in Reserve Bank of India (Non-Banking Financial Companies – Credit Facilities) Directions, 2025 shall be applicable mutatis mutandis.

(5) Managing Risks and Code of Conduct in Outsourcing of Financial Services: It is imperative for HFCs outsourcing their activities that they ensure sound and responsive risk management practices for effective oversight, due diligence and management of risks arising from such outsourced activities. The directions on ‘Managing Risks and Code of Conduct in Outsourcing of Financial Services’ as prescribed in Reserve Bank of India (Non-Banking Financial Companies – Managing Risks in Outsourcing) Directions, 2025 shall be applicable mutatis mutandis.

(6) Implementation of Indian Accounting Standards: HFCs shall maintain a prudential floor in respect of impairment allowances and follow instructions on regulatory capital. The directions on ‘Implementation of Indian Accounting Standards’ as prescribed in Reserve Bank of India (Non-Banking Financial Companies – Financial Statements: Presentation and Disclosures) Directions, 2025 shall be applicable mutatis mutandis.

(7) Reserve Bank of India (Non-Banking Financial Companies – Know Your Customer) Directions, 2025

(8) Master Directions on Fraud Risk Management in Non-Banking Financial Companies (NBFCs) (including Housing Finance Companies) as amended from time to time.

Note: The reporting / instructions prescribed by the Reserve Bank in the directions above for supervisors, shall be done to the Supervisor of HFCs i.e., NHB.

(9) Reserve Bank of India (Non-Banking Financial Companies – Managing Risks in Outsourcing) Directions, 2025, as amended from time to time.

Note: The reporting / instructions prescribed by the Reserve Bank in the directions above for supervisors, shall be done to the Supervisor of HFCs i.e., NHB.

7. A HFC shall ensure compliance with the applicable instructions, as prescribed in the following directions:

(1) Reserve Bank of India (Non-Banking Financial Companies – Transfer and Distribution of Credit Risk) Directions, 2025

(2) Reserve Bank of India (Non-Banking Financial Companies – Securitisation Transactions) Directions, 2025

(3) Microfinance Loans of a HFC shall be guided by Reserve Bank of India (Non-Banking Financial Companies – Credit Facilities) Directions, 2025

Note: The reporting / instructions prescribed by the Reserve Bank in the directions above for supervisors, shall be done to the Supervisor of HFCs i.e., NHB.

(4) Guidance Note on Operational Risk Management and Operational Resilience - HFCs may make use of the ‘Guidance Note on Operational Risk Management and Operational Resilience’ dated April 30, 2024

(5) Reserve Bank of India (Non-Banking Financial Companies – Credit Information Reporting) Directions, 2025

(6) Reserve Bank of India (Non-Banking Financial Companies – Treatment of Wilful Defaulters and Large Defaulters) Directions, 2025

(7) Directions on ‘Digital Lending’ , ‘Lending Against Gold and Silver Collateral’ and ‘Project Finance’ under Reserve Bank of India (Non-Banking Financial Companies – Credit Facilities) Directions, 2025

(8) Directions on Prepayment Charges on Loans under Reserve Bank of India (Non-Banking Financial Companies – Responsible Business Conduct) Directions, 2025

E. Definitions

8. For the purpose of these directions, unless the context otherwise requires:

(1) “Banking Company” means a banking company as defined in Section 5 (c) of the Banking Regulation Act, 1949 (Act 10 of 1949).

(2) “Break-up value” means the equity capital and reserves as reduced by intangible assets and revaluation reserves, divided by the number of equity shares of the investee company.

(3) “Carrying cost” means book value of the assets and interest accrued thereon but not received.

(4) “Company” means a company registered under Section 3 of the Companies Act, 1956 (Act 1 of 1956) or the corresponding provision under Companies Act, 2013 (Act 18 of 2013).

(5) “Companies in the group” shall mean an arrangement involving two or more entities related to each other through any of the following relationships: subsidiary – parent (defined in terms of AS 21), joint venture (defined in terms of AS 27), associate (defined in terms of AS 23), promoter – promotee (as provided in the SEBI (Acquisition of Shares and Takeover) Regulations, 1997) for listed companies, a related party (defined in terms of AS 18), common brand name, and investment in equity shares of 20 per cent and above.

(6) “Conduct of business regulations” means the directions issued by the Reserve Bank from time to time on Fair Practices Code and Know Your Customer.

(7) "Control" shall have the same meaning as assigned to it under clause (e) of sub-regulation (1) of regulation 2 of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

(8) “Current investment” means an investment which is by its nature readily realizable and is intended to be held for not more than one year from the date on which such investment is made.

(9) “Customer interface” means interaction between the HFC and its customers while carrying on its business.

(10) “Depositor" means any person who has made a deposit with a company; or an heir, legal representative, administrator or assignee of the depositor;

(11) “Dividend Payout Ratio” means the ratio between the amount of the dividend payable in a year and the net profit as per the audited financial statements for the financial year for which the dividend is proposed. Proposed dividend shall include both dividend on equity shares and compulsory convertible preference shares eligible for inclusion in Tier 1 Capital. In case the net profit for the relevant period includes any exceptional and/or extra-ordinary profits/ income or the financial statements are qualified (including ’emphasis of matter’) by the statutory auditor that indicates an overstatement of net profit, the same shall be reduced from net profits while determining the Dividend Payout Ratio.

(12) “Earning value” means the value of an equity share computed by taking the average of profits after tax as reduced by the preference dividend and adjusted for extra-ordinary and non-recurring items, for the immediately preceding three years and further divided by the number of equity shares of the investee company and capitalized at the following rate:

(i) in case of predominantly manufacturing company, eight per cent;

(ii) in case of predominantly trading company, ten per cent; and

(iii) in case of any other company, including non-banking financial company/ housing finance company, twelve per cent;

Note: If, an investee company is a loss-making company, the earning value will be taken at zero.

(13) “Fair value” means the arithmetic mean of the earning value and the breakup value.

(14) "Free reserves" means the aggregate of the balance in the share premium account, capital and debenture redemption reserves and any other reserve shown or published in the balance sheet of a company and created through an allocation of profits not being a reserve created for repayment of any future liability or for depreciation in assets or for bad debts or a reserve created by revaluation of the assets of the company.

(15) “Housing Finance” shall mean financing, for purchase/ construction/ reconstruction/ renovation/ repairs of residential dwelling units, which includes:

(i) Loans to individuals or group of individuals including co-operative societies for construction/ purchase of new dwelling units.

(ii) Loans to individuals or group of individuals for purchase of old dwelling units.

(iii) Loans to individuals or group of individuals for purchasing old/ new dwelling units by mortgaging existing dwelling units.

(iv) Loans to individuals for purchase of plots for construction of residential dwelling units provided a declaration is obtained from the borrower that he intends to construct a house on the plot within a period of three years from the date of availing of the loan.

(v) Loans to individuals or group of individuals for renovation/ reconstruction of existing dwelling units.

(vi) Lending to public agencies including state housing boards for construction of residential dwelling units.

(vii) Loans to corporates/ Government agencies for employee housing.

(viii) Loans for construction of educational, health, social, cultural or other institutions/ centres, which are part of housing projects and which are necessary for the development of settlements or townships (see note below).

(ix) Loans for construction meant for improving the conditions in slum areas, for which credit may be extended directly to the slum-dwellers on the guarantee of the Central Government, or indirectly to them through the State Governments.

(x) Loans given for slum improvement schemes to be implemented by Slum Clearance Boards and other public agencies.

(xi) Lending to builders for construction of residential dwelling units.

All other loans including those given for furnishing dwelling units, loans given against mortgage of property for any purpose other than buying/ construction of a new dwelling unit/s or renovation of the existing dwelling unit/s as mentioned above, will be treated as non-housing loans and will not be falling under the definition of “Housing Finance”.

Note: Integrated housing project comprising some commercial spaces (e.g. shopping complex, school, etc.) can be treated as residential housing, provided that the commercial area in the residential housing project does not exceed 10 per cent of the total Floor Space Index (FSI) of the project.

(16) “Housing finance company” shall mean a company incorporated under the Companies Act, 2013 that fulfils the following conditions:

(i) It is an NBFC whose financial assets, in the business of providing finance for housing, constitute at least 60% of its total assets (netted off by intangible assets). Housing finance for this purpose shall mean providing finance as stated at clauses (i) to (xi) of paragraph 8(16).

(ii) Out of the total assets (netted off by intangible assets), not less than 50% should be by way of housing finance for individuals as stated at clauses (i) to (xi) of paragraph 8(16).

Notes:

(a) The company will be treated as an NBFC if its financial assets are more than 50 per cent of its total assets (netted off by intangible assets) and income from financial assets should be more than 50 per cent of the gross income.

(b) The above-mentioned conditions shall be treated as Principal Business Criteria for HFCs and are applicable from the date of original instructions issued vide circular DOR.NBFC (HFC).CC.No.118/03.10.136/ 2020-21 dated October 22, 2020. .

(17) “Hybrid debt” means capital instrument which possesses certain characteristics of equity as well as of debt.

(18) “Insurance Company” means any company registered under section 3 of the Insurance Act, 1938 (Act 4 of 1938).

(19) “Investment and Credit Company - (NBFC-ICC)" means any company which is a financial institution carrying on as its principal business - asset finance, the providing of finance whether by making loans or advances or otherwise for any activity other than its own and the acquisition of securities; and is not any other category of NBFC as defined by the RBI in any of its Master Directions.

(20) ‘Key Managerial Personnel’ shall be as defined in Section 2(51) of Companies Act, 2013, as amended from time to time.

(21) “Lending Public Financial Institution” means –

(i) a public financial institution specified in or under Section 4A of the Companies Act, 1956 or the corresponding provision of Companies Act,

2013; or

(ii) a State Financial, Industrial or Investment Corporation; or

(iii) a scheduled commercial bank; or

(iv) the General Insurance Corporation of India established in pursuance of the provisions of Section 9 of the General Insurance Business (Nationalization) Act, 1972 (Act 57 of 1972); or

(v) any other Institution which the Reserve Bank may, by notification, specify in this behalf.

(22) “Long Term Investment” means an investment other than a current investment.

(23) “Major shareholder” means a person holding 10% or more of the paid-up share capital or Rupees five crore in paid-up shares, whichever is lower.

(24) “Net Asset Value” means the latest declared net asset value by the mutual fund concerned in respect of a particular scheme.

(25) “Net Book Value” means:

(i) in the case of hire purchase asset, the aggregate of overdue and future instalments receivable as reduced by the balance of unmatured finance charges and further reduced by the provisions made as per paragraph 76 of these directions.

(ii) in the case of leased asset, aggregate of capital portion of overdue lease rentals accounted as receivable and depreciated book value of the lease asset as adjusted by the balance of lease adjustment account.

(26) “Net Owned Fund” means net owned fund as defined under Section 29A of the National Housing Bank Act, 1987 including paid up preference shares which are compulsorily convertible into equity.

(27) “NHB” or “National Housing Bank” means the National Housing Bank established under Section 3 of The National Housing Bank Act, 1987.

(28) “NHB Act” means the National Housing Bank Act, 1987 (Act 53 of 1987).

(29) “Owned Fund” means paid up equity capital, preference shares which are compulsorily convertible into equity, free reserves including balance in share premium account and capital reserves representing surplus arising out of sale proceeds of asset, excluding reserves created by revaluation of asset, as reduced by accumulated loss balance, book value of intangible assets and deferred revenue expenditure, if any. The HFC shall not be required to deduct a Right-of-Use (ROU) asset (created in terms of Ind AS 116-Leases) from Owned Fund, provided the underlying asset being taken on lease is a tangible asset.

(30) “Problem housing finance company” means a housing finance company which:

(i) has refused or failed to meet within five working days any lawful demand for repayment of the matured public deposits; or

(ii) intimates the Company Law Board under section 58AA of the Companies Act, 1956 or the corresponding provision of Companies Act, 2013, about its default to a small depositor in repayment of any public deposit or part thereof or any interest thereupon; or

(iii) approaches the Reserve Bank for withdrawal of the liquid asset securities to meet its deposit obligations; or

(iv) approaches the Reserve Bank for any relief or relaxation or exemption from the provisions of these directions for avoiding default in meeting public deposit or other obligations; or

(v) has been identified by the Reserve Bank or the NHB to be a problem housing finance company either suo moto or based on the complaints from the depositors about non-repayment of public deposits or on complaints from the company’s lenders about non-payment of dues.

(31) “public deposit” means the same as defined in Reserve Bank of India (Non-Banking Financial Companies – Acceptance of Public Deposits) Directions, 2025, as amended from time to time. Additionally, any amount received from NHB or any Public Housing Agency shall also be exempted from the definition of public deposit.

(32) “Public Funds” includes funds raised either directly or indirectly through public deposits, inter-corporate deposits, bank finance and all funds received from outside sources such as funds raised by issue of Commercial Papers, debentures etc. but excludes funds raised by issue of instruments compulsorily convertible into equity shares within a period not exceeding five years from the date of issue.

(33) “Public Housing Agency” shall include any authority, constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages or for both.

(34) “Relative” shall have the meaning assigned to it under clause 77 of section 2 of the Companies Act, 2013.

(35) "Securities" means securities as defined in Section 2(h) of the Securities Contracts (Regulation) Act, 1956 (Act 42 of 1956).

(36) “Senior Officer” or “Senior Management” shall have the same meaning as assigned to “Senior Management” under section 178 of the Companies Act, 2013.

(37) "Subordinated Debt" means an instrument, which is fully paid up, is unsecured and is subordinated to the claims of other creditors and is free from restrictive clauses and is not redeemable at the instance of the holder or without the consent of NHB. The book value of such instrument shall be subjected to discounting as provided hereunder:

Remaining Maturity of the instruments	Rate of discount
a. Up to one year	100 per cent
b. More than one year but up to two years	80 per cent
c. More than two years but up to three years	60 per cent
d. More than three years but up to four years	40 per cent
e. More than four years but up to five years	20 per cent

to the extent such discounted value does not exceed fifty per cent of Tier 1 capital.

(38) “Substantial Interest” means holding of a beneficial interest by an individual or his spouse or minor child, whether singly or taken together in the shares of a company, the amount paid up on which exceeds ten per cent of the paid-up capital of the company; or the capital subscribed by all the partners of a partnership firm.

(39) “Tier 1 Capital” means owned fund as reduced by investment in shares of other non-banking financial companies including housing finance companies and in shares, debentures, bonds, outstanding loans and advances including hire purchase and lease finance made to and deposits with subsidiaries and companies in the same group exceeding, in aggregate, ten per cent of the owned fund.

(40) “Tier 2 capital” includes the following:

(i) Preference shares other than those which are compulsorily convertible into equity;

(ii) Revaluation reserves at discounted rate of fifty-five per cent.

(iii) General provisions (including that for Standard Assets) and loss reserves to the extent these are not attributable to actual diminution in value or identifiable potential loss in any specific asset and are available to meet unexpected losses, to the extent of one and one fourth per cent of risk weighted assets;

(iv) Hybrid debt capital instruments, provided the instrument complies with the regulatory requirements specified in Annex I; and

(v) Subordinated debt;

to the extent the aggregate does not exceed Tier 1 capital.

(41) “Tiny deposit” means the aggregate amount of public deposits not exceeding ₹10,000/- standing in the name of the sole or the first named depositor in the same capacity in all the branches of the HFC.

9. Words or expressions used but not defined herein and defined in the RBI Act, the NHB Act, Reserve Bank of India (Non-Banking Financial Companies – Registration, Exemptions and Framework for Scale Based Regulation) Directions, 2025 shall have the same meaning as assigned to them therein. Any words or expressions used and not defined in the aforesaid statutes or directions issued by the Reserve Bank of India, shall have the meanings assigned to them under the Banking Regulation Act, 1949, the Companies Act, 1956 or the Companies Act, 2013.

10. If any question arises as to whether a company is a financial institution or not, such question shall be decided by the RBI in consultation with the Central Government and the decision of the RBI shall be final and binding on all the parties concerned.

11. If any question arises as to whether a company which is a financial institution, is a housing finance company or not, such question shall be decided by the RBI, having regard to the principal business of the company and other relevant factors, and the decision of the RBI shall be final and binding on all the parties concerned.

Chapter-II – Role of Board and Registration

A. Role of Board and Periodic Review

12. The HFC shall put in place approved policies and establish periodic review mechanisms to ensure sound processes and systems. An illustrative list of such policies to be approved by the Board or a Committee(s) to which powers have been delegated is provided below. The specific aspects to be addressed in these policies are detailed in the relevant paragraphs of these Directions.

(1) Lending against gold

(2) Capital Adequacy: Internal Capital Adequacy Assessment Process (ICAAP)

(3) Exposure limits in respect of various subsegments under consumer credit

(4) Investment Policy

(5) Policy on demand / call loans

(6) Grant of loans to directors, senior officers and relatives of directors and to entities where directors or their relatives have major shareholding

(7) Limits for Sensitive Sector Exposure (SSE)

(8) Appointment of Chief Risk Officer (CRO)

(9) Safeguarding independence of the CRO

(10) Ascertaining the ‘fit and proper’ criteria of the directors at the time of appointment, and on a continuing basis

(11) Compensation policy: The policy shall include, inter alia, constitution of a Nomination and Remuneration Committee, principles for fixed/variable pay structures and malus/clawback provisions.

(12) Corporate Governance

(13) Grievance redressal mechanism

(14) Interest rate model taking into account relevant factors such as cost of funds, margin and risk premium and determine the rate of interest to be charged for loans and advances

(15) Penal charges or similar charges on loans, by whatever name called

(16) Relaxation in terms and conditions either at the time of sanction or anytime thereafter

(17) Rescheduling of loans

(18) Valuation policy for putting in place a system/ procedure for realistic valuation of properties/ fixed assets and also for empanelment of valuers

13. An illustrative list of reviews to be carried out by the Board or a Committee(s) to which powers have been delegated is provided below. The specific aspects to be addressed in these reviews are detailed in the relevant paragraphs of these Directions.

(1) Progress made in putting in place a progressive risk management system and risk management policy and strategy followed by the HFC;

(2) Conformity with corporate governance standards viz., in composition of various committees, their role and functions, periodicity of the meetings and compliance with coverage and review functions, etc.

(3) Compliance of the Fair Practices Code

(4) In case of construction loans, physical verification / project progress monitoring with proof (snap shots) and technical reports ought to be put up to the competent authorities / committee / board at regular intervals

B. Net Owned Fund (NOF) Requirement

14. In exercise of the powers conferred by clause (b) of sub-section (1) of Section 29A of the National Housing Bank Act, 1987, and all powers enabling it in that behalf, the Reserve Bank hereby specifies ₹20 crore as the minimum net owned funds required for a company to commence housing finance as its principal business or carry on the business of housing finance as its principal business.

Provided that a housing finance company holding a Certificate of Registration (CoR) and having net owned fund of less than Rupees twenty crore, may continue to carry on the business of housing finance, if such company achieves net owned fund of Rupees fifteen crore by March 31, 2022 and Rupees twenty crore by March 31, 2023. It will be incumbent upon such HFCs whose NOF currently stands below Rupees twenty crore, to submit a statutory auditor's certificate to Reserve Bank within a period of one month evidencing compliance with the prescribed levels as at the end of the period indicated above. HFCs failing to achieve the prescribed level within the stipulated period shall not be eligible to hold the Certificate of Registration (CoR) as HFCs and registration for such HFCs shall be liable to be cancelled.

C. Investment through Alternative Investment Funds for calculation of NOF

15. In terms of Section 29A of the National Housing Bank Act, 1987, the investments / loans / exposures to subsidiaries, companies in the same group and other HFCs, in excess of 10 percent of owned fund, is reduced from the owned fund, in order to arrive at NOF of an HFC. In this context, while arriving at the NOF, investment made by HFC in entities of the same group, either directly or indirectly, for example through an Alternative Investment Fund (AIF), shall be treated in the same manner, provided the funds in the AIF (company) have come from HFC to the extent of 50 percent or more; or where the beneficial owner in the case of AIF (trust) is the HFC and 50 percent of the funds in the Trust have come from the HFC.

Explanation: For this purpose, “beneficial ownership” would mean holding the power to make or influence decisions in the Trust and being the recipient of benefits arising out of the activities of the Trust.

16. An HFC unable to fulfil the above criteria shall be treated as NBFC – Investment and Credit Companies (NBFC-ICC) and it will be required to approach the Reserve Bank for conversion of their Certificate of Registration from HFC to NBFC-ICC. Application for such conversion should be submitted with all supporting documents meant for new registration together with an auditor’s certificate on principal business criteria and necessary Board resolution approving the conversion.

D. Investment from FATF non-compliant jurisdictions

17. Investments in HFCs from FATF non-compliant jurisdictions shall not be treated at par with that from the compliant jurisdictions. New investors from or through non-compliant FATF jurisdictions, whether in existing HFC or in companies seeking Certification of Registration (COR), should not be allowed to directly or indirectly acquire ‘significant influence’ in the investee, as defined in the applicable accounting standards. In other words, fresh investors (directly or indirectly) from such jurisdictions in aggregate should be less than the threshold of 20 percent of the voting power (including potential voting power) of the HFC.

Note:

(1) The Financial Action Task Force (FATF) periodically identifies jurisdictions with weak measures to combat money laundering and terrorist financing (AML/CFT) in its following publications: i) High-Risk Jurisdictions subject to a Call for Action, and ii) Jurisdictions under Increased Monitoring. A jurisdiction, whose name does not appear in the two aforementioned lists, shall be referred to as a FATF compliant jurisdiction.

(2) Potential voting power could arise from instruments that are convertible into equity, other instruments with contingent voting rights, contractual arrangements, etc. that grant investors voting rights (including contingent voting rights) in the future. In such cases, it should be ensured that new investments from FATF non-compliant jurisdictions are less than both (i) 20 percent of the existing voting powers and (ii) 20 percent of existing and potential voting powers assuming those potential voting rights have materialised.

18. Investors in existing HFC holding their investments prior to the classification of the source or intermediate jurisdiction/s as FATF non-compliant, may continue with the investments or bring in additional investments as per extant regulations so as to support continuity of business in India.

Chapter-III – Prudential Regulation – Capital

A. Capital Requirement

19. A housing finance company shall, maintain a minimum capital ratio on an ongoing basis consisting of Tier 1 and Tier 2 capital which shall not be less than 15 percent of its aggregate risk weighted assets and of risk adjusted value of off-balance sheet items. The Tier 1 capital, at any point of time, shall not be less than 10 percent. The total of Tier 2 capital, at any point of time, shall not exceed 100 percent of Tier 1 capital.

A.1 Internal Capital Adequacy Assessment Process (ICAAP)

20. The HFC is required to make a thorough internal assessment of the need for capital, commensurate with the risks in their business. This internal assessment shall be on similar lines as ICAAP prescribed for commercial banks under Pillar 2 (Reserve Bank of India (Commercial Banks – Prudential Norms on Capital Adequacy) Directions, 2025 as amended from time to time). While Pillar 2 capital will not be insisted upon, the HFC is required to make a realistic assessment of risks. Internal capital assessment shall factor in credit risk, market risk, operational risk and all other residual risks as per methodology to be determined internally. The methodology for internal assessment of capital shall be proportionate to the scale and complexity of operations as per their Board approved policy. The objective of ICAAP is to ensure availability of adequate capital to support all risks in business as also to encourage the HFC to develop and use better internal risk management techniques for monitoring and managing their risks. This will facilitate an active dialogue between the supervisors and HFC on the assessment of risks and monitoring as well as mitigation of the same.

A.2 On balance sheet assets:

21. In these directions, degree of credit risk expressed as percentage weightages have been assigned to balance sheet assets. Hence, the value of each asset/ item requires to be multiplied by the relevant risk weights to arrive at risk adjusted value of assets. The aggregate shall be taken into account for reckoning the minimum capital ratio. The risk weighted assets shall be calculated as the weighted aggregate of funded items as detailed hereunder:

Sr. No.		Weighted risk assets - On balance Sheet items	% Weight
(1)		Cash and bank balances including fixed deposits and certificates of deposits with banks	0
(2)		Investments:
	a)	Approved Securities as defined in National Housing Bank Act, 1987 [Except at (c) below]	0
	b)	Bonds of public sector banks	20
	c)	Fixed deposits/ certificate of deposits/ bonds of public financial institutions	100
	d)	Shares of all companies and debentures/ bonds/ commercial papers of all companies/ units of all mutual funds.	100
	e)	HFC’s investments in innovative perpetual debt of other HFCs/ banks/ financial institutions.	100
(3)	a)	Domestic Sovereign:
		i) Fund based claims on the Central Government	0
		ii) Direct loan/ credit/ overdraft exposure and investment in State Government securities	0
		iii) Central Government guaranteed claims	0
		iv) State Government guaranteed claims, which have not remained in default/ which are in default for a period not more than 90 days	20
		v) State Government guaranteed claims, which have remained in default for a period of more than 90 days	100
	b)	(b)(i) Outstanding Housing loans to individuals up to ₹30 lakh secured by mortgage of immovable property, which are classified as standard assets with LTV Ratio ≤ 80%	35
		(b)(ii) Outstanding Housing loans to individuals up to ₹30 lakh secured by mortgage of immovable property, which are classified as standard assets with LTV Ratio > 80% and ≤ 90%	50
		(b)(iii) Outstanding Housing loans to individuals above ₹30 lakh and upto ₹75 lakh secured by mortgage of immoveable property which are classified as standard assets with LTV ratio ≤ 75% (loan sanctioned before 01-08-2017)	35
		(b)(iv) Outstanding Housing loans to individuals above ₹30 lakh and upto ₹75 lakh secured by mortgage of immoveable property which are classified as standard assets with LTV ratio > 75% and ≤ 80% (loan sanctioned before 01-08-2017)	50
		(b)(v) Outstanding Housing loans to individuals above ₹30 lakh and upto ₹75 lakh secured by mortgage of immoveable property which are classified as standard assets with LTV ratio ≤ 80% (loan sanctioned on or after 01-08-2017)	35
		(b)(vi) Outstanding Housing loans to individuals above ₹75 lakh secured by mortgage of immoveable property, which are classified as standard assets with LTV ratio ≤ 75% (loan sanctioned before 01-08- 2017)	75
		(b)(vii) Outstanding Housing loans to individuals above ₹75 lakh secured by mortgage of immoveable property, which are classified as standard assets with LTV ratio ≤ 75% (loan sanctioned on or after 01- 08-2017)	50
		(b)(viii) Outstanding amount of Loans given for the purpose of insurance of the property/ borrower in case of individual housing loans	Same as applicable to the respective housing loan
	c)	Other housing loans	100
		Note : Housing loans referred to in item b) and c) above are excluding any portion of such housing loans guaranteed by (i) a mortgage guarantee company registered with the Reserve Bank in accordance with the Reserve Bank of India Guidelines for Mortgage Guarantee Companies; and/or (ii) the Credit Guarantee Schemes (refer the instructions at clause (5) to the Notes of paragraph 21 of these Directions).
		ca) Any portion of housing loans referred to in item b) and c) of sub-explanation (3) guaranteed by mortgage guarantee company registered with the Reserve Bank of India, the risk weight assets for such guaranteed portion shall be calculated as per cent weight mentioned against the rating of the mortgage guarantee company as below
		Long term ratings of the mortgage guarantee company by the approved credit rating agencies
		AAA or its equivalent	20
		AA or its equivalent	30
		Below AA or its equivalent or unrated	As applicable to unguaranteed portion
		Where ‘+’ or ‘-’ notation is attached to the rating, the corresponding main rating category risk weight should be used. When a guaranteed exposure is classified as nonperforming in accordance with the applicable directions, the guarantee will cease to be a credit risk mitigant and no adjustment would be permissible under this provision applicable directions, the guarantee will cease to be a credit risk mitigant and no adjustment would be permissible under this provision
		cb) Any portion of housing loans referred to in item b) and c) of sub-explanation (3) guaranteed by Credit Guarantee Schemes subject to instructions at clause (5) to the Notes of paragraph 21 of these Directions.	0
	(d)	(d)(i)(a) Fund based and non-fund based exposures to Commercial Real Estate- Residential Building	Classified as Standard: 75
	(d)		Not classified as Standard: As specified under ‘Others’ in ‘Other Assets’ at Sr.No. 6(d) in this table
		(d)(i)(b) Fund based and non-fund based exposures to all other Commercial Real Estate	100
		(ii) Investments in Mortgage Backed Securities (MBS) and other securitised exposures backed by exposures as at (i) above	125
	e)	Restructured housing loans	An additional risk weight of 25% to the risk weight prescribed above
	f)	Consumer credit exposure categorised as retail loans, excluding housing loans, educational loans, vehicle loans, loans against gold jewellery and microfinance/ SHG loans (please see note in clause (6) to the Notes of paragraph 21 below)	125
(4)		Current Assets:
	a)	Stock on hire (please see note in clause (2) to the Notes of paragraph 21 below)	100
	b)	Inter corporate loans/ deposits	100
	c)	Loans and advances fully secured by company’s own deposits	0
	d)	Loan to staff	0
	e)	Other secured loans and advance considered good	100
	f)	Bills purchased/ discounted	100
	g)	Others (to be specified)	100
(5)		Fixed Assets (net of depreciation):
	a)	Assets leased out (net book value)	100
	b)	Premises	100
	c)	Furniture & Fixtures	100
	d)	Other Fixed Assets (to be specified)	100
(6)		Other Assets:
	a)	Income tax deducted at source (net of provision)	0
	b)	Advance tax paid (net of provision)	0
	c)	Interest due on Government Securities and approved securities	0
	d)	Others (to be specified) including ROU assets	100

Notes:

(1) Netting shall be done only in respect of assets where provisions for depreciation or for bad and doubtful debts have been made.

(2) Stock on hire shall be shown net of finance charges i.e. interest and other charges recoverable.

(3) Assets which have been deducted from owned fund to arrive at Tier 1 capital pursuant to paragraph 8(40) shall have a weightage of “0”.

(4) LTV ratio as a percentage shall be calculated as per paragraph 99 of these directions.

(5) Risk weights for exposures guaranteed by Credit Guarantee Schemes (CGS)

(i) An HFC is permitted to apply zero percent risk weights in respect of exposures guaranteed under any existing or future schemes launched by Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), Credit Risk Guarantee Fund Trust for Low Income Housing (CRGFTLIH) and individual schemes under National Credit Guarantee Trustee Company Ltd (NCGTC) provided they satisfy the following conditions:

(a) Prudential Aspects: The guarantees provided under the respective schemes should comply with the requirements for credit risk mitigation, in terms of Reserve Bank of India (Non-Banking Financial Companies – Prudential Norms on Capital Adequacy) Directions, 2025, as amended from time to time, which, inter alia, requires such guarantees to be direct, explicit, irrevocable and unconditional;

(b) Restrictions on permissible claims: Where the terms of the guarantee schemes restrict the maximum permissible claims through features like specified extent of guarantee coverage, clause on first loss absorption by member lending institutions (MLI), payout cap, etc., the zero percent risk weight shall be restricted to the maximum permissible claim and the residual exposure shall be subjected to risk weight as applicable to the counterparty in terms of extant regulations.

(c) In case of a portfolio-level guarantee, effective from April 01, 2023, the extent of exposure subjected to first loss absorption by the MLI, if any, shall be subjected to full capital deduction and the residual exposure shall be subjected to risk weight as applicable to the counterparty in terms of extant regulations, on a pro rata basis. The maximum capital charge shall be capped at a notional level arrived at by treating the entire exposure as unguaranteed.

(ii) Further, subject to the aforementioned prescriptions at clause (5)(i) to the Notes of paragraph 21, any scheme launched after September 07, 2022 under any of the aforementioned Trust Funds, in order to be eligible for zero percent risk weight, shall provide for settlement of the eligible guaranteed claims within thirty days from the date of lodgement, and the lodgement shall be permitted within sixty days from the date of default.

(iii) The above regulatory stipulation shall be applicable to HFCs, to the extent they are recognised as eligible MLIs under the respective schemes.

(iv) Some illustrative examples of risk weights applicable on claims guaranteed under specific existing schemes are given as illustration below.

Illustration : Examples - Risk Weights (RW) applicable on credit facilities guaranteed under specific existing schemes

(Guarantee coverage, first loss percentage and payout cap ratio may be factored in as given below and as amended from time to time in the respective schemes)

Scheme name	Guarantee Cover	Risk weight
1. Credit Guarantee Fund Scheme for Factoring (CGFSF)	The first loss of 10% of the amount in default to be borne by Factors. The remaining 90% (i.e. second loss) of the amount in default will be borne by NCGTC and Factors in the ratio of 2:1 respectively	First loss of 10% amount in default – Full capital deduction 60% amount in default borne by NCGTC- 0% RW. Balance 30% amount in default - Counterparty/Regulatory Retail Portfolio (RRP) RW as applicable. Note: The maximum capital charge shall be capped at a notional level arrived by treating the entire exposure as unguaranteed.
2. Credit Guarantee Fund Scheme for Skill Development (CGFSD)	75% of the amount in default. 100% of the guaranteed claims shall be paid by the Trust after all avenues for recovery have been exhausted and there is no scope for recovering the default amount.	• Entire amount in default - Counterparty/ Regulatory Retail Portfolio (RRP) RW as applicable.
3. Credit Guarantee Fund for Micro Units (CGFMU)	Micro Loans The first loss to the extent of 3% of amount in default. Out of the balance, guarantee will be to a maximum extent of 75% of the amount in default in the crystallized portfolio	First loss of 3% amount in default – Full capital deduction 72.75% of the amount in default - 0% RW, subject to maximum of Where- o CP = Crystallized Portfolio (sanctioned amount)
		C = Claims received in previous years, if any, in the crystallized portfolio SLA = Sanctioned limit of each account in the crystallized portfolio 15 per cent represents the payout cap • Balance amount in default - Counterparty/ RRP RW as applicable. Note: The maximum capital charge shall be capped at a notional level arrived by treating the entire exposure as unguaranteed.
4. CGTMSE guarantee coverage for Micro- Enterprises	Upto ₹5 lakh 85% of the amount in default subject to a maximum of ₹4.25 lakh Above ₹5 lakh & upto ₹50 lakh 75% of the amount in default subject to a maximum of ₹37.50 lakh Above ₹50 lakh & upto ₹200 lakh 75% of the amount in default subject to a maximum of ₹150 lakh	Guaranteed amount in default – 0% RW* Balance amount in default - Counterparty/ RRP RW as applicable.
*In terms of the payout cap stipulations of CGTMSE, claims of the member lending institutions will be settled to the extent of 2 times of the fee including recovery remitted during the previous financial year. However, since the balance claims will be settled in subsequent year/s as the position is remedied, the entire extent of guaranteed portion may be assigned zero percent risk weight.

(6) Strengthening credit standards

(a) The HFC shall review its extant sectoral exposure limits for consumer credit and put in place, if not already there, Board approved limits in respect of various subsegments under consumer credit as may be considered necessary by the Boards as part of prudent risk management. In particular,

limits shall be prescribed for all unsecured consumer credit exposures. The limits so fixed shall be strictly adhered to and monitored on an ongoing basis by the Risk Management Committee. All HFCs were required to comply with the provisions of this paragraph by February 29, 2024.

(b) All top-up loans extended by HFCs against movable assets which are inherently depreciating in nature, such as vehicles, shall be treated as unsecured loans for credit appraisal, prudential limits and exposure purposes.

A.3 Off-Balance Sheet items :

General

22. The HFC shall calculate the total risk weighted off-balance sheet credit exposure as the sum of the risk-weighted amount of the market related and non-market related off-balance sheet items. The risk-weighted amount of an off-balance sheet item that gives rise to credit exposure shall be calculated by means of a two-step process:

(1) Step 1: the notional amount of the transaction is converted into a credit equivalent amount, by multiplying the amount by the specified credit conversion factor or by applying the current exposure method; and

(2) Step 2: the resulting credit equivalent amount is multiplied by the risk weight applicable, viz. zero per cent for exposure to Central Government/State Governments, 20 per cent for exposure to banks and 100 per cent for others.

Non-market-related off- balance sheet items:

23. The credit equivalent amount in relation to a non-market related off-balance sheet item shall be determined by multiplying the contracted amount of that particular transaction by the relevant credit conversion factor (CCF).

Item No.	Item Description	CCF
i.	Undisbursed amount of housing loans/ other loans	50 (refer Note 3 below)
ii.	Financial & other guarantees	100
iii.	Share/ debenture underwriting obligations	50
iv.	Partly-paid shares/ debentures	100
v.	Bills discounted/ rediscounted	100
vi.	Lease contracts entered into but yet to be executed	100
vii.	Sale and repurchase agreement and asset sales with recourse, where the credit risk remains within the HFC	100
viii.	Forward assets purchases, forward deposits and partly paid shares and securities, which represents commitments with certain draw down	100
ix.	Lending of HFC securities or posting of securities as collateral by HFC, including instances where these arise out of repo style transactions.	100
x.	Other commitments (e.g., formal standby facilities and credit lines (including project loans)) with an original maturity of Up to one year Over one year	20 50
xi.	Similar commitments that are unconditionally cancellable at any time by the HFC without prior notice or that effectively provide for automatic cancellation due to deterioration in a borrower’s creditworthiness	0
xii.	Take-out finance in the books of taking-over institutions
	(a) Unconditional take-out finance	100
	(b) Conditional take-out finance	50
	Note: As the counter party exposure will determine the risk weight, it will be 100 per cent in respect of all
	borrowers or zero per cent if covered by government guarantee.
xiii.	Commitment to provide liquidity facility for securitization of standard asset transaction	100
xiv.	Second loss credit enhancement for securitization of standard asset transactions provided by the third party	100
xv.	Other contingent liabilities (To be specified)	50
xvi.	Non-fund based claims on the Central Government	0

Note:

(1) Cash margins/ deposits shall be deducted before applying the conversion

factor.

(2) Where the non-market related off-balance sheet item is an undrawn or partially undrawn fund-based facility, the amount of undrawn commitment to be included in calculating the off-balance sheet non-market related credit exposures is the maximum unused portion of the commitment that could be drawn during the remaining period to maturity. Any drawn portion of a commitment forms a part of HFC’s on-balance sheet credit exposure.

For example:

A term loan of ₹100 crore is sanctioned for a large housing project which can be drawn down in stages over a three year period. The terms of sanction allow draw down in three stages – ₹25 crore in Stage I, ₹25 crore in Stage II and ₹50 crore in Stage III, where the borrower needs the HFC’s explicit approval for draw down under Stages II and III after completion of certain formalities. If the borrower has drawn already ₹10 crore under Stage I, then the undrawn portion would be computed with reference to Stage I alone i.e., it will be ₹15 crore. If Stage I is scheduled to be completed within one year, the CCF will be 20 per cent and if it is more than one year then the applicable CCF will be 50 per cent.

(3) Risk weighted assets computed for undisbursed amount of housing loans/other loans as per step 1 and step 2 of paragraph 22 of this Direction, shall be capped at the risk weighted asset computed on a notional basis for equivalent amount of disbursed loan.

Market Related Off-Balance Sheet Items:

24. An HFC shall take into account all market related off-balance sheet items (OTC derivatives and Securities Financing Transactions such as repo/ reverse repo/ CBLO etc.) while calculating the risk weighted off-balance sheet credit exposures. The credit risk on market related off-balance sheet items is the cost to an HFC of replacing the cash flow specified by the contract in the event of counterparty default. This shall depend, among other things, upon the maturity of the contract and on volatility of rates underlying the type of instrument.

25. Market related off-balance sheet items would include:

(1) Interest rate contracts – including single currency interest rate swaps, basis swaps, forward rate agreements, and interest rate futures;

(2) Foreign exchange contracts, including contracts involving gold - includes cross currency swaps (including cross currency interest rate swaps), forward foreign exchange contracts, currency futures, currency options;

(3) Credit Default Swaps; and

(4) Any other market related contracts specifically allowed by the Reserve Bank which give rise to credit risk.

26. Exemption from capital requirements is permitted for:

(1) Instruments traded on futures and options exchanges which are subject to daily mark-to-market and margin payments.

27. The exposures to Central Counter Parties (CCPs), on account of derivatives trading and securities financing transactions (e.g. Collateralised Borrowing and Lending Obligations – CBLOs, Repos) outstanding against them shall be assigned zero exposure value for counterparty credit risk, as it is presumed that the CCPs’ exposures to their counterparties are fully collateralized on a daily basis, thereby providing protection for the CCP’s credit risk exposures.

28. A CCF of 100 per cent shall be applied to the corporate securities posted as collaterals with CCPs and the resultant off-balance sheet exposure shall be assigned risk weights appropriate to the nature of the CCPs. In the case of Clearing Corporation of India Limited (CCIL), the risk weight shall be 20 per cent and for other CCPs, the risk weight will be 50 per cent.

Current Exposure Method (used for measuring capital charge for default risk)

29. The total credit exposure to a counterparty in respect of derivative transactions should be calculated according to the current exposure method as explained below.

The credit equivalent amount of a market related off-balance sheet transaction calculated using the current exposure method is the sum of:

(1) current exposure; and

(2) potential future exposure of the contract.

30. Current exposure is defined as the sum of the gross positive mark-to-market value of all contracts with respect to a single counterparty (positive and negative marked-to-market values of various contracts with the same counterparty shall not be netted). The current exposure method requires periodical calculation of the current exposure by marking these contracts to market.

Note: In case of bilateral netting arrangement, refer to the definition as specified in paragraph 33.

31. Potential future exposure is determined by multiplying the notional principal amount of each of these contracts, irrespective of whether the contract has a zero, positive or negative mark-to-market value by the relevant add-on factor indicated below according to the nature and residual maturity of the instrument.

Credit Conversion Factors for interest rate related, exchange rate related and gold related derivatives
	Credit Conversion Factors (%)
	Interest Rate Contracts	Exchange Rate Contracts & Gold
One year or less	0.50	2.00
Over one year to five years	1.00	10.00
Over five years	3.00	15.00

Notes:

(1) For contracts with multiple exchanges of principal, the add-on factors are to be multiplied by the number of remaining payments in the contract.

(2) For contracts that are structured to settle outstanding exposure following specified payment dates and where the terms are reset such that the market value of the contract is zero on these specified dates, the residual maturity would be set equal to the time until the next reset date. However, in the case of interest rate contracts which have residual maturities of more than one year and meet the above criteria, the CCF or add-on factor is subject to a floor of 1.0 per cent.

(3) No potential future exposure would be calculated for single currency floating/ floating interest rate swaps; the credit exposure on these contracts would be evaluated solely on the basis of their mark-to-market value.

(4) Potential future exposures should be based on ‘effective’ rather than ‘apparent notional amounts’. In the event that the ‘stated notional amount’ is leveraged or enhanced by the structure of the transaction, the ‘effective notional amount’ must be used for determining potential future exposure. For example, a stated notional amount of USD 1 million with payments based on an internal rate of two times the lending rate of the HFC would have an effective notional amount of USD 2 million.

32. When effective bilateral netting contract as specified in paragraph 34 is in place, current exposure i.e. replacement cost will be the net replacement cost; and the potential future exposure i.e. add-on will be ANet as calculated below:

(1) Credit exposure on bilaterally netted forward transactions will be calculated as the sum of the net mark-to-market replacement cost, if positive, plus an add-on based on the notional underlying principal.

The add-on for netted transactions (A_Net) will equal the weighted average of the gross add-on (A_Gross) and the gross add-on adjusted by the ratio of net current replacement cost to gross current replacement cost (NGR). This is expressed through the following formula:

A_Net = 0.4 * A_Gross + 0.6 * NGR * A_Gross where:

NGR = level of net replacement cost/level of gross replacement cost for

transactions subject to legally enforceable netting agreements

A_Gross = sum of individual add-on amounts (calculated by multiplying the

notional principal amount by the appropriate add-on factors set out in the table in paragraph 31 and paragraph 35 of all transactions subject to legally enforceable netting agreements with one counterparty.

Note: HFCs must calculate NGR on a counterparty by counterparty basis for all transactions that are subject to legally enforceable netting agreements.

(2) For the purposes of calculating potential future exposure to a netting counterparty for forward foreign exchange contracts and other similar contracts in which the notional principal amount is equivalent to cash flows, the notional principal is defined as the net receipts falling due on each value date in each currency. The reason for this is that offsetting contracts in the same currency maturing on the same date will have lower potential future exposure as well as lower current exposure.

33. Definitions and general terminology

(1) Current Exposure is the larger of zero, or the market value of a transaction or portfolio of transactions within a netting set with a counterparty that would be lost upon the default of the counterparty, assuming no recovery on the value of those transactions in bankruptcy. Current exposure is often also called Replacement Cost (RC).

(2) Netting Set is a group of transactions with a single counterparty that are subject to a legally enforceable bilateral netting arrangement and for which netting is recognised for regulatory capital purposes. Each transaction that is not subject to a legally enforceable bilateral netting arrangement that is recognised for regulatory capital purposes should be interpreted as its own netting set for the purpose of these rules.

34. Requirement for recognition of Bilateral Netting Contract:

(1) the HFC may net transactions subject to novation under which any obligation between such HFC and its counterparty to deliver a given currency on a given value date is automatically amalgamated with all other obligations for the same currency and value date, legally substituting one single amount for the previous gross obligations.

(2) the HFC may also net transactions subject to any legally valid form of bilateral netting not covered in (1), including other forms of novation.

(3) In both cases (1) and (2), an HFC will need to satisfy that it has:

(a) A netting contract or agreement with the counterparty which creates a single legal obligation, covering all included transactions, such that the HFC would have either a claim to receive or obligation to pay only the net sum of the positive and negative mark-to-market values of included individual transactions in the event a counterparty fails to perform due to any of the following: default, bankruptcy, liquidation or similar circumstances;

(b) Written and reasoned legal opinions that, in the event of a legal challenge, the relevant courts and administrative authorities would find such HFC’s exposure to be such a net amount under:

• The law of the jurisdiction in which the counterparty is chartered and, if the foreign branch of a counterparty is involved, then also under the law of the jurisdiction in which the branch is located;

• The law that governs the individual transactions; and

• The law that governs any contract or agreement necessary to effect the netting.

(c) Procedures in place to ensure that the legal characteristics of netting arrangements are kept under review in the light of possible changes in relevant law.

(4) Contracts containing walkaway clauses will not be eligible for netting for the purpose of calculating capital requirements under these guidelines. A walkaway clause is a provision which permits a non-defaulting counterparty to make only limited payments or no payment at all, to the estate of a defaulter, even if the defaulter is a net creditor.

Credit conversion factors for Credit Default Swaps (CDS)

35. A CDS creates a notional short position for specific risk in the reference asset/ obligation for the protection buyer. This position will attract a Credit Conversion Factor of 100 and a risk weight of 100. The add on factor shall be fixed as 10 percent (of notional principal of CDS) in relation to potential future exposure.

Chapter-IV – Prudential Regulation - Asset Classification and Provisioning

A. Accounting Standards

36. The HFC which is required to implement Indian Accounting Standards (Ind AS) as per the Companies (Indian Accounting Standards) Rules, 2015 shall prepare their financial statements in accordance with Ind AS notified by the Government of India and shall comply with the regulatory guidance specified in terms of paragraph 6(6) of these directions. Other HFCs shall comply with the requirements of notified Accounting Standards (AS) insofar as they are not inconsistent with any of these directions.

B. Asset Classification

37. The asset classification norms as given below shall apply to every HFC:

38. Every HFC shall, after taking into account the degree of well-defined credit weaknesses and extent of dependence on collateral security for realisation, classify its lease/ hire purchase assets, loans and advances and any other forms of credit into the following classes, namely:

(1) Standard assets

(2) Sub-standard assets

(3) Doubtful assets and

(4) Loss assets.

39. The class of assets referred to above shall not be upgraded merely as a result of rescheduling, unless it satisfies the conditions required for the upgradation.

C. Classes of Assets

40. “Standard asset” shall mean the asset in respect of which, no default in repayment of principal or payment of interest is perceived and which does not disclose any problem or carry more than normal risk attached to the business.

41. “Sub-standard asset” shall mean:

(1) an asset which has been classified as non-performing asset for a period not exceeding 12 months;

(2) an asset, where the terms of the agreement regarding interest and/ or principal have been re-negotiated or rescheduled after release of any instalment of loan or an inter-corporate deposit which has been rolled over, until the expiry of one year of satisfactory performance under the renegotiated or rescheduled terms. Provided that where a delay in completion of a project is caused on account of factors beyond the control of the project implementing agency, terms of the loan agreement regarding interest and/or principal may be rescheduled once before the completion of the project and such loans may be treated as standard asset, subject to the condition that such reschedulement shall be permitted only once by the Board of Directors of the concerned housing finance company and that interest on such loan is paid regularly and there is no default. Provided further that where natural calamities impair the repaying capacity of a borrower, terms of the loan agreement regarding interest and/or principal may be rescheduled and such loans shall not be classified as substandard; the classification of such loans would thereafter be governed by the revised terms and conditions.

Explanation: Extension in repayment tenor of a floating rate loan on reset of interest rate, so as to keep the EMI unchanged provided it is applied to a class of accounts uniformly, will not render the account to be classified as re-negotiated or rescheduled account. In other words, extension or deferment of EMIs to individual borrowers as against to an entire class, would render the accounts to be classified as re-negotiated or rescheduled accounts.

42. “Doubtful asset” shall mean:

(1) a term loan, or

(2) a lease asset, or

(3) a hire purchase asset, or

(4) any other asset,

which remains a sub-standard asset for a period exceeding 12 months.

43. “Loss asset” shall mean:

(1) an asset which has been identified as loss asset by the HFC or its internal or external auditor or by the Reserve Bank or by the NHB during the inspection of the HFC, to the extent it is not written off by the HFC; and

(2) an asset which is adversely affected by a potential threat of non-recoverability due to any one of the following, namely:

(a) non-availability of security, either primary or collateral, in case of secured loans and advances;

(b) erosion in value of security, either primary or collateral, is established;

(d) fraudulent act or omission on the part of the borrower;

(e) the debt becoming time barred under Limitation Act, 1963 (Act 36 of 1963);

(f) inchoate or defective documentation.

(i) Explanation: For the removal of doubt, it is clarified that mere right of the housing finance company to file suit against the borrower/ guarantor for recovery of dues does not debar the Reserve Bank, NHB or the auditors to consider the asset or part thereof as loss asset due to aforesaid reasons.

44. “Non-Performing Asset” (referred to in these directions as “NPA”) shall mean:

(1) an asset, in respect of which, interest has remained overdue for a period of more than ninety days.

(2) a term loan (other than the one granted to an agriculturist or to a person whose income is dependent on the harvest of crops) inclusive of unpaid interest, when the instalment is overdue for a period of more than ninety days or more or on which interest amount remained overdue for a period of more than ninety days.

(3) a demand or call loan, which remained overdue for a period of more than ninety days from the date of demand or call or on which interest amount remained overdue for a period of more than ninety days.

(4) a bill which remains overdue for a period of more than ninety days.

(5) the interest in respect of a debt or the income on receivables under the head 'other current assets' in the nature of short term loans/ advances, which facility remained overdue for a period of more than ninety days.

(6) any dues on account of sale of assets or services rendered or reimbursement of expenses incurred, which remained overdue for a period of more than ninety days.

(7) the lease rental and hire purchase instalment, which has become overdue for a period of more than ninety days.

(8) an inter corporate deposit, in respect of which interest or principal has remained overdue for a period of more than ninety days.

(9) a term loan granted to an agriculturist or to a person whose income is dependent on the harvest of crops if the installment of principal or interest thereon remains unpaid:

(i) for two crop seasons beyond the due date if the income of the borrower is dependent on short duration crops, or

(ii) for one crop season beyond the due date if the income of the borrower is dependent on long duration crop.

Explanation:

(a) For the purpose of this sub-clause “long duration” crops would be crops with crop season longer than one year and crops, which are not “long duration” crops, would be treated as “short duration” crops.

(b) The crop season for each crop means the period up to harvesting of the crops raised, would be as determined by the State Level Bankers’ Committee in each State.

(10) in respect of loans, advances and other credit facilities (including bills purchased and discounted), the balance outstanding under the credit facilities (including accrued interest) made available to the same borrower/ beneficiary when any of the above credit facilities becomes non-performing asset. Provided that in the case of lease and hire purchase transactions, an HFC shall classify each such account on the basis of its record of recovery.

D. Clarifications on Asset Classification, etc.

45. An amount is to be treated as overdue if it is not paid on the due date fixed by the HFC. The exact due dates for repayment of a loan, frequency of repayment, breakup between principal and interest, examples of SMA/ NPA classification dates, etc. shall be clearly specified in the loan agreement and the borrower shall be apprised of the same at the time of loan sanction and also at the time of subsequent changes, if any, to the sanction terms/ loan agreement till full repayment of the loan. In cases of loan facilities with moratorium on payment of principal and/ or interest, the exact date of commencement of repayment shall also be specified in the loan agreements. In case of existing loans, compliance to these instructions shall necessarily be ensured as and when such loans become due for renewal/ review.

46. Every HFC shall recognise incipient stress in loan accounts, immediately on default, by classifying such assets as special mention accounts (SMA) as per the following categories:

SMA Sub-categories	Basis for classification – Principal or interest payment or any other amount wholly or partly overdue
SMA-0	Upto 30 days
SMA-1	More than 30 days and upto 60 days
SMA-2	More than 60 days and upto 90 days

Note: ‘Default’ means non-payment of debt (as defined under the IBC) when whole or any part or instalment of the debt has become due and payable and is not paid by the debtor or the corporate debtor, as the case may be.

47. The above instructions on SMA classification of borrower accounts are applicable to all loans, including retail loans, irrespective of size of exposure of the lending institution.

Note: Agricultural advances governed by crop season-based asset classification norms shall be exempt from this instruction.

48. The borrower accounts shall be flagged as overdue by the lending institutions as part of their day-end processes for the due date, irrespective of the time of running such processes. Similarly, classification of borrower accounts as SMA as well as NPA shall be done as part of day-end process for the relevant date and the SMA or NPA classification date shall be the calendar date for which the day end process is run. In other words, the date of SMA/NPA shall reflect the asset classification status of an account at the day-end of that calendar date.

Example: If due date of a loan account is March 31, 2021, and full dues are not received before the lending institution runs the day-end process for this date, the date of overdue shall be March 31, 2021. If it continues to remain overdue, then this account shall get tagged as SMA-1 upon running day-end process on April 30, 2021 i.e. upon completion of 30 days of being continuously overdue. Accordingly, the date of SMA-1 classification for that account shall be April 30, 2021.

Similarly, if the account continues to remain overdue, it shall get tagged as SMA-2 upon running day-end process on May 30, 2021 and if continues to remain overdue further, it shall get classified as NPA upon running day-end process on June 29, 2021.

49. Loan accounts classified as NPAs may be upgraded as ‘standard’ asset only if entire arrears of interest and principal are paid by the borrower.

50. In case of borrowers having more than one credit facility, loan accounts shall be upgraded from NPA to standard asset category only upon repayment of entire arrears of interest and principal pertaining to all the credit facilities.

51. Consumer Education on SMA/ NPA

With a view to increasing awareness among the borrowers, HFC should place consumer education literature on their websites, explaining with examples, the concepts of date of overdue, SMA and NPA classification and upgradation, with specific reference to day-end process. The HFC shall also consider displaying such consumer education literature in their branches by means of posters and/or other appropriate media. Further, it shall also be ensured that their front-line officers educate borrowers about all these concepts, with respect to loans availed by them, at the time of sanction/disbursal/renewal of loans.

E. Framework for Compromise Settlements and Technical Write-offs

52. The HFC shall comply with the instructions contained in Reserve Bank of India (Non-Banking Financial Companies – Resolution of Stressed Assets) Directions, 2025 as amended from time to time.

F. Government Debt Relief Schemes (DRS) and Guidelines for Relief Measures in areas affected by Natural Calamities

53. The HFC shall comply with the instructions contained in Reserve Bank of India (Non-Banking Financial Companies – Resolution of Stressed Assets) Directions, 2025 as amended from time to time.

G. Income Recognition

54. The income recognition shall be based on recognised accounting principles.

55. Income including interest/ discount or any other charges on NPA shall be recognised only when it is actually realised. Any such income recognised before the asset became non-performing and remaining unrealised shall be reversed.

56. In respect of hire purchase assets, where instalments are overdue for more than twelve months, income shall be recognised only when hire charges are actually received. Any such income taken to the credit of profit and loss account before the asset becoming non-performing and remaining unrealised, shall be reversed.

57. In respect of lease assets, where lease rentals are overdue for more than twelve months, the income shall be recognised only when lease rentals are actually received. The net lease rentals taken to the credit of profit and loss account before the asset became non-performing and remaining unrealised shall be reversed.

Explanation: For the purpose of this paragraph, ‘net lease rentals’ mean gross lease rentals as adjusted by the lease adjustment account debited/credited to the profit and loss account and as reduced by depreciation at the rate applicable under schedule XIV of the Companies Act, 1956.

58. In cases of loans where moratorium has been granted for repayment of interest, the interest income may be recognised on accrual basis for accounts which continue to be classified as ‘standard’.

59. If loans with moratorium on payment of interest (permitted at the time of sanction of the loan) become NPA after the moratorium period is over, the capitalized interest corresponding to the interest accrued during such moratorium period need not be reversed.

H. Income from Investment

60. Income from dividend on shares of corporate bodies and units of mutual funds shall be taken into account on cash basis.

Provided that the income from dividend on shares of corporate bodies shall be taken into account on accrual basis when such dividend has been declared by the corporate body in its annual general meeting and the HFC’s right to receive payment is established.

61. Income from bonds and debentures of corporate bodies and from Government securities/ bonds shall be taken into account on accrual basis.

Provided that the interest rate on these instruments is pre-determined and interest is serviced regularly and is not in arrears.

62. Income on securities of corporate bodies or public-sector undertakings, the payment of interest and repayment of principal of which have been guaranteed by Central Government or a State Government shall be taken into account on accrual basis.

I. Investment Policy and Accounting for Investments

63. The Board of Directors of every HFC shall frame investment policy for the company and shall implement the same. The criteria to classify the investments into current and long-term investments shall be spelt out by the Board of the company ex-ante in the investment policy. Investments in securities shall be classified into current and long term, at the time of making each investment. In case of inter-class transfer –

(1) There shall be no such transfer on ad-hoc basis.

(2) Such transfer, if warranted, shall be effected only at the beginning of each half year, on April 1 or October 1, with the approval of the Board.

(3) The investments shall be transferred scrip-wise, from current to long term or vice-versa, at book value or market value, whichever is lower.

(4) The depreciation, if any, in each scrip shall be fully provided for and appreciation, if any, shall be ignored.

(5) The depreciation in one scrip shall not be set off against appreciation in another scrip, at the time of such inter-class transfer, even in respect of the scrips of the same category.

J. Accounting for Investments

64. Quoted current investments shall, for the purpose of valuation, be grouped into the following categories, viz.

(1) equity shares

(2) preference shares,

(3) debentures and bonds,

(4) Government securities including treasury bills,

(5) units of mutual fund, and

(6) others.

65. Quoted current investments for each category shall be valued at cost or market value whichever is lower. For this purpose, the investments in each category shall be considered scrip-wise and the cost and market value aggregated for all investments in each category. If the aggregate market value for the category is less than the aggregate cost for that category, the net depreciation shall be provided for or charged to the profit and loss account. If the aggregate market value for the category exceeds the aggregate cost for the category, the net appreciation shall be ignored. Depreciation in one category of investments shall not be set off against appreciation in another category.

66. Unquoted equity shares in the nature of current investments shall be valued at cost or breakup value, whichever is lower. Where the balance sheet of the investee company is not available for two years, such shares shall be valued at one Rupee only.

67. Unquoted preference shares in the nature of current investments shall be valued at cost or face value or the net asset value, whichever is lower. In case the net asset value is negative or the balance sheet of the investee company is not available for two years, it should be valued at Rupee one per company.

68. Investments in unquoted Government securities or Government guaranteed bonds shall be valued at carrying cost.

69. Unquoted investments in the units of mutual funds in the nature of current investments shall be valued at the net asset value declared by the mutual fund in respect of each particular scheme.

70. Commercial papers shall be valued at carrying cost.

71. A long-term investment shall be valued in accordance with the applicable Accounting Standards.

Note: Unquoted debentures shall be treated as term loans or other type of credit facilities depending upon the tenure of such debentures for the purpose of income recognition and asset classification.

K. Provisioning Requirements

72. The provisioning requirements as given below shall apply to every HFC.

73. Every HFC shall, after taking into account the time lag between an account becoming non-performing, its recognition as such, the realisation of the security and the erosion over time in the value of security charged, make provision against standard assets, sub-standard assets, doubtful assets and loss assets as provided hereunder:

Loans, advances and other credit facilities including bills purchased and discounted-

74. The provisioning requirement in respect of loans, advances and other credit facilities including bills purchased and discounted shall be as under:

Loss Assets	The entire asset shall be written off. If the assets are permitted to remain in the books for any reason, 100% of the outstanding shall be provided for.
Doubtful Assets	(a) 100% provision to the extent to which the advance is not covered by the realisable value of the security to which the HFC has a valid recourse shall be made. The realisable value is to be estimated on a realistic basis;
	(b) In addition to item (a) above, depending upon the period for which the asset has remained doubtful, provision to the extent of 25% to 100% of the secured portion (i.e. estimated realisable value of the outstanding) shall be made on the following basis:
	Period for which the asset has been considered as doubtful		Per cent of provision (%)
	Up to one year		25
	One to three years		40
	More than three years		100
Sub-standard assets	A general provision of 15 per cent of total outstanding shall be made.
Standard assets (not applicable to HFCs in Upper Layer)	(a) Standard Assets in respect of housing loans at teaser/ special rates i.e. housing loans at comparatively lower rates of interest in the first few years after which rates are re-set at higher rates	2% provision on the total outstanding amount of such loans. The provisioning of these loans to be reset after one year at the applicable rates from the date on which the rates are reset at higher rates if the accounts remain ‘standard’
	(b)(i) Standard Assets in respect of Commercial Real Estates - Residential Housing (CRE-RH)	0.75% on the total outstanding amount of such loans
	(b)(ii) Standard Assets in respect of all other Commercial Real Estates (CRE)	1.00% on the total outstanding amount of such loans
	(b)(iii) Standard Assets in respect of Individual Housing Loans	0.25% on the total outstanding amount of such loans
	(c) Standard Assets in respect of all loans other than (a) & (b) above	A general provision of 0.4% of the total outstanding amount of loans which are standard assets shall be made

Provided that no provision need be made towards the portion of housing loan guaranteed by CRGFTLIH becomes non-performing. However, the amount outstanding in excess of the guaranteed portion should be provided for as per the extent directions on provisioning requirement.

Note:

(a) Loans under Rural Housing Funds Scheme/ Urban Housing Funds Schemes are not to be regarded as loans given at teaser/ special rates.

(b) Commercial Real Estate – Residential Housing (CRE–RH) would consist of loans to builders/ developers for residential housing projects (except for captive consumption) under CRE segment. Such project should ordinarily not include non-residential commercial real estate. However integrated housing project comprising of some commercial spaces (e.g. shopping complex, school etc.) can also be specified under CRE-RH, provided that the commercial area in the residential housing project does not exceed 10 per cent of the total Floor Space Index (FSI) of the project. In case the FSI of the commercial area in the predominantly residential housing complex exceed the ceiling of the project loans, the entire loan should be classified as CRE and not CRE-RH.

(c) Other commercial real estate (CRE) would consist of loan to builders/ developers/ other for office building, retail space, multi-purpose commercial premises, multi-tenanted commercial premises, industrial or warehouse space, hotels, land acquisition, development and construction etc. other than those covered by note (b) above.

(d) Loans for third dwelling unit onwards to an individual will also be treated as CRE exposure.

(e) The revised provisioning norms relating to standard category of individual housing loans would be effective prospectively but the provisions held at present towards such loans should not be reversed. However, in future, if by applying the revised provisioning norms, any provisions are required over and above the level of provisions currently held for the standard category of such loans, these should be duly provided for.

(f) The provisions on standard assets should not be reckoned for arriving at net NPAs.

(g) The provisions towards standard assets need not be netted from gross advances but shown separately as ‘Contingent Provisions against Standard Assets’ in the balance sheet.

Lease and hire purchase assets –

75. The provisioning requirements in respect of hire purchase and leased assets shall be as under:

76. Hire purchase assets - In respect of hire purchase assets, the total dues (overdue and future instalments taken together) as reduced by

(1) the finance charges not credited to the profit and loss account and carried forward as unmatured finance charges; and

(2) the depreciated value of the underlying asset, shall be provided for.

Explanation: For the purpose of this paragraph,

(a) the depreciated value of the asset shall be notionally computed as the original cost of the asset to be reduced by depreciation at the rate of twenty per cent per annum on a straight-line method; and

(b) in the case of second hand asset, the original cost shall be the actual cost incurred for acquisition of such second-hand asset.

Additional provision for hire purchase and leased assets

77. In respect of hire purchase and leased assets, additional provision shall be made as under:

(a)	Where hire charges or lease rentals are overdue up to 12 months	Nil
(b)	Where hire charges or lease rentals are overdue for more than 12 months up to 24 months	10 per cent of the net book value
(c)	Where hire charges or lease rentals are overdue for more than 24 months but up to 36 months	40 per cent of the net book value
(d)	Where hire charges or lease rentals are overdue for more than 36 months but up to 48 months	70 per cent of the net book value
(e)	Where hire charges or lease rentals are overdue for more than 48 months	100 per cent of the net book value

78. On expiry of a period of 12 months after the due date of the last instalment of hire purchase/ leased asset, the entire net book value shall be fully provided for.

Notes:

(1) The amount of caution money/ margin money or security deposits kept by the borrower with the HFC in pursuance of the hire purchase agreement shall be deducted against the provisions stipulated under paragraph 76 above, if not already taken into account while arriving at the equated monthly instalments under the agreement. The value of any other security available in pursuance to the hire purchase agreement shall be deducted only against the provisions stipulated under paragraph 77 above.

(2) The amount of security deposits kept by the borrower with the HFC in pursuance to the lease agreement together with the value of any other security available in pursuance to the lease agreement shall be deducted only against the provisions stipulated under paragraph 77 above.

(3) It is clarified that income recognition on and provisioning against NPAs are two different aspects of prudential norms and provisions as per the norms are required to be made on NPAs on total outstanding balances including the depreciated book value of the leased asset under reference after adjusting the balance, if any, in the lease adjustment account. The fact that income on an NPA has not been recognised shall not be taken as reason for not making provision.

(4) An asset which has been renegotiated or rescheduled as referred to in paragraph 41(2) of these directions shall be a sub-standard asset or continue to remain in the same category in which it was prior to its renegotiation or re-schedulement as a doubtful asset or a loss asset as the case may be. Necessary provision shall be made as applicable to such asset till it is upgraded. In case where an asset has been rescheduled on account of natural calamities having impaired the repaying capacity of the borrower as provided in paragraph 41(2), any provisioning made prior to such rescheduling shall neither be written back nor adjusted against any provisioning requirements that may arise in future.

(5) All financial leases written on or after April 1, 2002 shall attract the provisioning requirements as applicable to hire purchase assets.

L. Policy on Demand / Call Loans

79. The Board of Directors of every HFC granting/ intending to grant demand / call loans shall frame a policy for the company and implement the same.

80. Such policy shall, inter alia, stipulate guidelines in respect of the following -

(1) A cut-off date within which the repayment of demand or call loan shall be demanded or called up.

(2) The sanctioning authority shall, record specific reasons in writing at the time of sanctioning demand or call loan, if the cut-off date for demanding or calling up such loan is stipulated beyond a period of one year from the date of sanction.

(3) The rate of interest which shall be payable on such loans.

(4) Interest on such loans, as stipulated shall be payable either at monthly or quarterly basis.

(5) The sanctioning authority shall, record specific reasons in writing at the time of sanctioning demand or call loan, if no interest is stipulated or a moratorium is granted for any period.

(6) A cut-off date, for review of performance of the loan, not exceeding six months commencing from the date of sanction.

(7) Such demand or call loans shall not be renewed unless the periodical review has shown satisfactory compliance with the terms of sanction.

M. Disclosure Norms

81. The HFC are required to make disclosures in their financial statements in accordance with the guidelines in these Directions, applicable accounting standards, laws and regulations. The disclosures specified in these directions are in addition to and not in substitution of the disclosure requirements specified under other laws, regulations, or accounting and financial reporting standards. More comprehensive disclosures than the minimum required are encouraged, especially if such disclosures significantly aid in the understanding of the financial position and performance. Please refer to the formats specified in Annex II and Annex III.

N. Disclosure of Non-Performing Assets and Provisions in balance sheet

82. The outstanding amount and the provisions made as per paragraphs 72 to 78 above, without netting them from the income or against the value of assets, shall be distinctly disclosed under separate heads of accounts for housing and non-housing finance business and individually for each type of assets in the balance sheet as under:

(1) for standard, sub-standard, doubtful and loss assets separately for housing and non-housing finance business along with total; and

(2) for depreciation in investments.

83. Such provisions shall not be appropriated from the general provisions and loss reserves held, if any, by the housing finance company.

84. Such provision for each year shall be debited to the profit and loss account. The excess of provisions, if any, held under the heads general provisions and loss reserves shall be written back without making adjustment against them.

O. Other Disclosures

85. Every HFC shall disclose in their notes to accounts to the balance sheet, details on Principal Business Criteria as per paragraph 8(17), CRAR, exposure to real estate sector (both direct and indirect), maturity pattern of assets & liabilities, percentage of outstanding loans against collateral of gold jewellery to their outstanding total assets, details of levy of penalty by the Reserve Bank or NHB, adverse comments, if any, on HFC made in writing by the Reserve Bank or NHB on regulatory compliances with a specific communication to disclose the same to public, etc. (please refer to formats in Annex II and Annex III)

86. The HFC are advised to prominently display on their website any penalty levied on the company by the RBI/ NHB.

87. Every HFC shall append to its balance sheet prescribed under the Companies Act, 2013, the details prescribed under in Annex II.

88. With regards to the presentation of Reserve Fund in the annual accounts of the HFC, the annual statements shall contain the disclosures as prescribed under paragraph 3.2 of Annex III in the 'Notes forming part of the financial statements'.

P. Accounting year

89. Every HFC shall prepare its financial statements for the year ending on the 31st day of March. The HFC shall finalise their balance sheet within 3 months from the date to which it pertains. Further, whenever an HFC intends to extend the date of its balance sheet as per the provisions of Companies Act, it shall take prior approval of NHB before approaching Registrar of Companies (RoC) for this purpose. In cases where NHB and RoC grants extension of time, the HFC shall furnish to NHB a proforma balance sheet (unaudited) as on March 31 of the year and the returns due on the said date.

Chapter-V – Prudential Regulation- Regulatory Restrictions and Limits

A. Ceiling on IPO Funding

90. There shall be a ceiling of ₹1 crore per borrower for financing subscription to Initial Public Offer (IPO). The HFC can fix more conservative limits.

B. Loans against HFCs own shares prohibited

91. No HFC shall lend against its own shares.

C. Declaration of dividends

92. The HFC shall comply with the following guidelines to declare dividends.

93. The Board of Directors, while considering the proposals for dividend, shall take into account each of the following aspects:

(1) Supervisory findings of the National Housing Bank (NHB) on divergence in classification and provisioning for Non-Performing Assets (NPAs).

(2) Qualifications in the Auditors Report to the financial statements.

(3) Long term growth plans of the HFC.

94. The HFC that meet the following minimum prudential requirements shall be eligible to declare dividend:

(1) The HFC shall have met the minimum capital requirements prescribed under paragraphs 19 to 35 of this Master Direction in each of the last three financial years including the financial year for which the dividend is proposed.

Note: Where an HFC has been in existence for less than three financial years, it shall be since registration.

(2) The net NPA ratio shall be less than six per cent in each of the last three years, including as at the close of the financial year for which dividend is proposed to be declared.

(3) The HFC shall comply with the provisions of Section 29 C of the National Housing Bank Act, 1987.

(4) The HFC shall be compliant with the prevailing regulations/ guidelines issued by the Reserve Bank or National Housing Bank. The Reserve Bank or National Housing Bank shall not have placed any explicit restrictions on declaration of dividend.

95. The HFC that meet the eligibility criteria specified in paragraph 94 above can declare dividend upto a dividend payout ratio of 50 per cent.

96. An HFC which does not meet the applicable capital requirements and/ or the net NPA ratio requirement as above, for each of the last three financial years, shall be eligible to declare dividend, subject to a cap of 10 percent on the dividend payout ratio, provided the HFC complies with both the following conditions:

(1) meets the applicable minimum capital requirement, as per this Master Direction, in the financial year for which it proposes to pay dividend, and

(2) has net NPA of less than four per cent as at the close of the financial year.

97. The Board shall ensure that the total dividend proposed for the financial year does not exceed the ceilings specified in these guidelines. The Reserve Bank or the National Housing Bank shall not entertain any request for ad-hoc dispensation on declaration of dividend.

98. The HFC declaring dividend shall report details of dividend declared during the financial year as per the format prescribed in Annex IV. The report shall be furnished within a fortnight after declaration of dividend to National Housing Bank.

D. Loan to Value (LTV) Ratio for housing loans

99. No housing finance company shall grant housing loans to individuals:

(1) up to ₹30 lakh with LTV ratio exceeding 90 percent,

(2) above ₹30 lakh and up to ₹75 lakh with LTV ratio exceeding 80 percent, and,

(3) above ₹75 lakh with LTV ratio exceeding 75 per cent

Note:

(1) The LTV ratio shall be computed as a percentage with total outstanding in the account (viz, “principal + accrued interest + other charges pertaining to the loan” without any netting) in numerator and the realizable value of the residential property mortgaged to the HFC in the denominator. The HFC shall not include stamp duty, registration and other documentation charges in the cost of the housing property they finance so that the effectiveness of LTV norms is not diluted. However, with a view to encourage availability of affordable housing to borrowers like economically weaker sections (EWS) and low income groups (LIG), in cases where the cost of the house/ dwelling unit does not exceed ₹10 lakh, HFC may add stamp duty, registration and other documentation charges to the cost of the house/ dwelling unit for the purpose of computing LTV ratio.

(2) The HFC shall be guided by paragraph 312 of these Directions on valuation of properties and empanelment of valuers.

E. Concentration of credit/ investment (not applicable to HFCs in Upper Layer)

100. Housing finance company shall not have exposure (credit/ investment taken together) exceeding

(1) twenty-five percent of its Tier 1 Capital to a single party; and

(2) forty percent of its Tier 1 Capital to a single group of parties.

Provided that within the overall ceiling prescribed under paragraph 100, investment of a housing finance company in the shares of another housing finance company (other than its subsidiary/ies) shall not exceed fifteen per cent of the equity capital of the investee company.

Provided that the ceiling on the investment in shares of another company shall not be applicable in respect of investment in the equity capital of an insurance company up to the extent specifically permitted, in writing, by the Reserve Bank.

101. Provided further that nothing contained in paragraph 100 shall apply to-

(1) investments of a housing finance company in shares of

(i) its subsidiaries;

(ii) companies in the same group,

to the extent they have been reduced from owned funds for the calculation of Net Owned Fund and

(2) the book value of debentures, bonds, outstanding loans and advances (including hire-purchase and lease finance) made to, and deposits with-

(i) subsidiaries of a housing finance company; and

(ii) companies in the same group,

to the extent they have been reduced from owned fund for the calculation of Net Owned Fund.

102. The exposures listed below shall also be exempt from exposure norms:

(1) Exposure to the Government of India and State Governments which are eligible for zero percent risk weight under capital regulations applicable to HFC;

(2) Exposure where the principal and interest are fully guaranteed by the Government of India

Notes:

(1) Computation of exposure – Credit Risk Transfer Instruments –

Aggregate exposure to a counterparty comprising both on and off-balance sheet exposures shall be calculated based on the method prescribed for capital computation in these Directions, i.e., on-balance sheet exposures shall be reckoned at the outstanding amount (Note: netting is allowed only for assets where provisions for depreciation or for bad and doubtful debts have been made) while the off-balance sheet exposures shall be converted into credit risk equivalent by applying the credit conversion factor prescribed under capital requirements. Further, the exposures shall also be offset with credit risk transfer instruments listed below:

(i) Cash margin/caution money/security deposit held as collateral on behalf of the borrower against the advances for which right to set off is available;

(ii) Central Government guaranteed claims which attract zero percent risk weight for capital computation;

(iii) State Government guaranteed claims which attract 20 percent risk weight for capital computation (Note: To the extent of State Government guarantee used for offsetting exposures by HFC-ML, the exposure shall shift to the State Government with applicable risk weight of 20 percent. No cap has been fixed for shifting of exposure on the State Government);

(iv) Guarantees issued under the Credit Guarantee Schemes of CGTMSE, CRGFTLIH and individual schemes under NCGTC subject to meeting the conditions as specified in clause (5) to the Notes of paragraph 21 of these Directions.

Provided that to be eligible as a credit risk transfer instrument, guarantees shall be direct, explicit, irrevocable and unconditional.

(2) The investment in debentures for the above purpose shall be treated as credit and not investment.

(3) The above ceilings on credit/ investments shall be applicable to the own group of the housing finance company as well as to the other group of borrowers/ investee companies, subject to the ceiling prescribed in paragraph 103.

(4) “Shares” shall mean and include investment in various instruments such as Equity Shares, Preference Shares eligible for capital status, Subordinated Debt Instruments, Hybrid Debt Capital Instruments and any other quasi-capital instruments approved as in the nature of capital.

(5) Investment of a housing finance company in the shares of its subsidiaries, companies in the same group and other housing finance companies, to the extent of ten per cent of its owned fund, shall carry a risk weight of 100 per cent as prescribed at item (2) (d) of ‘Weighted Risk Assets- on balance sheet items in paragraph 21 of these directions. Such investment in excess of ten per cent of its owned fund shall continue to be deducted from the Net Owned Fund of the housing finance company as prescribed at item (I) of ‘Explanation’ to Section 29A of the National Housing Bank Act, 1987.

(6) Tier 1 Capital shall mean 'Tier 1 Capital' as defined under paragraph 8(40) of these directions and with respect to its position as per the published accounts as on March 31st of the previous year.

(7) The infusion of capital, after such published balance sheet date may be taken into account for determining the exposure ceiling but the housing finance company shall not take exposure in excess of the ceiling in anticipation of infusion of capital at a future date. The housing finance company shall furnish to the NHB, statutory auditor’s certificate on completion of the augmentation of capital before reckoning the same for above purpose.

(8) Other accretions to capital funds by way of quarterly profits, shall not be eligible to be reckoned to compute 'Tier 1 Capital' for the purpose of determining the exposure ceiling.

(9) Every HFC shall formulate a policy in respect of exposures to a single party/ a single group of parties.

F. Exposure of HFCs to group companies engaged in real estate business

103. In case of companies in a group engaged in real estate business, HFC may undertake exposure either to the group company engaged in real estate business or lend to retail individual home buyers in the projects of such group companies. In case HFC prefers to undertake exposure in group companies, such exposure by way of lending/ investing, directly or indirectly, cannot be more than 15 percent of Tier 1 Capital for a single entity in the group and 25 percent of Tier 1 Capital for all such group entities. The HFC would in all such cases follow arm’s length principles in letter and spirit. Every HFC shall disclose in their notes to accounts to the balance sheet, details of these exposures as per format prescribed under paragraph 3.6.7 of Annex III.

G. Loans to directors, senior officers and relatives of directors

104. The HFC shall have a Board approved policy on grant of loans to directors, senior officers and relatives of directors and to entities where directors or their relatives have major shareholding. The Board approved policy shall include a threshold beyond which loans to abovementioned persons shall be reported to the Board. Further, HFC shall disclose in their Annual Financial Statement, aggregate amount of such sanctioned loans and advances as per the template provided in the Annex V.

H. Loans and advances to Directors

105. Unless sanctioned by the Board of Directors / Committee of Directors, HFC shall not grant loans and advances aggregating ₹5 crore and above to-

(1) their directors (including the Chairman/ Managing Director) or relatives of directors.

(2) any firm in which any of their directors or their relatives is interested as a partner, manager, employee or guarantor.

(3) any company in which any of their directors, or their relatives is interested as a major shareholder, director, manager, employee or guarantor.

Provided that a director or her relatives shall be deemed to be interested in a company, being the subsidiary or holding company, if she is a major shareholder or is in control of the respective holding or subsidiary company.

Provided that the director who is directly or indirectly concerned or interested in any proposal should disclose the nature of her interest to the Board when any such proposal is discussed. She should recuse herself from the meeting unless her presence is required by the other directors for the purpose of eliciting information and the director so required to be present shall not vote on any such proposal.

106. The proposals for credit facilities of an amount less than ₹5 crore to these borrowers may be sanctioned by the appropriate authority in the HFC under powers vested in such authority, but the matter should be reported to the Board.

I. Loans and advances to Senior Officers of the HFC

107. The HFC shall abide by the following when granting loans and advances to their senior officers

(1) Loans and advances sanctioned to senior officers of the HFC shall be reported to the Board.

(2) No senior officer or any Committee comprising, inter alia, a senior officer as member, shall, while exercising powers of sanction of any credit facility, sanction any credit facility to a relative of that senior officer. Such a facility shall be sanctioned by the next higher sanctioning authority under the delegation of powers.

108. In respect of grant of loans mentioned at paragraph 105 to 107 above –

(1) The HFC shall obtain a declaration from the borrower giving details of the relationship of the borrower to their directors/ senior officers for loans and advances aggregating Rupees five crore and above. The HFC shall recall the loan if it comes to their knowledge that the borrower has given a false declaration.

(2) These guidelines shall be duly brought to the notice of all directors and placed before the HFC’s Board of Directors.

(3) The HFC shall disclose in their Annual Financial Statement, aggregate amount of such sanctioned loans and advances as per template provided in the Annex V.

109. The above norms as mentioned at paragraph 105 to 108 relating to grant of loans and advances will equally apply to awarding of contracts.

Explanation: The term ‘loans and advances’ will not include loans or advances against

Government securities.
Life insurance policies.
Fixed deposits.
Stocks and shares.
Housing loans, car advances, etc., granted to an employee of the HFC under any scheme applicable generally to employees.

Provided that HFC’s interest / lien is appropriately marked with legal enforceability.

J. Restrictions on investment in real estate

110. A housing finance company, shall not invest in land or buildings, except for its own use, an amount exceeding twenty percent of its capital fund (i.e. sum of Tier 1 and Tier 2 capital),

Provided that such investment over and above ten per cent of its owned fund, shall be made only in residential units.

Provided that the land or buildings acquired in satisfaction of its debts shall be disposed of by the housing finance company within a period of three years or within such a period as may be extended by the NHB, from the date of such acquisition, if the investment in these assets together with such assets already held by the housing finance company exceeds the above ceiling.

K. Exposure to capital market

K.1 Limits on housing finance companies’ exposure to capital market

111. The aggregate exposure of a housing finance company to the capital market in all forms (both fund based, and non-fund based) should not exceed 40 per cent of its net worth as on March 31 of the previous year.

112. Within the overall ceiling specified in paragraph 111 above, direct investment in shares, convertible bonds/ debentures, units of equity-oriented mutual funds and all exposures to Venture Capital Funds (VCFs) [both registered and unregistered] of the housing finance company should not exceed 20 per cent of its net worth.

113. Net worth for the purpose of this paragraph would comprise of Paid-up capital plus Free Reserves including Share Premium but excluding Revaluation Reserves, plus credit balance in Profit & Loss account, less debit balance in Profit and Loss account, Accumulated Losses and Intangible Assets. No general or specific provisions should be included in computation of net worth. Infusion of capital through equity shares after the published balance sheet date, may also be taken into account for determining the ceiling on exposure to capital market. However, before reckoning such infusion, the HFC shall furnish to the NHB, a certificate from its statutory auditors certifying completion of the augmentation of capital.

114. Deposit taking HFC shall fix Board-approved internal limits separately within the limit of direct investment, for investments in unquoted shares of another company which is not a subsidiary company or a company in the same group of the HFC. Such Board-approved internal limit shall form part of overall limits and sub-limits for exposure to capital market for deposit taking HFC.

Explanation – While calculating the ceiling on investment in unquoted shares, investments in such shares of all companies shall be aggregated.

Provided that the ceiling on the investment in unquoted shares shall not be applicable to an HFC in respect of investment in the equity capital of an insurance company upto the extent specifically permitted, in writing, by the Reserve Bank

K.2 Components of Capital Market Exposure

115. Capital market exposure of an HFC shall include both direct exposures and indirect exposures. The items which are to be included and excluded are enumerated in the table below.

Items included in capital market exposure

Items excluded from capital market exposure

Direct investment in equity shares, convertible bonds, convertible debentures and units of equityoriented mutual funds, the corpus of which is not exclusively invested in corporate debt;
Advances against shares/ bonds/ debentures or other securities or on clean basis to individuals for investment in shares (including Initial Public Offers/ Employees Stock Options), convertible bonds, convertible debentures, and units of equity oriented mutual funds;
Advances for any other purposes where shares or convertible bonds or convertible debentures or units of equity oriented mutual funds are taken as primary security;
Advances for any other purposes to the extent secured by the collateral security of shares or convertible bonds or convertible debentures or units of equity oriented mutual funds, i.e. where the primary security other than shares/ convertible bonds/ convertible debentures/ units of equity oriented mutual funds does not fully cover the advances;
Secured and unsecured advances to stockbrokers and guarantees issued on behalf of stockbrokers and market makers;
Loans sanctioned to corporates against the security of shares/ bonds/ debentures or other securities or on clean basis for meeting promoter’s contribution to the equity of new companies in anticipation of raising resources;
Bridge loans to companies against expected equity flows/ issues;
Underwriting commitments taken up by the housing finance companies in respect of primary issue of shares or convertible bonds or convertible debentures or units of equity oriented mutual funds;
Financing to stockbrokers for margin trading; and
All exposures to Venture Capital Funds (both registered and unregistered). These will be deemed to be on par with equity and hence will be reckoned for compliance with the capital market exposure ceilings (both direct and indirect).

a. Investment of an HFC in its own subsidiaries, joint ventures, and investments in unlisted shares and convertible debentures, convertible bonds issued by institutions forming crucial financial infrastructure and other All India Financial Institutions as detailed below. After listing, the exposures in excess of the original investment (i.e. prior to listing) shall form part of the Capital Market Exposure.

National Securities Depository Ltd. (NSDL)
Central Depository Services (India) Ltd. (CDSL)
National Securities Clearing Corporation Ltd. (NSCCL)
National Stock Exchange (NSE)
Clearing Corporation of India Ltd., (CCIL)
Credit Information Bureau of India Ltd. (CIBIL)
Multi Commodity Exchange Ltd. (MCX)
National Commodity and Derivatives Exchange Ltd. (NCDEX)
National Multi-Commodity Exchange of India Ltd. (NMCEIL)
National Collateral Management Services Ltd. (NCMSL)
Industrial Finance Corporation of India, Ltd. (IFCI)
Tourism Finance Corporation of India Ltd. (TFCI)
Risk Capital & Technology Finance Corporation Ltd. (RCTC)
Technology Development & Information Co. of India Ltd. (TDICI)
National Housing Bank (NHB)
Small Industries Development Bank of India (SIDBI)
National Bank for Agriculture & Rural Development (NABARD)
Export Import Bank of India (EXIM Bank)
Industrial Investment Bank of India (IIBI)
Life Insurance Corporation of India (LIC)
General Insurance Corporation of India (GIC)

b. Investments in Tier 1 and Tier 2 debt instruments issued by other HFCs;
c. Investment in Certificates of Deposit (CDs) of other housing finance companies;
d. Investments in Preference Shares, non-convertible debentures and non-convertible bonds;
e. Investments in units of Mutual Funds under schemes where the corpus is invested exclusively in debt instruments;
f. Shares acquired by housing finance companies as a result of conversion of debt/ overdue interest into equity under a Corporate Debt Restructuring (CDR) mechanism.

116. Computation of Exposure

For computing the exposure to the capital markets, loans/ advances sanctioned and guarantees issued for capital market operations shall be reckoned with reference to sanctioned limits or outstanding, whichever is higher. Further, direct investment of a housing finance company in shares, convertible bonds, convertible debentures and units of equity oriented mutual funds shall be calculated at their cost price.

L. Sensitive Sector Exposure (SSE)

117. Exposure to capital market (direct and indirect) and commercial real estate (Note: Sensitive Sector Exposure as enumerated in paragraph 3.6 of Annex III of these Directions) shall be reckoned as sensitive exposure for HFC. In addition to exposure limits prescribed in paragraphs 110, and 111 to 116 above, HFC shall fix Board-approved internal limits for SSE separately for capital market and commercial real estate exposures. Dynamic vulnerability assessments of various sectors and their likely impact on business, as evaluated periodically, should help HFC determine such internal exposure limits. While the Board is free to determine various sub-limits within the overall SSE internal limits, the following are specifically prescribed:

(1) A sub-limit within the commercial real estate exposure ceiling shall be fixed internally for financing land acquisition.

(2) Ceiling on IPO Funding as mentioned at paragraph 90 of these Directions.

M. Investments in Alternative Investment Funds (AIFs)

118. HFCs shall ensure compliance with instructions on ‘Investments in Alternative Investment Funds (AIFs)’ as stipulated under Reserve Bank of India (Non-Banking Financial Companies – Undertaking of Financial Services) Directions, 2025.

N. Engagement of Brokers

119. For engagement of brokers to deal in investment transactions, the housing finance companies shall observe the following:

(1) Transactions should not be put through the brokers’ accounts. The brokerage on the deal payable to the broker, if any (if the deal was put through with the help of a broker), should be clearly indicated on the notes/ memorandum put up to the top management seeking approval for putting through the transaction and separate account of brokerage paid, broker-wise, should be maintained.

(2) If a deal is put through with the help of a broker, the role of the broker should be restricted to that of bringing the two parties to the deal together.

(3) While negotiating the deal, the broker is not obliged to disclose the identity of the counterparty to the deal. On conclusion of the deal, he should disclose the counterparty and his contract note should clearly indicate the name of the counterparty.

(4) Based on the contract note disclosing the name of the counterparty, settlement of deals, viz. both fund settlement and delivery of security should be directly between the parties and the broker should have no role to play in the process.

(5) With the approval of their top management, HFC should prepare a panel of approved/ authorized brokers which should be reviewed annually or more often if so warranted. Clear-cut criteria should be laid down for empanelment of brokers, including verification of their creditworthiness, market reputation, etc. A record of broker-wise details of deals put through and brokerage paid, should be maintained.

(6) A disproportionate part of the business should not be transacted through only one or a few brokers. Housing finance companies should fix aggregate contract limits for each of the approved brokers. A limit of 5 per cent of total transactions (both purchase and sales) entered into by a housing finance company during a year should be treated as the aggregate upper contract limit for each of the approved brokers. This limit should cover both, the business initiated by a housing finance company and the business offered/ brought to the housing finance company by a broker. Housing finance companies should ensure that the transactions entered into through individual brokers during a year normally do not exceed this limit. However, if for any reason it becomes necessary to exceed the aggregate limit for any broker, the specific reasons therefore should be recorded, in writing, by the authority empowered to put through the deals. Further, the Board should be informed of this, post facto.

However, the norm of 5 percent would not be applicable:

(i) to a housing finance company whose total transactions in a year do not exceed ₹20 crore; and

(ii) to housing finance companies’ dealings through Primary Dealers / NDS-OM.

(7) The auditors who audit the treasury operations should scrutinize the business done through brokers also and include it in their monthly report to the Chief Executive Officer of the housing finance company. Besides, the business put through any individual broker or brokers in excess of the limit, with the reasons therefor, should be covered in the half-yearly review to the Board of Directors.

(8) Housing finance companies shall undertake securities transactions through stock brokers only on National Stock Exchange/ Bombay Stock Exchange / Over the Counter Exchange of India.

Chapter-VI – Prudential Regulation- Acceptance of Public Deposits

A. Acceptance/ renewal of public deposits

120. A housing finance company shall not accept or renew public deposit unless the HFC has obtained minimum investment grade rating for fixed deposits from any one of the approved credit rating agencies, at least once a year and a copy of the rating is sent to the NHB and it is complying with all the prudential norms.

121. The names of approved credit rating agencies and the minimum investment grade credit rating shall be as specified in Reserve Bank of India (Non-Banking Financial Companies – Acceptance of Public Deposits) Directions, 2025.

122. In the event of downgrading of the credit rating to any level below the minimum specified investment grade as provided for in the paragraph above, an HFC shall:

(1) with immediate effect, not renew existing deposits or accept fresh deposits thereafter till they obtain an investment grade credit rating;

(2) reduce such excess deposit by repayment on maturity; and

(3) report the position within fifteen working days, to NHB.

B. Maintenance of a minimum percentage of liquid assets

123. Every housing finance company accepting public deposits shall:

(1) invest and continue to invest in India in unencumbered approved securities, valued at a price not exceeding the current market price of such securities, an amount which, at the close of business on any day, shall not be less than eight per cent and ten per cent as on July 01, 2025 of the public deposits outstanding at the close of business on the last working day of the second preceding quarter.

(2) maintain in India an account with a scheduled bank in term deposits or certificate of deposits (free of charge or lien) or in deposits with/ subscription to bonds issued by the NHB, or partly in such an account or in such deposit or partly by way of such subscription, a sum which, at the close of business on any day, together with the investment made under paragraph 123(1) shall not be less than fourteen percent, and fifteen percent as on July 01, 2025, of the public deposits outstanding at the close of business on the last working day of the second preceding quarter.

(3) All other provisions of Section 29B of NHB Act shall mutatis mutandis be applicable to the above requirement as if the expression “public deposit” is the same as the expression “deposit” as contemplated under the said provision.

B.1 Valuation of Approved Securities

124. With a view to putting in place a uniform practice for valuation of the approved securities, HFC shall adopt the following procedure for valuation of approved securities on a daily basis:

(1) Quoted Securities

The ‘market value’ of such securities will be as available from the trades/ quotes on the stock exchanges, SGL account transactions, price list of RBI, the price declared by Primary Dealers Association of India (PDAI)/ Fixed Income Money Market and Derivatives Association of India (FIMMDA)/ Financial Benchmark India Pvt Ltd (FBIL).

(2) Unquoted Securities

(i) Central Government Securities

(a) The HFC should value the unquoted Central Government securities on the basis of the prices/ Yield to Maturity (YTM) rates put out by the FBIL at periodical intervals.

(b) Treasury Bills should be valued at carrying cost.

(ii) State Government Securities

HFC should value the unquoted State Government securities on the basis of the prices/ Yield to Maturity (YTM) rates put out by the FBIL at periodical intervals.

(iii) Other ‘approved’ Securities

Other approved securities will be valued applying the YTM method by marking it up by 25 basis points above the yields of the Central Government Securities of equivalent maturity put out by FBIL periodically.

C. Ceiling on quantum of deposit

125. A housing finance company having obtained credit rating for its public deposits not below the minimum investment grade rating and complying with all the prudential norms, may accept public deposits not exceeding 1.5 times of its NOF.

Provided that deposit taking HFC holding deposits in excess of the limit shall not accept fresh public deposits or renew existing deposits till they conform to the limit. However, the existing excess deposits will be allowed to run off till maturity.

Provided further that no matured public deposit shall be renewed without the express and voluntary consent of the depositor.

126. A housing finance company shall not have deposits inclusive of public deposits, the aggregate amount of which together with the amounts, if any, held by it which are referred in clauses (iii) to (vii) of sub-section (bb) of Section 45 I of the Reserve Bank of India Act, 1934 as also loans or other assistance from the NHB, in excess of twelve times of its NOF.

Note: NOF for the purpose of determination of the above limits shall be as at March 31st of the previous financial year based on the audited financial statements for that year. Infusion of capital after such balance sheet date may, however, be reckoned for determining the limits, subject to certification of the same by the statutory auditors.

127. Where a housing finance company holds public deposits or deposits inclusive of the items mentioned in paragraph 126 in excess of the limits specified above, it shall

(1) not accept fresh deposit or open new deposit account; or

(2) not renew the existing deposit or where the deposits are received under any recurring scheme, receive instalments under such scheme after the expiry of the scheme period;

(3) reduce such excess deposit by repayment on maturity.

D. Period of Public Deposit

128. A housing finance company shall not accept or renew any public deposit:

(1) Which is repayable on demand or on notice; or

(2) unless such deposit is repayable after a period of twelve months or more but not later than sixty months from the date of acceptance or renewal of such deposits.

Provided that existing deposits with maturities above sixty months shall be repaid as per their existing repayment profile.

Explanation: Where a public deposit is in instalments, the period of such deposit shall be computed from the date of receipt of first instalment.

E. Ceiling on the rate of interest & brokerage and Deposits from Non-Resident Indians

129. A HFC shall not invite or accept or renew public deposit at a rate of interest exceeding twelve and half per cent per annum or as revised by the Reserve Bank. Interest may be paid or compounded at rests which shall not be shorter than monthly rests.

130. A HFC shall not pay to any broker on public deposit collected by or through him, -

(1) brokerage, commission, incentive or any other benefit by whatever name called, in excess of two per cent of the deposit so collected; and

(2) expenses by way of reimbursement on the basis of relative vouchers/ bills produced by him, in excess of 0.5 percent of the deposit so collected.

131. A HFC shall not invite or accept or renew deposits from Non-Resident Indians/ persons of Indian origin, unless it is in compliance of regulations prescribed vide Foreign Exchange Management (Deposit) Regulations, 2016 (as amended from time to time) and such deposits shall not be at a rate exceeding the rate specified by the RBI for such deposits with scheduled commercial banks.

Explanation - The period of above deposits shall be not less than one year and not more than three years.

F. Payment of interest on overdue public deposits:

132. An HFC may, at its discretion, allow interest on an overdue public deposit or a portion of the said overdue deposit from the date of maturity of the deposit subject to the conditions that

(1) the total amount of overdue deposit or the part thereof is renewed in accordance with other relevant provisions of these directions, from the date of its maturity till some future date; and

(2) the interest allowed shall be at the appropriate rate operative on the date of maturity of such overdue deposit which shall be payable only on the amount of deposit so renewed:

Provided that where an HFC fails to repay the deposit along with interest on maturity on the claim made by the depositor, the HFC shall be liable to pay interest from the date of claim till the date of repayment at the contracted rate as applicable to the deposit.

133. In regard to the payment of interest on such deposit which have either been seized by the government authorities, and/or have been frozen till further clearance is received by the concerned government authorities, the HFC shall follow the procedure mentioned below:

(1) A request letter shall be obtained from the depositor on maturity. While obtaining the request letter from the depositor for renewal, HFC shall also advise the depositor to indicate the term for which the deposit is to be renewed. In case the depositor does not exercise his option of choosing the term for renewal, HFC shall renew the same for a term equal to the original term.

(2) No new receipt shall be issued. However, suitable note shall be made regarding renewal in the deposit ledger.

(3) Renewal of deposit shall be advised by registered letter/ speed post/ courier service to the concerned Government department under advice to the depositor. In the advice to the depositor, the principal amount and the rate of interest at which the deposit is renewed shall also be mentioned.

(4) If overdue period does not exceed 14 days on the date of receipt of the request letter, renewal shall be done from the date of maturity. If it exceeds 14 days, HFC shall pay interest for the overdue period as per the policy adopted by them, and keep it in a separate interest free account which shall be released when the original fixed deposit is released.

However, the final repayment of the principal and the interest so accrued shall be done only after the clearance regarding the same is obtained by the HFC from the respective Government agencies.

G. Renewal of public deposit

134. Where an HFC permits an existing depositor to renew the deposit before maturity for availing of the benefit of higher rate of interest, such company shall pay the depositor the increase in the rate of interest provided that, -

(1) the deposit is renewed in accordance with the other provisions of these directions and for a period longer than the remaining period of the original contract; and

(2) the interest on the expired period of the deposit is reduced by one percentage point from the rate which the company would have ordinarily paid, had the deposit been accepted for the period for which such deposit had run; any interest paid earlier in excess of such reduced rate is recovered/ adjusted.

H. Joint deposit

135. Where so desired, deposits may be accepted in joint names with or without any of the clauses, namely, "Either or Survivor", "Number One or Survivor/s", "Anyone or Survivor/s".

I. Nomination rules

136. Nomination in favor of one person can be made by the depositor/s in respect by the deposits held by him/them with an HFC in terms of section 36B of the National Housing Bank Act, 1987. Such nomination can be made in the manner prescribed in the Banking Companies (Nomination) Rules, 1985 made by the Central Government u/s 45ZA of the Banking Regulation Act 1949. In terms of the Rule 2(9) of the said rules, the companies are required to acknowledge in writing to the depositor/s the filling of the relevant duly completed form of nomination, cancellation and/or variation of the nomination.

137. The HFC which are accepting public deposits shall strictly comply with the above provision of the Banking Companies (Nomination) Rules, 1985 and devise a proper system of acknowledging the receipt of duly completed form of nomination, cancellation and/or variation of the nomination. Such acknowledgement shall be given to all the customers irrespective of whether the same is demanded by the customers.

138. The HFC shall introduce the practice of recording on the face of the RD passbooks/ FDRs the position regarding availment of nomination facility with the legend “Nomination Registered” and they shall also indicate the name of the Nominee in the RD passbook/ FDRs, in case the customer is agreeable to the same.

J. Particulars to be specified in application form soliciting public deposits

139. A housing finance company shall not accept or renew any public deposit except on a written application from the depositors in the form to be supplied by the housing finance company, which shall contain all the particulars specified in the Non-Banking Financial Companies and Miscellaneous Non-Banking Companies (Advertisement) Rules, 1977, made under section 58A of the Companies Act, 1956 and also contain the particulars of the specific category of the depositors, i.e. whether the depositor is a shareholder or a director or a promoter of the housing finance company or a member of public or a relative of a director of the company.

140. The application form shall also contain the following:-

(1) the credit rating assigned for its deposits and the name of the credit rating agency which rated the housing finance company;

(2) a statement to the effect that in case of any deficiency of the housing finance company in servicing its deposits, the depositor may approach NHB, the National Consumers Disputes Redressal Forum, the State Level Consumers Disputes Redressal Forum or the District Level Consumers Dispute Redressal Forum for relief;

(3) a statement to the effect that in case of non-repayment of the deposit or part thereof in accordance with the terms and conditions of the deposit, the depositor may make an application to authorised officer of the National Housing Bank;

(4) a statement to the effect that the financial position of the housing finance company as disclosed and the representations made in the application form are true and correct and that the housing finance company and its Board of Directors are responsible for the correctness and veracity thereof;

(5) a statement to the effect that the housing finance company is within the regulatory framework of the Reserve Bank of India. It must, however, be distinctly understood that the Reserve Bank of India or National Housing Bank does not undertake any responsibility for the financial soundness of the housing finance company or for the correctness of any of the statements or the representations made or opinions expressed by the housing finance company; and for repayment of deposit/ discharge of liabilities by the housing finance company;

(6) the information relating to and the aggregate dues from the facilities, both fund and non-fund based, extended to, and the aggregate dues from companies in the same group or other entities or business ventures in which the directors and/or the housing finance company are/is holding substantial interest and the total amount of exposure to such entities;

(7) at the end of application form but before signature of the depositor, the following verification clause by the depositor shall be appended. “I have gone through the financial and other statements/ particulars/ representations furnished/ made by the housing finance company and after careful consideration I am making the deposit with the housing finance company at my own risk and volition.”

(8) the form should solicit the details of the bank account of the depositor or depositor/s in case of deposits accepted in joint names.

K. Advertisement and statement in lieu of advertisement

141. A HFC soliciting public deposit shall comply with the provisions of the Non-Banking Financial Companies and Miscellaneous Non-Banking Companies (Advertisement) Rules, 1977 and shall also specify in every advertisement to be issued thereunder, the following: -

(1) the actual rate of return by way of interest, premium, bonus, other advantage to the depositor;

(2) the mode of repayment of deposit;

(3) the maturity period of deposit;

(4) the interest payable on deposit;

(5) the rate of interest which will be payable to the depositor in case the depositor withdraws the deposit prematurely;

(6) the terms and conditions subject to which a deposit will be renewed;

(7) any other special features relating to the terms and conditions subject to which the deposit is accepted/ renewed;

(8) the information, relating to the aggregate dues (including the non-fund based facilities provided to) from companies in the same group or other entities or business ventures in which, the directors and/or the HFC are holding substantial interest and the total amount of exposure to such entities; and

(9) that the deposits solicited by it are not insured.

142. Where an HFC displays any advertisement in electronic media such as TV, even without soliciting deposits, it shall incorporate a caption/ band in such advertisements indicating the following:

(1) As regards deposit taking activity of the company, the viewers may refer to the advertisement in the newspaper/ information furnished in the application form for soliciting public deposits;

(2) The company is having a valid Certificate of Registration dated _______ issued under Section 29A of the National Housing Bank Act, 1987. However, the Reserve Bank of India or the National Housing Bank does not accept any responsibility or guarantee about the present position as to the financial soundness of the company or for the correctness of any of the statements or representations made or opinions expressed by the company and for repayment of deposits/ discharge of the liabilities by the company.

143. Where an HFC intends to accept public deposit without inviting or allowing or causing any other person to invite such deposit, it shall, before accepting such deposit, deliver to NHB for record, a statement in lieu of advertisement containing all the particulars required to be included in the advertisement pursuant to the Non-Banking Financial Companies and Miscellaneous Non-Banking Companies (Advertisement) Rules, 1977 and also the particulars stated in paragraph 141, duly signed in the manner provided in the aforesaid Rules.

144. A statement delivered under paragraph 143 above shall be valid till the expiry of six months from the date of closure of the financial year in which it is so delivered or until the date on which the balance sheet is laid before the company in general meeting or where the annual general meeting for any year has not been held, the latest day on which that meeting should have been held in accordance with the provisions of the Companies Act, 1956 or the Companies Act, 2013, whichever is earlier, and a fresh statement shall be delivered after the expiry of the validity of the statement, in each succeeding financial year before accepting public deposit in that financial year.

L. General provisions regarding repayment of deposits

145. No HFC shall grant any loan against a public deposit or make premature repayment of a public deposit within a period of three months (lock-in period) from the date of its acceptance.

Provided that in the event of death of a depositor, an HFC shall repay the public deposit prematurely, even within the lock – in period, to the surviving depositor/s in the case of joint holding with survivor clause, or to the nominee or the legal heir/s of the deceased depositor, on the request of the surviving depositor/s/ nominee/ legal heir, and only against submission of proof of death, to the satisfaction of the company, with interest at the contracted rate up to the date of repayment.

146. Subject to the above provisions, an HFC not being a problem HFC may,

(1) permit premature repayment of a public deposit at its sole discretion:

Provided such HFC shall, if so permitted by the terms and conditions of acceptance of such deposit, repay it prematurely at the request of the depositor, after the expiry of three months from the date of deposit;

(2) grant a loan up to seventy-five percent of the amount of public deposit to a depositor after the expiry of three months from the date of deposit at a rate of interest two percentage points above the interest rate payable on the deposit.

147. Subject to the above provisions, in order to enable a depositor to meet expenses of an emergent nature, a problem HFC may make premature repayment of, or grant a loan against, a public deposit in the following cases only, namely:

(1) repay a tiny deposit in entirety or repay any other public deposit up to an amount not exceeding ₹10,000/-; or

(2) grant a loan against a tiny deposit or up to an amount not exceeding ₹10,000/- against any other deposit, at a rate of interest two percentage points above the interest rate payable on the deposit.

148. All deposit accounts standing to the credit of sole/ first named depositor in the same capacity shall be clubbed and treated as one deposit account for the purpose of premature repayment or grant of loan by a problem HFC.

Provided that this clause shall not apply to premature repayment in the event of death of depositor as provided in the paragraph.

149. In order to meet certain expenses of an emergent nature, subject to the satisfaction of the housing finance company concerned (not being a problem HFC), about such circumstances –

(1) ‘Tiny deposits’ may prematurely be paid to individual depositors, at the request of the depositor, before the expiry of three months from the date of acceptance of such deposits, in entirety, without interest;

(2) In case of other public deposits, not more than fifty per cent of the amount of the principal sum of deposit or ₹5 lakh, whichever is lower, may be prematurely paid to individual depositors, at the request of the depositors, before the expiry of three months from the date of acceptance of such deposits, without interest; the remaining amount with interest at the contracted rate shall be governed by the provisions of the extant directions as applicable for public deposits;

Provided further that in cases of critical illness, hundred per cent of the amount of the principal sum of deposit, may be prematurely paid to individual depositors, at the request of the depositors, before the expiry of three months from the date of acceptance of such deposits, without interest.

Explanation:

(i) For the purpose of paragraph 149, expenses of an emergent nature includes medical emergency or expenses due to natural calamities/ disaster as notified by the concerned Government/ authority.

(ii) For the definition of ‘Critical illness’, HFC shall be guided by the IRDAI (Health Insurance) Regulations, 2016 and the guidelines issued thereunder, as amended from time to time.

(iii) The amount of these provisions shall also apply to the existing deposit contracts wherein the individual depositor does not have a right to premature withdrawal of the deposit before the expiry of three months.

150. Where a housing finance company at the request of depositor/s repays a public deposit before its maturity, it shall pay interest at the following rate:

Sr. No.	Period for which deposit has run	Rate of interest
1.	Within three months subject to lock-in period requirements	No interest (Please also refer paragraph 145)
2.	After three months but before or up to six months	The maximum interest payable shall be four per cent per annum for individual depositor, and no interest in case of other depositors
3.	After six months but before the date of maturity	The interest payable shall be one per cent lower than the interest rate applicable to a public deposit for the period for which the deposit has run or if no rate has been specified for that period, then two per cent lower than the minimum rate at which the public deposits are accepted by that HFC

151. It shall be the obligation of the housing finance company to intimate the details of maturity of the deposit to the depositor at least fourteen days before the date of maturity of the deposit. However, in the absence of any specific maturity instruction, the maturity amount shall be remitted to the designated bank account maintained in the name of the depositor/s.

M. Furnishing of receipt to depositor

152. Every HFC shall furnish to every depositor or his agent or group of joint depositors, a receipt for every amount received by the company by way of deposit.

153. The said receipt shall be duly signed by an officer authorised by the company in that behalf and shall state the date of deposit, the name of the depositor, the amount in words and figures received by the company by way of deposit, rate of interest payable thereon and the date on which the deposit is repayable:

Provided that, if such receipts pertain to instalments subsequent to the first instalment of a recurring deposit it may contain only name of the depositor and date and amount of deposit.

N. Register of deposit

154. A HFC shall keep one or more registers in respect of all deposits in which shall be entered separately in case of each depositor or group of joint depositors the following particulars, namely: -

(1) name and address of the depositor or group of joint depositors, their nominees,

(2) date and amount of each deposit,

(3) duration and the due date of each deposit,

(4) date and amount of accrued interest or premium on each deposit,

(5) date of claim made by the depositor,

(6) date and amount of each repayment, whether of principal, interest or premium,

(7) the reasons for delay in repayment beyond five working days and

(8) any other particulars relating to the deposit.

155. The register or registers aforesaid shall be kept at each branch in respect of the deposit accounts opened by that branch of the company and a consolidated register for all the branches taken together at the registered office of the company and shall be preserved in good order for a period of not less than eight calendar years following the financial year in which the latest entry is made of the repayment or renewal of any deposit of which particulars are contained in the register.

Provided that, if the company keeps the books of account referred to in subsection (1) of section 209 of the Companies Act, 1956 or the corresponding provision of Companies Act, 2013, at any place other than its registered office in accordance with the proviso to that sub-section, it shall be deemed to be sufficient compliance with this clause if the register aforesaid is kept at such other place, subject to the condition that the company delivers to NHB a copy of the notice filed with the Registrar of Companies under the proviso to the said sub-section within seven days of such filing.

156. The HFC which maintain the particulars/ details of the deposits, as required under these directions, on centralized computer database may continue to do so; provided the authenticated particulars of public deposits are sent to the respective branches, updating the information on quarterly basis i.e. as on March 31, June 30, September 30 and December 31, every year irrespective of the fact that the branch does not open deposit accounts. The information pertaining to a quarter should reach the branch concerned before the 10th day of the next quarter.

O. Branches and appointment of agents to collect deposits

157. The instructions contained in Reserve Bank of India (Non-Banking Financial Companies – Acceptance of Public Deposits) Directions, 2025 on Branches and appointment of agents to collect deposits shall, mutatis-mutandis, be applicable to deposit taking HFC, and necessary notification by HFC as required in these instructions shall be sent to NHB.

Explanation:

(1) The HFC not fulfilling the criteria as prescribed in Reserve Bank of India (Non-Banking Financial Companies – Acceptance of Public Deposits) Directions, 2025 and having branches or agents outside the State of its registration, shall not accept fresh deposits or renew existing deposits in these branches, till the time the above criteria are fulfilled. The existing deposits accepted through these branches/ agents may be serviced as per their existing repayment profile.

(2) The HFC not fulfilling the above criteria, may undertake permissible business other than acceptance/ renewal of deposits in branches outside the State of its registration. However, they shall not conduct deposit-taking activity in any manner through these branches/ agents till the time they fulfil the above conditions

P. Closure of branches

158. A deposit-taking HFC shall not close its branch/ office without publishing such intention in any one national level newspaper and in one vernacular newspaper in circulation in the relevant place indicating therein the purpose and arrangements being made to service depositors etc. and without advising the NHB, before ninety days of the proposed closure.

159. An intimation along with a copy of the notice in respect of above should be sent within 7 days of its publication in the newspapers to NHB.

Q. Safe custody of approved securities

160. The instructions contained in Reserve Bank of India (Non-Banking Financial Companies – Acceptance of Public Deposits) Directions, 2025 on Safe Custody of Liquid Assets shall be, mutatis-mutandis, applicable to deposit taking HFC.

R. Employees Security Deposit

161. An HFC receiving any amount in the ordinary course of its business as security deposit from any of its employees for due performance of his duties shall keep such amount in an account with a scheduled commercial bank or in a post office in the joint names of the employee and the company on the conditions that -

(1) it shall not withdraw the amount without the consent in writing of the employee; and

(2) the amount shall be repayable, as per the HFC’s internal rules, to the employee along with interest payable on such deposit account unless such amount or any part thereof is liable to be appropriated by the company for the failure on the part of the employee for due performance of his duties.

S. Full cover for public deposits - Creation of Floating Charge in favour of the Depositors

162. The HFC should ensure that at all times there is full cover available for public deposits accepted by them. While calculating this cover the value of all debentures (secured and unsecured) and outside liabilities other than the aggregate liabilities to depositors may be deducted from the total assets. Further, the assets should be evaluated at their book value or realizable/ market value whichever is lower for this purpose. It would be incumbent upon the HFC concerned to inform NHB in case the above asset cover falls short of the liability on account of public deposits.

163. All HFCs accepting/ holding public deposits shall create floating charge on the assets invested by them in terms of sub-sections (1) and (2) of Section 29B of the National Housing Bank Act, 1987 in favour of their depositors through the mechanism of a “Trust Deed”. The charge so created shall also be registered with the Registrar of Companies and the information in this regard shall be furnished to the Trustees and to NHB. A copy of the ‘Trust Deed’ proforma containing the details and the ‘Trustee Guidelines’ are enclosed in Annex VI.

T. HFCs failing to repay public deposit prohibited from making loans and investments

164. An HFC which has failed to repay any public deposit or part thereof in accordance with the terms and conditions of such deposit, as provided in Section 36A (1) of NHB Act, 1987, shall not grant any loan or other credit facility by whatever name called or make any investment or create any other asset as long as the default exists.

U. Information to be included in the Board's report:

165. In every report of the Board of Directors laid before the company in a general meeting under sub-section (1) of section 217 of the Companies Act, 1956 or the corresponding provision of Companies Act, 2013, there shall be included in the case of an HFC, the following particulars or information, namely:-

(1) the total number of accounts of public deposit of the company which have not been claimed by the depositors or not paid by the company after the date on which the deposit became due for repayment; and

(2) the total amount due under such accounts remaining unclaimed or unpaid beyond the date referred to in clause (a) as aforesaid.

166. The said particulars or information shall be furnished with reference to the position as on the last day of the financial year to which the report relates and if the amounts remaining unclaimed or undisbursed as referred to in paragraph 165(2) exceed in the aggregate a sum of ₹5 lakhs, there shall also be included in the report a statement on the steps taken or proposed to be taken by the Board of Directors for the repayment of the amounts due to the depositors remaining unclaimed or undisbursed.

Deposit taking HFC intending to offer green deposits to their customers shall comply with the ‘Framework for acceptance of Green Deposits’ as provided in Reserve Bank of India (Non-Banking Financial Companies – Climate Finance and Management of Climate Change Risks) Directions, 2025

Chapter-VII – Governance- Acquisition/ Transfer of Control

A. General

167. The HFC shall obtain prior written permission of Reserve Bank of India for the following:

(1) any takeover or acquisition of control of an HFC, which may or may not result in change of management;

(2) any change in the shareholding of an HFC accepting/ holding public deposits, including progressive increases over time, which would result in acquisition/ transfer of shareholding of 10 per cent or more of the paid-up equity capital of the HFC by/to a foreign investor or any change in the shareholding of an HFC, including progressive increases over time, which would result in acquisition/ transfer of shareholding of 26 per cent or more of the paid-up equity capital of the HFC;

Provided that, prior approval would not be required in case of any shareholding going beyond 10 per cent or 26 per cent, as applicable, due to buyback of shares/ reduction in capital where it has approval of a competent Court. However, the same is to be reported to the NHB not later than one month from the date of its occurrence.

(3) any change in the management of the HFC which would result in change in more than 30 per cent of the directors, excluding independent directors.

Provided that, prior approval would not be required in case of directors who get re-elected on retirement by rotation.

Note: Notwithstanding paragraph 167, HFC shall continue to inform the NHB regarding any change in their directors/ management.

B. Application for prior approval

168. The HFC shall submit an application, in the company’s letter head, for obtaining prior approval of the Reserve Bank, along with the following documents:

(1) Information about the proposed directors/ shareholders as per Annex VII;

(2) Sources of funds of the proposed shareholders acquiring the shares in the HFC;

(3) Declaration by the proposed directors/ shareholders that they are not associated with any unincorporated body that is accepting public deposits;

(4) Declaration by the proposed directors/ shareholders that they are not associated with any company, the application for Certificate of Registration (CoR) of which has been rejected by the Reserve Bank of India/ National Housing Bank;

(5) Declaration by the proposed directors/ shareholders that there is no criminal case, including for offence under Section 138 of the Negotiable Instruments Act, against them; and

(6) Bankers’ Report on the proposed directors/ shareholders.

(7) Declaration on the status of supervisory compliances.

169. Applications in this regard shall be submitted, though PRAVAAH, to the Chief General Manager-in-Charge, Department of Regulation, Reserve Bank of India, 2nd Floor, Main Office Building, Fort, Mumbai – 400 001.

C. Requirement of Prior Public Notice about change in control/ management.

170. A public notice of at least 30 days shall be given before effecting the sale of, or transfer of the ownership by sale of shares, or transfer of control, whether with or without sale of shares. Such public notice shall be given by the HFC and also by the other party or jointly by the parties concerned, after obtaining the prior permission of the Reserve Bank.

171. The public notice shall indicate the intention to sell or transfer ownership/ control, the particulars of transferee and the reasons for such sale or transfer of ownership/ control. The notice shall be published in at least one leading national and in one leading local (covering the place of registered office) vernacular newspaper.

Provided that nothing contained in this paragraph shall apply in case of any change in shareholding of an HFC accepting/ holding public deposits, including progressive increases over time, which would result in acquisition/ transfer of shareholding of 10 percent or more and less than 26 percent of the paid-up equity capital of the HFC by / to a foreign investor.

D. Permission to accept public deposits in cases of acquisition or transfer of control of HFCs holding CoR valid for accepting public deposits

172. In cases of acquisition or transfer of control of HFC holding CoR valid for accepting public deposits, the Reserve Bank reserves the right to review the grant of permission to accept public deposits.

E. Investment from FATF non-compliant jurisdictions

173. HFC shall also ensure compliance to the instructions as specified in the paragraph 17 and 18 of these directions.

Chapter-VIII – Corporate Governance

A. Applicability

174. The directions prescribed in this Chapter shall apply to all HFCs, irrespective of asset size.

B. Experience of the Board

175. Considering the need for professional experience in managing the affairs of the HFC, at least one of the directors shall have relevant experience of having worked in a bank/ NBFC/ HFC.

C. Constitution of Committees of the Board

176. Audit Committee

(1) All HFCs shall constitute an Audit Committee, consisting of not less than three members of its Board of Directors.

Explanation I: If an HFC is required to constitute Audit Committee under section 177 of the Companies Act, 2013, the Audit Committee so constituted by it shall be treated as the Audit Committee for the purpose of this paragraph.

Explanation II: The Audit Committee constituted under this paragraph shall have the same powers, functions and duties as laid down in Section 177 of the Companies Act, 2013.

(2) The Audit Committee must ensure that an Information System Audit of the critical and significant internal systems and processes is conducted 6as per the periodicity prescribed in Reserve Bank of India (Non-Banking Financial Companies – Managing Risks in Outsourcing) Directions, 2025, as amended from time to time to assess operational risks faced by the HFC.

Note: The Information System Audit as prescribed shall be carried out separately through a Certified Information System Auditor (CISA).

177. Nomination and Remuneration Committee

(1) All HFCs shall form a Nomination and Remuneration Committee (NRC) and have a policy to ensure 'fit and proper' status of proposed/ existing directors and proper framework in relation to remuneration of directors, Key Managerial Personnel and senior management personnel.

(2) The Nomination and Remuneration Committee shall ensure that there is no conflict of interest in appointment of directors and their independence is not subject to potential threats.

Explanation I: If an HFC is required to constitute NRC under section 178 of the Companies Act, 2013, the NRC so constituted by it shall be treated as the NRC for the purpose of this paragraph.

178. Risk Management Committee

In order that the Board is able to focus on risk management and to manage the integrated risk, all HFCs shall constitute a Risk Management Committee (RMC), besides the Asset Liability Management Committee, either at the Board or executive level. The RMC shall be responsible for evaluating the overall risks faced by the HFC including liquidity risk and shall report to the Board.

D. Appointment of Chief Risk Officer

179. The HFC with asset size of more than ₹5000 crore are required to appoint a Chief Risk Officer (CRO) with clearly specified role and responsibilities. The CRO is required to function independently so as to ensure highest standards of risk management.

180. The HFC shall strictly adhere to the following instructions in this regard:

(1) The CRO shall be a senior official in the hierarchy of an HFC and shall possess adequate professional qualification/ experience in the area of risk management.

(2) The CRO shall be appointed for a fixed tenure with the approval of the Board. The CRO can be transferred/ removed from his post before completion of the tenure only with the approval of the Board and such premature transfer/ removal shall be reported to the NHB. In case the HFC is listed, any change in incumbency of the CRO shall also be reported to the stock exchanges.

(3) The Board shall put in place policies to safeguard the independence of the CRO. In this regard, the CRO shall have direct reporting lines to the MD & CEO/ Risk Management Committee (RMC) of the Board. In case the CRO reports to the MD & CEO, the RMC/ Board shall meet the CRO without the presence of the MD & CEO, at least on a quarterly basis. The CRO shall not have any reporting relationship with the business verticals of the HFC and shall not be given any business targets. Further, there shall not be any ‘dual hatting’ i.e. the CRO shall not be given any other responsibility.

(4) The CRO shall be involved in the process of identification, measurement and mitigation of risks. All credit products (retail or wholesale) shall be vetted by the CRO from the angle of inherent and control risks. The CRO’s role in deciding credit proposals shall be limited to being an advisor.

(5) In HFCs that follow committee approach in credit sanction process for high value proposals, if the CRO is one of the decision makers in the credit sanction process, the CRO shall have voting power and all members who are part of the credit sanction process, shall individually and severally be liable for all the aspects, including risk perspective related to the credit proposal.

E. Fit and Proper Criteria

181. All HFCs shall ensure that a policy is put in place with the approval of the Board of Directors for ascertaining the ‘fit and proper’ criteria of the directors at the time of appointment, and on a continuing basis. The policy on the ‘fit and proper’ criteria shall be on the lines of the guidelines as given below:

(1) ‘Fit and Proper’ Criteria for Directors of HFCs : The importance of due diligence of Directors to ascertain suitability for the post by way of qualifications, technical expertise, track record, integrity, etc. needs no emphasis for any financial institution. While the Reserve Bank carries out due diligence on Directors before issuing Certificate of Registration to HFC, it is necessary that HFC put in place an internal supervisory process on a continuing basis. Further, in order to streamline and bring in uniformity in the process of due diligence, while appointing Directors, HFC are advised to ensure that the procedures mentioned below are followed and minimum criteria is fulfilled by the persons before they are appointed on the Boards:

(i) The HFC should undertake a process of due diligence to determine the suitability of the person for appointment/ continuing to hold appointment as a Director on the Board, based upon qualification, expertise, track record, integrity and other ‘fit and proper’ criteria. The HFC should obtain necessary information and declaration from the proposed/ existing Directors for the purpose in the format given at Annex VIII.

(ii) The process of due diligence should be undertaken by the HFC at the time of appointment/ renewal of appointment.

(iii) The Board of the HFC should constitute Nomination and Remuneration Committee to scrutinize the declarations.

(iv) Based on the information provided in the signed declaration, Nomination and Remuneration Committee should decide on the acceptance or otherwise of the Directors, where considered necessary.

(v) The HFC should obtain annually as on 31st March a simple declaration from the Directors that the information already provided has not undergone change and where there is any change, requisite details are furnished by them forthwith.

The Board of HFC must ensure in public interest that the nominated/ elected Directors execute the Deeds of Covenants in the format given in Annex IX.

182. All HFCs shall obtain a declaration and undertaking from the directors giving additional information on the directors. The declaration and undertaking shall be on the lines of the format given in Annex VIII;

183. All HFCs shall obtain a Deed of Covenant signed by the directors, which shall be in the format as given in Annex IX;

184. All HFCs shall furnish to the NHB a quarterly statement on change of directors, and a certificate from the Managing Director of the HFC that fit and proper criteria in selection of the directors has been followed. The statement must reach NHB within 15 days of the close of the respective quarter. The statement submitted by HFC for the quarter ending March 31, should be certified by the auditors. Further, in case of no change in the directors during a quarter, a ‘Nil’ statement should be submitted.

Provided that the Reserve Bank, if it deems fit and in public interest, reserves the right to examine the ‘fit and proper’ criteria of directors of any HFC irrespective of the asset size of such HFC.

F. Key Managerial Personnel (KMP)

185. Except for directorship in a subsidiary, Key Managerial Personnel of an HFC shall not hold any office (including directorships) in any other NBFC-ML or NBFC-UL (including HFC). A timeline of two years was provided with effect from October 01, 2022 to ensure compliance with these norms. It is clarified that they can assume directorship in NBFC-BL.

G. Independent Director

186. Within the permissible limits in terms of Companies Act, 2013, an independent director shall not be on the Board of more than three NBFCs/ HFCs (NBFCs-ML or NBFCs-UL) at the same time. Further, the Board of the HFC shall ensure that there is no conflict arising out of their independent directors being on the Board of another NBFC/ HFC at the same time. A timeline of two years was provided with effect from October 01, 2022 to ensure compliance with these norms. There shall be no restriction to directorship on the Boards of NBFCs-BL, subject to provisions of Companies Act, 2013.

H. Guidelines on Compensation of KMP and Senior Management in HFCs

187. In order to address issues arising out of excessive risk taking caused by misaligned compensation packages, the HFC is required to put in place a Board approved compensation policy. The policy shall at the minimum include:

(1) Constitution of a Remuneration Committee,

(2) Principles for fixed/variable pay structures, and

(3) Malus/ clawback provisions.

188. The Board of HFC should delineate the role of various committees, including Nomination and Remuneration Committee (NRC). Further, HFC shall comply with the guidelines on Compensation of KMP and Senior Management in NBFCs: Minimum Scope and Coverage, furnished in Reserve Bank of India (Non-Banking Financial Companies – Governance) Directions, 2025.

189. The guidelines are intended only for providing broad guidance to HFC and their NRCs in formulating their compensation policy. While formulating the compensation policy, it has to be ensured that all statutory mandates and the rules and directions issued under them are fully complied with.

190. These guidelines shall be for fixing the compensation policy of Key Managerial Personnel and members of senior management of all HFCs except Government owned HFCs.

I. Disclosure and transparency

191. All HFCs shall put up to the Board of Directors, at regular intervals, as may be prescribed by the Board in this regard, the following:

(1) the progress made in putting in place a progressive risk management system and risk management policy and strategy followed by the HFC;

(2) conformity with corporate governance standards viz., in composition of various committees, their role and functions, periodicity of the meetings and compliance with coverage and review functions, etc.

192. All HFCs shall also disclose the following in their Annual Financial Statements:

(1) registration/ license/ authorisation, by whatever name called, obtained from other financial sector regulators;

(2) ratings assigned by credit rating agencies and migration of ratings during the year;

(3) penalties, if any, levied by any regulator/ supervisor/ enforcement authority;

(4) information namely, area, country of operation and joint venture partners with regard to joint ventures and overseas subsidiaries; and

(5) Asset-Liability profile, extent of financing of parent company products, NPAs and movement of NPAs, details of all off-balance sheet exposures, exposure to real estate, exposure to capital market, structured products issued by them as also securitization/ assignment transactions and other disclosures, as given in Annex III;

J. Appointment of Statutory Central Auditors/ Statutory Auditors

193. The HFC shall adhere to the instructions contained in circular titled ‘Guidelines for Appointment of Statutory Central Auditors (SCAs)/ Statutory Auditors (SAs) of Commercial Banks (excluding RRBs), UCBs and NBFCs (including HFCs)’ dated April 27, 2021, as amended from time to time. Further, the reporting prescribed under this circular shall be done to the Supervisor of HFCs i.e., NHB. However, HFCs not covered under the guidelines have the option to continue with their extant procedure.

Note: Extant regulations applicable for non-deposit taking HFCs with asset size below ₹1,000 crore: All HFCs shall rotate the partner/s of the Chartered Accountant firm conducting the audit, every three years so that same partner shall not conduct audit of the company continuously for more than a period of three years. However, the partner so rotated shall be eligible for conducting the audit of the HFC after an interval of three years, if the HFC, so decides. The HFC shall incorporate appropriate terms in the letter of appointment of the firm of auditors and ensure its compliance.

K. Framing of Internal Guidelines

194. All HFCs shall frame their internal guidelines on corporate governance with the approval of the Board of Directors, enhancing the scope of the guidelines without sacrificing the spirit underlying the above guidelines and it shall be published on the company's website, for the information of various stakeholders.

Chapter-IX –Opening of Branches / Offices

A. Opening of Branches/Offices

195. An HFC shall, before opening a branch or an office in India, inform the NHB in writing, of its intention to open a branch or an office.

196. A housing finance company shall not open a branch outside India.

197. A housing finance company shall not open a representative office outside India without obtaining prior approval in writing from the NHB.

198. The application from HFC seeking approval shall be considered keeping in view the instructions prescribed in Reserve Bank of India (Non-Banking Financial Companies – Branch Authorisation) Directions, 2025 as updated from time to time, issued by the Reserve Bank of India and shall be subject to the following:

(1) The representative office can be set up outside India for the purpose of liaison work, undertaking market study and research but not undertaking any activity which involves outlay of funds, provided it is subject to regulation by a regulator in the host country. As it is not envisaged that such office would be carrying on any activity other than liaison work, no line of credit should be extended.

(2) The HFC shall obtain periodical reports about the business undertaken by the representative office outside India. If the representative office has not undertaken any activity or such reports are not forthcoming, the approvals given for the purpose shall be reviewed/ recalled.

Chapter-IX - Private Placement of Non-Convertible Debentures

A. Guidelines on Private Placement of Non-Convertible Debentures (NCDs)

199. The instructions regarding “Raising Money through Private Placement by NBFCs” as contained in Reserve Bank of India (Non-Banking Financial Companies – Miscellaneous) Directions, 2025 (as amended from time to time) shall be applicable, mutatis-mutandis, to HFC.

Chapter-X – Auditor’s Report

A. Auditors to submit additional Report to the Board of Directors

200. In addition to the report made by the auditor under Section 143 of the Companies Act, 2013 on the accounts of a housing finance company examined for every financial year ending on any day on or after the commencement of these directions, the auditor shall also make a separate report to the Board of Directors of the Company on the matters specified in paragraphs 201 to 203 below.

B. Material to be included in the Auditor’s Report to the Board of Directors

201. The auditor’s report on the accounts of a housing finance company shall include a statement on the following matters, namely:

(1) Conducting housing finance activity without a valid Certificate of Registration (CoR) granted under Section 29 A of the NHB Act, 1987 is an offence under Chapter VII of the NHB Act, 1987. Therefore, if the company is engaged in the business of Housing Finance Institution as defined in Section 2 (d) of the NHB Act and meeting Principal Business Criteria as laid down under paragraph 8(17) of these directions, the auditor shall examine whether the company has obtained a CoR under Section 29 A of the NHB Act, 1987. The auditor shall also certify the Principal Business Criteria as specified in paragraph 8(17).

(2) Whether the housing finance company is meeting the Net Owned Fund (NOF) requirement as prescribed under Section 29A of the National Housing Bank Act, 1987 including paid-up preference shares which are compulsorily convertible into equity.

(3) Whether the housing finance company has complied with Section 29C of the National Housing Bank Act, 1987.

(4) Whether the total borrowings of the housing finance company are within the limits prescribed under paragraph 126 of these directions.

(5) Whether the housing finance company has complied with the prudential norms on income recognition, accounting standards, asset classification, loan-to-value ratio, provisioning requirements, disclosure in balance sheet, investment in real estate, exposure to capital market and engagement of brokers, and concentration of credit/investments as specified in these directions;

(6) Whether the capital adequacy ratio as disclosed in the half-yearly statutory return, submitted to the NHB, as per the directions issued by NHB in this regard, has been correctly determined and whether such ratio is in compliance with the prescribed minimum capital to risk weighted asset ratio (CRAR);

(7) Whether the housing finance company has furnished to the NHB within the stipulated period the half-yearly statutory return, as specified in the directions issued by NHB;

(8) Whether the housing finance company has furnished to the NHB within the stipulated period the quarterly statutory return on Statutory Liquid Assets, as specified in the directions issued by NHB;

(9) Whether, in the case of opening of new branches/ offices or in the case of closure of existing branches/ offices, the housing finance company has complied with the requirements contained in these directions.

(10) Whether the housing finance company has complied with the guidelines issued on ‘Loans against security of shares’, ‘Loans against security of single product - gold jewellery’ and paragraph 91 of these directions.

(11) Whether the Board of Directors of the housing finance company has passed a resolution for non-acceptance of any public deposits;

(12) Whether the housing finance company has accepted any public deposits during the relevant period/ year;

202. In case of a housing finance companies accepting/ holding public deposits: Apart from the matters enumerated in paragraph 201 above, the auditor shall include a statement on the following matters, namely: -

(1) Whether the public deposits accepted by the housing finance company together with other borrowings indicated below viz.

(i) from public by issue of unsecured non-convertible debentures/ bonds;

(ii) from its shareholders (if it is a public limited company); and

(iii) which are not excluded from the definition of ‘public deposit’ as per paragraph 8(1) of these directions, are within the limits admissible to the company as per the provisions of these directions;

(2) Whether the public deposits held by the housing finance company in excess of the quantum of such deposits permissible to it under the provisions of these directions are regularised in the manner provided in the direction;

(3) Whether the housing finance company is accepting/ holding "public deposits” without minimum investment grade credit rating from an approved credit rating agency;

(4) In respect of housing finance company referred to in sub-paragraph (3) above,

(i) whether the credit rating, for each of the fixed deposit schemes that has been assigned by one of the Credit Rating Agencies mentioned in these directions are in force; and

(ii) whether the aggregate amount of deposits outstanding as at any point during the year has exceeded the limit specified by the such Credit Rating Agency;

(5) Whether the housing finance company has defaulted in paying to its depositors the interest and/or principal amount of the deposits after such interest and/or principal became due;

(6) Whether the housing finance company has complied with the liquid assets requirement as prescribed by the Reserve Bank in exercise of powers under section 29B of the National Housing Bank Act, 1987 and the requirements as specified in paragraphs 160, 162 and 163 of these directions;

(7) Whether the housing finance company has violated any provisions contained under restriction on acceptance of public deposits, period of public deposits, joint public deposit, particulars to be specified in application form soliciting public deposits, ceiling on the rate of interest and brokerage and interest on overdue public deposits, renewal of public deposits before maturity as provided in these directions.

C. Reasons to be stated for unfavourable or qualified statements/ remarks/ notes

203. Where, in the auditor’s report, the statement/ remarks/ notes regarding any of the items referred to in paragraph 201 and 202 above is unfavourable or qualified, the auditor’s report shall also state the reasons for such unfavourable or qualified statement, as the case may be. Where the auditor is unable to express any opinion on any of the items referred to in paragraph 201 and 202 above, his report shall indicate such fact together with reasons therefor.

D. Obligation of auditor to report to the Reserve Bank of India and the National Housing Bank

204. Where, in the case of a housing finance company, the statement regarding any of the items referred to in paragraph 201 and 202 above, is unfavourable or qualified, or in the opinion of the auditor the company has not complied with:

(1) the provisions of Chapter V of the National Housing Bank Act, 1987;

(2) the provisions of Chapter III B of the RBI Act, except Sections 45-IA, 45-IB and 45-IC; or

(3) the provisions contained in these directions (i.e. Reserve Bank of India (Housing Finance Companies) Directions, 2025)

It shall be the obligation of the auditor to make a report containing the details of such unfavourable or qualified statements and/or about the noncompliance, as the case may be, in respect of the housing finance company to the NHB and Department of Regulation, Reserve Bank of India, Mumbai.

205. The duty of the auditor under paragraph 204 shall be to report only the contraventions of the provisions of NHB Act, 1987, the RBI Act, 1934 and directions, guidelines, instructions referred to in paragraph 204 and such report shall not contain any statement with respect to compliance of any of those provisions.

Chapter-X – Fair Practices Code

A. Fair Practice Code

A.1 Application of the Code

206. This Code shall apply to all the products and services, whether they are provided by the HFC, its subsidiaries or Digital Lending Platforms (self-owned and/or under an outsourcing arrangement) across the counter, over the phone, by post, through interactive electronic devices, on the internet or by any other method.

Note: In case of outsourced lending platforms, the HFC must meticulously follow regulatory instructions on outsourcing of financial services and IT services.

A.2 Applications for loans and their processing

207. All communications to the borrower shall be in the vernacular language or a language as understood by the borrower.

208. The HFC shall transparently disclose to the borrower all the following information:

(1) fees/ charges payable for processing the loan application;

(2) the amount of fees refundable if loan amount is not sanctioned/ disbursed,

(3) pre-payment options and charges, if any,

(4) penal charges for delayed repayment, if any,

(5) conversion charges for switching loan from fixed to floating rates or vice-versa,

(6) existence of any interest reset clause and any other matter which affects the interest of the borrower.

209. In other words, the HFC must disclose ‘all in cost’ inclusive of all charges involved in processing/ sanctioning of loan application in a transparent manner. It should also be ensured that such charges/ fees are non-discriminatory.

210. Loan application forms shall include necessary information which affects the interest of the borrower, so that a meaningful comparison with the terms and conditions offered by other HFC can be made and informed decision can be taken by the borrower. The loan application form may indicate the list of documents required to be submitted with the application form.

211. The HFC shall devise a system of giving acknowledgement for receipt of all loan applications. Preferably, the time frame within which loan applications will be disposed shall also be indicated in the acknowledgement.

A.3 Loan appraisal, terms/ conditions and communication of rejection of loan application

212. Normally all particulars required for processing the loan application shall be collected by the HFC at the time of application. In case it needs any additional information, the customer should be told immediately that he would be contacted again.

213. The HFC shall convey in writing to the borrower in the vernacular language or a language as understood by the borrower by means of sanction letter or otherwise, the amount of loan sanctioned along with all terms and conditions including annualized rate of interest, method of application, EMI Structure, prepayment charges, penal charges (if any) and keep the written acceptance of these terms and conditions by the borrower on its record.

214. The HFC shall mention the penal charges which are charged for late repayment in bold in the loan agreement.

215. The HFC shall invariably furnish a copy of the loan agreement along with a copy of each of the enclosures quoted in the loan agreement to every borrower at the time of sanction/ disbursement of loans, against acknowledgement.

216. If the HFC cannot provide the loan to the customer, it shall communicate in writing the reason(s) for rejection.

A.4 Disbursement of loans including changes in terms and conditions

217. Disbursement should be made in accordance with the disbursement schedule given in the Loan Agreement/ Sanction Letter.

218. The HFC shall give notice to the borrower in the vernacular language or a language as understood by the borrower of any change in the terms and conditions including disbursement schedule, interest rates, penal charges (if any), service charges, prepayment charges, other applicable fee/ charges, etc. The HFC shall also ensure that changes in interest rates and charges are effected only prospectively. A suitable condition in this regard shall be incorporated in the loan agreement.

219. If such change is to the disadvantage of the customer, he/ she may within 60 days and without notice close his/ her account or switch it without having to pay any extra charges or interest.

220. Decision to recall/ accelerate payment or performance under the agreement or seeking additional securities, shall be done only in consonance with the loan agreement.

221. The HFC shall release all securities on repayment of all dues or on realisation of the outstanding amount of loan subject to any legitimate right or lien for any other claim HFC may have against borrower. If such right of set off is to be exercised, the borrower shall be given notice about the same with full particulars about the remaining claims and the conditions under which HFC are entitled to retain the securities till the relevant claim is settled/ paid.

A.5 Guidelines on Digital Lending, loans sourced over digital lending platforms as well as on Default Loss Guarantee (DLG) in Digital Lending

222. HFCs shall comply with the instructions contained in circular on ‘Reserve Bank of India (Non-Banking Financial Companies – Credit Facilities) Directions, 2025’, as amended from time to time.

A.6 Responsibility of Board of Directors

223. The Board of Directors of HFCs should lay down the appropriate grievance redressal mechanism within the organization to resolve complaints and grievances. Such a mechanism should ensure that all disputes arising out of the decisions of lending institution’s functionaries are heard and disposed of at least at the next higher level.

224. The Board of Directors of each HFC should provide for periodical review of the compliance of the Fair Practices Code and the functioning of the grievances redressal mechanism at various levels of management. A consolidated report of such reviews may be submitted to the Board at regular intervals, as may be prescribed by it.

A.7 Complaints and Grievance Redressal

225. The HFC shall have a system and a procedure for receiving, registering and disposing of complaints and grievances in each of its offices, including those received on-line.

226. If a complaint has been received in writing from a customer, the HFC shall endeavour to send him/ her an acknowledgement/ response within a week. The acknowledgement should contain the name & designation of the official who will deal with the grievance. If the complaint is relayed over phone at the HFC’s designated telephone helpdesk or customer service number, the customer shall be provided with a complaint reference number and be kept informed of the progress within a reasonable period of time.

227. After examining the matter, the HFC shall send the customer its final response or explain why it needs more time to respond and shall endeavour to do so within six weeks of receipt of a complaint and he/ she should be informed how to take his/ her complaint further if he/ she is still not satisfied.

228. The HFC shall publicise its grievance redressal procedure (e-mail id and other contact details at which the complaints can be lodged, turnaround time for resolving the issue, matrix for escalation, etc.) for lodging the complaints by the aggrieved borrower and ensure specifically that it is made available on its website. The HFC shall clearly display in all its offices/ branches and on the website that in case the complainant does not receive response from the company within a period of one month or is dissatisfied with the response received, the complainant may approach the Complaint Redressal Cell of National Housing Bank (NHB) by lodging its complaints online on the website of NHB or through post to NHB, New Delhi.

A.8 Language and mode of communicating Fair Practice Code

229. The HFC will have the freedom of drafting the Fair Practices Code, enhancing the scope of the directions but in no way sacrificing the spirit underlying the above directions. The same shall be put up on its website, for the information of various stakeholders..

A.9 Regulation of excessive interest charged by HFCs

230. The Board of the HFC shall adopt an interest rate model taking into account relevant factors such as cost of funds, margin and risk premium and determine the rate of interest to be charged for loans and advances. The rate of interest and the approach for gradation of risk and rationale for charging different rate of interest to different categories of borrowers shall be disclosed to the borrower or customer in the application form and communicated explicitly in the sanction letter.

231. The rates of interest and the approach for gradation of risks, and penal charges (if any) shall also be made available on the website of the companies or published in the relevant newspapers. The information published in the website or otherwise published shall be updated whenever there is a change in the rates of interest.

232. The rate of interest must be annualised rate so that the borrower is aware of the exact rates that would be charged to the account.

233. Instalments collected from borrowers should clearly indicate the bifurcation between interest and principal.

A.10 Excessive interest charged by HFCs

234. Though interest rates are not regulated by the Reserve Bank, rates of interest beyond a certain level may be seen to be excessive and can neither be sustainable nor be conforming to normal financial practice. HFCs shall lay out appropriate internal principles and procedures in determining interest rates and processing and other charges (including penal charges, if any). In this regard the directions in the Fair Practices Code about transparency in respect of terms and conditions of the loans are to be kept in view. HFCs shall also put in place an internal mechanism to monitor the process and the operations so as to ensure adequate transparency in communications with the borrowers.

A.11 Advertising, Marketing and Sales

235. The HFC shall ensure that all advertising and promotional material is clear, and factual.

236. In any advertising in any media and promotional literature that draws attention to a service or product and includes a reference to an interest rate, the HFC shall also indicate whether other fees and charges will apply and that full details of the relevant terms and conditions are available on request or on the website.

237. The HFC shall provide information on interest rates, common fees and charges (including penal charges, if any) through putting up notices in its branches; through telephone or help-lines; on the company’s website; through designated staff/ help desk; or providing service guide/ tariff schedule.

238. If the HFC avails of the services of third parties for providing support services, the HFC shall require that such third parties handle customer’s personal information (if any available to such third parties) with the same degree of confidentiality and security as the HFC would.

239. The HFC may, from time to time, communicate to customers various features of its products availed by them. Information about its other products or promotional offers in respect of products/ services, shall be conveyed to customers only if they have given their consent to receive such information/ service either by mail or by registering for the same on the website or on customer service number.

240. The HFC shall prescribe a code of conduct for its Direct Selling Agencies (DSAs) whose services are availed to market products/ services which amongst other matters require them to identify themselves when they approach the customer for selling products personally or through phone.

241. The HFC shall adopt the following Model Code of Conducts for Direct Selling Agents (DSAs)/ Direct Marketing Agents (DMAs) :

(1) Preamble

(i) Model Code of Conduct for the Direct Selling Agents (DSAs)/ Direct Marketing Agents (DMAs) is a code of conduct for adoption by housing finance companies (HFCs) in respect of DSAs/ DMAs operating as their Agents. The Code is a set of guidelines designed to ensure that DSAs/ DMAs of HFC act and conduct in conformity with the laid down policies and procedures as set in the Code.

(2) Applicability

(i) Upon adoption and inclusion as part of agreement between HFC and the DSA/ DMA, this Code will apply to person/ legal entity involved in marketing and distribution of any loan or other financial products or services of HFC.

(ii) The DSA/ DMA or/and its employees/ representatives must agree to abide by this Code prior to undertaking any direct marketing operation and distribution on behalf of the HFC.

(iii) Any employee/ representative of DSA/ DMA found to be violating this Code may be blacklisted and such action taken be reported to the HFC from time to time by the DSA/ DMA.

(iv) Failure to comply with this requirement may result in permanent termination of business of DSA/ DMA with HFC and may even lead to permanent blacklisting.

(v) A declaration-cum-undertaking to be given by DSA/ DMA to HFC and be obtained from its employees/ representatives by the DSAs/ DMAs before assigning them duties is annexed as Annex X.

(3) Tele-calling a Prospect (a prospective customer)

(i) With reference to Unsolicited Commercial Communications - National Do Not Call Registry (NCND), the HFC shall –

(a) not engage Telemarketers (DSAs/ DMAs) who do not have any valid registration certificate from Department of Telecommunication (DoT), Government of India, as telemarketers; HFC shall engage only those telemarketers who are registered in terms of the guidelines issued by TRAI, from time to time, for any kind of engagement with customers;

(b) furnish the list of Telemarketers (DSAs/ DMAs) engaged by them along with the registered telephone numbers being used by them for making telemarketing calls to TRAI;

(ii) A prospect is to be contacted for sourcing an HFC’s product/ service or HFC related product/ service only under the following circumstances:

(a) When a prospect has expressed desire to acquire any loan or other financial product or services through the HFC’ internet site/ digital platforms including mobile applications/ call centre/ branch or through the Relationship Manager at the HFC or has been referred to by another prospect/ customer or is an existing customer of the HFC who has given explicit consent in writing/ digitally for accepting calls on other products/ services of the HFC.

(b) When the prospect’s name/ telephone number/ address is available and obtained after taking his/ her explicit consent in writing/ digitally on a separate document.

(iii) DSA/ DMA or/and its employees/ representatives should not call a person whose name/ number is flagged in any “Do Not Disturb” list.

(4) When you may contact a prospect on telephone

(i) DSA/ DMAs must introduce themselves and before calling must share their contact details through message or any other written mode including his/ her name, contact number, DMA/ DSA they are employed with and the HFC they are representing.

(ii) Telephonic contact must normally be between 09:30 hours and 19:00 hours. However, it may be ensured that a prospect is contacted only when the call is not expected to inconvenience him/ her;

(iii) Calls earlier or later than the prescribed time period may be placed only when the prospect has expressly authorized the DSA/ DMA or/and its employees/ representatives to do so either in writing or orally;

(iv) Residence/ Business/ Office address visit must normally be limited between 09:30 hours and 19:00 hours. Visit earlier or later than the prescribed time period may be made only when prospect has expressly authorized DSA or/and its employees/ representatives to do so either in writing or orally.

(5) Respect prospect’s privacy

(i) DSA/ DMA or/and its employees/ representatives should respect a prospect’s privacy and his/ her interest may normally be discussed only with the prospect and with any other individual/ family member such as prospect’s accountant/ secretary/ spouse only when authorized to do so by the prospect.

(6) Leaving messages and contacting persons other than the prospect

(i) Calls must first be placed to the prospect. If the prospect is not available, a message may be left for him/ her. The aim of the message should be to get the prospect to return the call or to check for a convenient time to call again. Ordinarily, such messages may be restricted to:

“Please leave a message that XXXXXX (name of officer) representing YYYYYY (name of the HFC) called and requested to call back at ZZZZZZ (phone number)”. As a general rule, the message must indicate that the purpose of the call is regarding selling or distributing a product of an HFC.

(7) No misleading statements / misrepresentations permitted

(i) DSA/ DMA or/and its employees/ representatives shall not:

(a) Mislead the prospect on any product/ service offered by an HFC;

(b) Mislead the prospect about their business or organization’s name or falsely represent themselves as HFC’s employee;

(8) Telemarketing Etiquettes

(i) Pre Call

(a) No calls prior to 09:30 hours or post 19:00 hours unless specifically requested;

(b) No serial calling;

(ii) During Call

(a) Identify yourself, your company and your principal;

(b) Request permission to proceed;

(d) State reason for your call;

(e) Always offer to call back on landline, if call is made to a cell number;

(f) Never interrupt or argue;

(g) To the extent possible, talk in the language which is most comfortable to the prospect/ customer;

(h) Keep the conversation limited to business matters;

(i) Check for understanding of “Most Important Terms and Conditions” by the prospect/ customer if he plans to buy the product;

(j) Reconfirm next call or next visit details;

(k) Provide your telephone no, your supervisor’s name or the HFC’s officer contact details if asked for by the prospect/ customer;

(l) Thank the prospect/customer for his/ her time.

(iii) Post Call

(a) Prospects/ Customers who have expressed their lack of interest for the offering should not be called for the next 3 months with the same offer;

(b) Provide feedback to the HFC on prospects/ customers who have expressed their desire to be flagged “Do Not Disturb”;

(d) Advise them to contact the Customer Service Staff of HFC.

(9) Gifts or Bribes

(i) DSA/ DMA or/and its employees/ representatives will

(a) not accept gifts or bribes of any kind from prospects/ customers. Further, if he/ she is offered a bribe or payment of any kind by the prospect/ customer, it must be reported to his/ her management.

(b) not offer any gifts/ gratitude in cash or in kind to the prospect/ customer to solicit business.

(10) Precautions to be taken on visits/ contacts

(i) DSA/ DMA or/and its employees/ representatives should:

(a) respect personal space, maintain adequate distance from the prospect/ customer;

(b) ensure that prospect/ customer is not visited within a period of 3 months of expression of lack of interest for the offering by him/ her.

(d) prospect’s/ customer’s residence/ business is visited by not more than one employee/ representative of DSA/ DMA and one supervisor, if required;

(e) respect the prospect’s privacy;

(f) end the visit with a request for the prospect to call back, if the prospect/ customer is not present and only family members/ office persons are present at the time of the visit;

(g) provide his/ her telephone number, name of the supervisor or the concerned HFC officer’s contact details, if asked for, by the prospect/ customer; and

(h) limit discussions to prospects of the business and maintain a professional distance.

(11) Appearance and Dress Code

(i) DSA/ DMA or/and its employees/ representatives must be in proper formal attire while meeting up with prospect/ customer.

(12) Handling of letters and other communication

(i) Any communication sent to the prospect shall only be in the mode and format approved by the HFC.

(13) Qualifications for DSA/ DMA

(i) While there is no specific qualification requirement for individuals, corporate entities depending upon the nature of the entity, shall ensure that the Partnership Deed, Memorandum of Association or any other document evidencing the constitution of the entity shall contain as one of its main objects soliciting or procuring DSA business.

(14) Empanelment of DSA/ DMA

(i) DSA/ DMA seeking of engagement/ empanelment with the HFC shall submit the application for empanelment in the illustrative format given at Annex X.

(15) Outsourcing Agreement

(i) The terms and conditions governing the contract between the HFC and the service provider should be carefully defined in written agreements and vetted by HFC's legal counsel on their legal effect and enforceability.

(ii) Every such agreement should address the risks and risk mitigation strategies. The agreement should be sufficiently flexible to allow the HFC to retain an appropriate level of control over the outsourcing and the right to intervene with appropriate measures to meet legal and regulatory obligations.

(iii) The agreement should also bring out the nature of legal relationship between the parties – i.e. whether the agent, principal or otherwise. Some of the key provisions of the contract should be the following:

(a) The contract should clearly define what activities are going to be outsourced including appropriate service and performance standards;

(b) The HFC must ensure it has the ability to access all books, records and information relevant to the outsourced activity available with the service provider;

(c) The contract should provide for continuous monitoring and assessment by the HFC of the service provider so that any necessary corrective measure can be taken immediately;

(d) A termination clause and minimum period to execute a termination provision, if deemed necessary, should be included;

(e) Controls to ensure customer data confidentiality and service providers' liability in case of breach of security and leakage of confidential customer related information should be incorporated;

(f) There must be contingency plans to ensure business continuity;

(g) The contract should provide for the prohibition of further outsourcing by the service provider for all or part of an outsourced activity;

(h) It should provide the HFC with the right to conduct audits on the service provider whether by its internal or external auditors, or by agents appointed to act on its behalf and to obtain copies of any audit or review reports and findings made on the service provider in conjunction with the services performed for the HFC;

(i) Outsourcing agreements should include clauses to allow the National Housing Bank or persons authorised by it, to access the HFC's documents, records of transactions, and other necessary information given to, stored or processed by the service provider, within a reasonable time.

(j) Outsourcing agreement should also include a clause to recognise the right of the National Housing Bank, to cause an inspection to be made of a service provider of an HFC and its books and account by one or more of its officers or employees or other persons.

(k) The outsourcing agreement should also provide that confidentiality of customer's information should be maintained even after the contract expires or gets terminated.

(l) The outsourcing agreement should provide for the preservation of documents and data by the service provider in accordance with the legal/ regulatory obligation of the HFC in this regard.

(16) Termination of Agreement

(i) A termination clause and minimum period to execute a termination provision, should be included.

(ii) The agreement shall automatically be terminated unless renewed by a fresh contract by the HFC immediately after the expiry of the period of agreement.

(iii) No DSA/ DMA shall be allowed to do any fresh business on behalf of the HFC after termination of agreement until and unless renewed by a fresh agreement.

(17) Training to DSA/ DMA or/and its employees/ representatives

(i) Where DSA/ DMA is seeking of engagement/ empanelment with the HFC, it or/and its employees/ representative will have to go through two-day preliminary training and a day training every year which shall be organized by the HFC. HFC shall also maintain record of training provided by them.

(18) Maintenance of Database of DSAs/ DMAs

(i) The HFC availing the services of DSA/ DMA shall maintain up-to-date database of DSAs/ DMAs engaged/ empaneled with them. HFC shall keep the inspection report of the inspection conducted in terms of the provisions of the agreement entered into with the DSA/ DMA, and action taken report (ATR) thereon.

(19) General

(i) The HFC shall, at least on an annual basis review the financial and operational conditions of the service provider to assess their ability to continue to meet their outsourcing obligations. Such due diligence reviews, which can be based on all available information about service provider, shall highlight any deterioration or breach in performance standard confidentially and security, and in business continuity preparedness.

(ii) The HFC shall have in place a management structure to monitor and control the outsourcing activities. It shall ensure that outsourcing agreements with the service providers contain provisions to address their monitoring and control of outsource activities.

(iii) Regular audits by either the internal auditors or external auditors of the HFC shall assess the adequacy of the risk management practices adopted in overseeing and managing the outsourcing arrangement, the HFC’s compliance with its risk management framework and the requirements of these guidelines.

(iv) In the event of termination of the agreement for any reason, this shall be publicized so as to ensure that the customers do not continue to deal with that service provider.

(v) The HFC shall constitute a Grievance Redressal Machinery within the company and give wide publicity about it through electronic and print media.

(vi) The name and contact number of the designated Grievance Redressal Officer of the HFC should be made known and widely publicized.

(vii) The designated officer should ensure that genuine grievances of customers are redressed promptly without involving delay.

(viii) It shall be clearly indicated that HFC’s Grievance Redressal Machinery will also deal with the issue relating to services provided by the outsourced agency.

(ix) Generally, a time limit of one month may be given to the customers for preferring the complaints/grievances. The grievance redressal procedure of the HFC and the time frame fixed for responding to the complaints shall be placed on the HFC’s website.

(x) No payment to DSAs/ DMAs shall be made in cash. The fee, incentive etc. shall be made only by way of direct credit to their bank account.

(xi) HFC, at its discretion, may prescribe the operational area for DSA/ DMA within which they can work.

(xii) The lead shall be shared by the DSA/ DMA in the illustrative format given at Annex X.

(xiii) By virtue of contract/ agreement, the DSA/ DMA or/and its employees/ representatives may have access to personal and business information of HFC and/or HFC’s customer. DSA/ DMA shall ensure the preservation and protection of the security and confidentiality of the customer information or data which are in the custody or possession.

(xiv) DSA/ DMA shall acknowledge that he/ she/ it has read the said Model Code of Conduct and has fully understood all the terms and conditions mentioned there in and declare that the DSA/ DMA shall agree to abide by the said Code of conduct in letter and spirit.

(xv) The DSA/ DMA shall report the fraud committed by erring employees/ representatives periodically to HFC and consolidated data/ information on the same shall be submitted by HFC to NHB. The information shall include name of the person, address, name of the DSA associated with and nature of fraud. Such employees/ representatives shall be barred permanently for doing the business of DSA/ DMA in future with HFC.

242. In the event of receipt of any complaint from the customer that the HFC’s representative/ courier or DSA has engaged in any improper conduct or acted in violation of this Code, appropriate steps shall be initiated to investigate and to handle the complaint and to make good the loss.

A.12 Guarantors

243. When a person is considering being a guarantor to a loan, they should be informed about:

(1) their liability as guarantor;

(2) the amount of liability they will be committing themselvesto the company;

(3) circumstances in which the HFC will call on them to pay up their liability;

(4) whether the HFC has recourse to their other monies in the company if he/ she fail to pay up as a guarantor;

(5) whether their liabilities as a guarantor are limited to a specific quantum or are they unlimited;

(6) time and circumstances in which their liabilities as a guarantor will be discharged as also the manner in which the HFC will notify them about this; and

(7) In case the guarantor refuses to comply with the demand made by the creditor/ lender, despite having sufficient means to make payment of the dues, such guarantor would also be treated as a wilful defaulter.

244. The HFC shall keep them informed of any material adverse change/s in the financial position of the borrower to whom he/ she stands as a guarantor.

A.13 Privacy and Confidentiality

245. All personal information of customers, both present and past, shall be treated as private and confidential and shall be guided by the following principles and policies.

(1) The HFC shall not reveal information or data relating to customer accounts, whether provided by the customers or otherwise, to anyone, including other companies/ entities in their group, other than in the following exceptional cases:

(i) If the information is to be given by law.

(ii) If there is a duty towards the public to reveal the information.

(iii) If the HFC’s interests require them to give the information (for example, to prevent fraud). However, it shall not be used as a reason for giving information about customer or customer accounts (including customer name and address) to anyone else, including other companies in the group, for marketing purposes.

(iv) If the customer asks the HFC to reveal the information, or with the customer’s permission.

(v) If the HFC is asked to give a reference about customers, it shall obtain their written permission before giving it.

(2) The customer shall be informed the extent of their rights under the existing legal framework for accessing the personal records that the HFC holds about them.

(3) The HFC shall not use customer’s personal information for marketing purposes by anyone including HFC, unless the customer specifically authorises it to do so.

A.14 General

246. The HFC shall refrain from interference in the affairs of the borrower except for the purposes provided in the terms and conditions of the loan agreement (unless information, not earlier disclosed by the borrower, has been noticed).

247. In case of receipt of request from the borrower for transfer of borrowal account, the consent or otherwise i.e. objection of the HFC, if any, shall be conveyed within 21 days from the date of receipt of request. Such transfer shall be as per transparent contractual terms in consonance with law.

248. Whenever loans are given, the HFC shall explain to the customer the repayment process by way of amount, tenure and periodicity of repayment. However, if the customer does not adhere to repayment schedule, a defined process in accordance with the laws of the land shall be followed for recovery of dues. The process will involve reminding the customer by sending him/ her notice or by making personal visits and/or repossession of security if any.

249. In the matter of recovery of loans, the HFC shall not resort to harassment viz. persistently bothering the borrowers at odd hours, use muscle power for recovery of loans etc. As complaints from customers also include rude behaviour from the staff of the companies, the HFC shall ensure that the staff is adequately trained to deal with the customers in an appropriate manner.

250. The HFC shall adopt the following guidelines for engaging Recovery Agents:

(1) The HFC, as principal, shall be responsible for the action of their agents. Hence, it shall ensure that its agents, engaged for recovery of its dues shall strictly adhere to these guidelines and instruction including the fair practice code for HFC, while engaging in the process of recovery of dues.

Note:

(i) ‘Agents’ for the purpose of these guidelines would include agencies engaged by the HFC and the agents/ employees of the concerned agencies.

(ii) It is expected that the HFC would, in the normal course, ensure that their own employees also adhere to these guidelines during the loan recovery process.

(2) Engagement of Recovery Agents

(i) The HFC shall have a due diligence process in place for engagement of recovery agents, which shall be structured to cover, among others, individuals involved in the recovery process.

(ii) The HFC shall also ensure that the agents engaged by them in the recovery process, carry out verification of the antecedents of their employees, which may include pre-employment police verification, as a matter of abundant caution and HFC may decide the periodicity at which re-verification of antecedents should be resorted to.

(3) Training of Recovery Agents

(i) The HFC shall ensure that, among others, the recovery agents are properly trained to handle with care and sensitivity, their responsibilities, in particular aspects like hours of calling, privacy of customer information etc.

(ii) The HFC shall ensure that over a period of one year, all their recovery agents undergo the training as prescribed by Indian Institute of Banking and Finance (IIBF) and obtain the certificate from the institute.

(iii) Further, the service providers engaged by the HFC, shall also employ only such personnel who have undergone the above training and obtained the certificate from the IIBF.

(4) Intimating borrowers about recovery agents

(i) HFC shall prominently display the list of recovery agency firms/ companies/ individual as the case may be, empanelled with it including name and period of empanelment on its website, branches/ offices, mobile applications or any other platform which is being used for engagement with customer.

(ii) To ensure due notice and appropriate authorization, the HFC shall inform the borrower, the details of recovery agency firms/ companies while forwarding default cases to the recovery agency.

(iii) Further, in some of the cases, the borrower might not have received the details about the recovery agency due to refusal/ non-availability/ avoidance.

(iv) To ensure identification, the agent shall also carry a copy of the notice and the authorization letter from the HFC along with the identity card issued to him by the HFC or the agency firm/ company.

(v) Where the recovery agency is changed by the HFC during the recovery process, in addition to the HFC notifying the borrower of the change, the new agent shall carry the notice and the authorization letter with his identity card.

(vi) The notice and the authorization letter shall, among other details, also include the telephone numbers of the relevant recovery agency. The HFC shall ensure that there is a tape recording of the content/ text of the calls made by the recovery agents to the customers and vice-versa, with the knowledge of the customer. The HFC shall take reasonable precautions such as intimating the customer that the conversation is being recorded, etc.

(5) Incentives to Recovery Agents

(i) Stiff targets or high incentives may induce agents to use intimidatory and questionable methods for recovery of dues.

(ii) The HFC shall ensure that the contracts with the recovery agent do not induce adoption of uncivilised, unlawful and questionable behaviour or recovery process.

(6) Methods followed by Recovery Agents

(i) All the members of the staff or any person authorised to represent the HFC in collection or/and security repossession shall follow the guidelines set out, such as:

(a) Customer would be contacted ordinarily at the place of their choice and in the absence of any specified place at the place of their residence and if unavailable at their residence, at the place of business/ occupation.

(b) Identity and authority to represent the HFC shall be made known to the customer at the first instance.

(d) Interaction with the customer shall be in a civil manner.

(e) HFCs’ representatives shall contact customers between 8.00 a.m. to 7.00 p.m. for recovery of overdue loans.

(f) Customer’s request to avoid call at a particular time or at a particular place shall be honoured as far as possible.

(g) The time and number of calls and contents of conversation shall be documented.

(h) All assistance shall be given to resolve disputes or differences regarding dues in a mutually acceptable and in an orderly manner.

(i) During visits to customer’s place for dues collection, decency and decorum shall be maintained.

(j) Only employees of the Recovery Agency shall visit the borrower’s premises for the recovery/ collection activity and no other person shall accompany such Recovery Agent.

(k) Inappropriate occasions such as bereavement in the family or such other calamitous occasion, or marriage functions, festivals etc. shall be avoided for making calls/ visits to collect dues.

(l) The written communication sent by the collection agent to the borrower shall have the approval of the HFC.

(m) The HFC shall interact only with the customer/ borrower or the guarantor (only if so required) and shall not approach any other relatives/ contacts of the borrower.

(7) Taking possession of property mortgaged to HFCs

(i) It has been observed by the Hon’ble Supreme Court that we are governed by rule of law in the country and the recovery of loans or seizure of asset could be done only through legal means.

(ii) It is emphasised in this context that the HFC may rely on legal remedies available under the relevant statutes while enforcing security interest without intervention of the courts. In this context, it may be mentioned that the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and the Security Interest (Enforcement) Rules, 2002, framed thereunder have laid down well-defined procedures not only for enforcing security interest but also for auctioning the movable and immovable property after enforcing the security interest.

(iii) Where the HFC has incorporated a pre-possession clause in the contract with the borrower and rely on such pre-possession clause for enforcing their rights, they shall ensure that the pre-possession clause is legally valid, complies with the provisions of the Indian Contract Act in letter and spirit, and ensure that such prepossession clause is clearly brought to the notice of the borrower at the time of execution of the contract. The terms and condition of the contract shall be strictly in terms of the disclosed recovery policy and should contain provisions regarding:

(a) Notice period before taking possession;

(b) circumstances under which the notice period can be waived;

(d) a provision regarding final chance to be given to the borrower for repayment of loan before the sale/ auction of the property;

(e) the procedure for giving repossession to the borrower; and

(f) the procedure for sale/ auction of the property.

(8) Use of forum of Lok Adalats

(i) The Honourable Supreme Court has also observed, inter alia, that loans, personal loans, credit card loans and housing loans with less than ₹10 lakh can be referred to Lok Adalats.

(ii) The HFC is encouraged to use the forum of Lok Adalats for recovery of housing loans with less than ₹10 lakh as suggested by Honourable Supreme Court.

(9) Utilisation of Credit Counsellors

(i) The HFC shall have in place an appropriate mechanism to utilize the service of credit counsellors for providing suitable counselling to the borrowers where they become aware that the case of a particular borrower deserves sympathetic consideration.

(10) Complaints against the HFC/ its Recovery Agents

(i) Complaints received by NHB regarding violation of the above guidelines and adoption of above practices followed by recovery agents of HFC would be viewed seriously.

(ii) Supervisory actions could be attracted when the High Courts or the Supreme Court pass strictures or impose penalties against any HFC or its Directors/ Officers/ agents with regard to policy, practice and procedures related to the recovery process.

(iii) Where a grievance/ complaint has been lodged, the HFC shall not forward cases to recovery agencies till they have finally disposed of any grievance/ complaint lodged by the concerned borrower. However, where the HFC is convinced, with appropriate proof, that the borrower is continuously making frivolous/ vexatious complaints, it may continue with the recovery proceedings through the Recovery Agents even if a grievance/ complaint is pending with them.

(iv) In case where the subject matter of the borrower’s dues might be sub judice, the HFC shall exercise utmost caution, as appropriate, in referring the matter to the recovery agencies, depending on the circumstances.

(v) Each HFC shall have a mechanism whereby the borrower grievances with regards to the recovery process can be addressed. The details of the mechanism shall also be furnished to the borrower while advising the details of the recovery agency as at sub-paragraph (4) above.

(11) Periodical review, monitoring and control

(i) A HFC engaging recovery agents shall undertake a periodical review of the mechanism to learn from experience, to effect improvement and to bring to the notice of the Reserve Bank suggestion for improvement in the guidelines.

(12) General

(i) A HFC shall, at least on an annual basis, review the financial and operation condition of the service providers to assess their ability to continue to meet their outsourcing conditions. Such due diligence reviews, which can be based on all available information about the service provider should highlight any deterioration or breach in performance standards, confidentiality and security, and in business continuity preparedness.

(ii) The outsourcing agreement shall provide for the prohibition of further outsourcing by the service provider for all or part of an outsourced activity;

(iii) A HFC shall have in place a management structure to monitor and control its outsourcing activities. It shall ensure that outsourcing agreement with the service providers contain provisions to address their monitoring and control of outsourced activities.

(iv) Regular audits by either the internal auditors or external auditors of the HFC shall, inter alia, assess the adequacy of the risk management practices adopted in overseeing and managing the outsourcing arrangement, the HFC’s compliance with its risk management framework and the requirements of these guidelines.

(v) In the event of termination of the agreement for any reason, this shall be publicized so as to ensure that the customers do not continue to deal with that service providers.

(vi) The HFC shall constitute a Grievance Redressal Machinery within the company and give wide publicity about it through electronic and print media.

(vii) The name and contact number of designated grievance redressal officer of the HFC shall be made known and widely publicised.

(viii) The designated officer shall ensure that genuine grievances of customers are redressed promptly without any delay. It shall be clearly indicated that HFC Grievance Redressal Machinery will also deal with the issue relating to services provided by the outsourced agency.

(ix) Generally, a time limit of one month may be given to the customer for preferring their complaints/ grievances. The grievance redressal procedure of the HFC and the time frame fixed for responding to the complaints shall be placed on the HFC’s website.

251. The HFC shall not charge pre-payment levy or penalty on pre-closure of housing loans under the following situations:

(1) Where the housing loan is on floating interest rate basis and pre-closed from any source.

(2) Where the housing loan is on fixed interest rate basis and the loan is preclosed by the borrower out of their own sources.

Note: The expression “own sources” for the purpose means any source other than by borrowing from a bank/ HFC/ NBFC and/or a financial institution.

(3) All dual/ special rate (combination of fixed and floating) housing loans will attract the pre-closure norms applicable to fixed/ floating rate depending on whether at the time of pre-closure, the loan is on fixed or floating rate.

(4) In case of a dual/ special rate housing loans, the pre-closure norm for floating rate will apply once the loan has been converted into floating rate loan, after the expiry of the fixed interest rate period. This applied to all such dual/ special rate housing loans being foreclosed hereafter.

(5) It is also clarified that a fixed rate loan is one where the rate is fixed for entire duration of the loan.

252. The HFC shall not impose foreclosure charges/ pre-payment penalties on any floating rate term loan sanctioned for purposes other than business to individual borrowers, with or without co-obligant(s).

253. Further, to facilitate quick and good understanding of the other major terms and conditions of housing loan agreed upon between HFC and the individual borrower, the HFC shall additionally obtain a document containing the other most important terms and conditions (MITC) of such loan (i.e., other than the details included in KFS) in all cases in the suggestive format as per the format given in Annex XI. The document will be in addition to the existing loan and security documents being obtained by the HFC. HFC is advised to prepare the said document in duplicate and in the language understandable by the borrower. Duplicate copy duly executed between the HFC and the borrower should be handed over to the borrower under acknowledgement.

254. Display of various key aspect such as service charges, interest rates, Penal charges (if any), services offered, product information, time norms for various transactions and grievance redressal mechanism, etc., is required to promote transparency in the operations of HFC. The HFC shall follow the instructions on “Notice Board”, “Booklets/ Brochures”, “Website”, “Other Modes of Display” and on “Other Issues” as per Annex XI.

255. The HFC shall display about its products and services in any one or more of the following languages: Hindi, English or the appropriate local language.

256. The HFC shall not discriminate on grounds of sex, caste and religion in the matter of lending. Further, the HFC shall also not discriminate visually impaired or physically challenged applicants on the ground of disability in extending products, services, facilities, etc. However, this does not preclude the HFC from instituting or participating in schemes framed for different sections of the society.

257. To publicise the Code, the HFC shall:

(1) provide existing and new customers with a copy of the Code;

(2) make this Code available on request either over the counter or by electronic communication or mail;

(3) make available this Code at every branch and on their website; and

(4) ensure that their staff are trained to provide relevant information about the Code and to put the Code into practice.

A.15 Loan facilities to the physically/ visually challenged

258. The HFC shall not discriminate in extending products, services, facilities etc. including loan facilities to physically/ visually challenged applicants on grounds of disability.

259. All branches/ offices of the HFC shall render all possible assistance to such persons for availing of the various business facilities. The HFC shall include a suitable module containing the rights of persons with disabilities guaranteed to them by the law and international conventions, in all the training programmes conducted for its employees at all levels. Further, the HFC shall ensure redressal of grievances of persons with disabilities under the Grievance Redressal Mechanism already set up by it. The HFC shall adopt the following illustrative guidelines for loan facilities to visually challenged applicant:

(1) All products, services, facilities, etc. offered by the HFC shall be made available to visually impaired persons and shall be offered at all branches/ offices of the HFC.

(2) All products, services, facilities, etc. must be made available to visually impaired customers as are offered to other customers and their impairment of vision should not be a criterion for sanctioning/ denying a loan.

(3) The HFC must provide the same facilities to a visually impaired customer as it would to any other customer.

(4) The HFC must follow the same procedure for extending products, services, facilities, etc. offered by them to a visually impaired customer as it does for its other customers.

(5) No additional burden of interest payment, collateral and other terms shall be imposed on the visually impaired customer.

(6) If the credit policy of an HFC does not insist for a co-borrower or a guarantor for other customers for any type of loan facilities extended by it, the same shall not be insisted upon for a visually impaired customer.

(7) The HFC shall not equate visually impaired customers with illiterate customers.

(8) The HFC shall not deny any services to visually impaired customers including visually impaired customers who use their thumb impression. If necessary, HFC, at its discretion, may take a Declaration of Thumb Impression as an additional document from visually impaired customer.

(9) Additional facilities like reading and filling up of forms, slips, etc. shall be provided to a visually impaired customer. The Officer/ Manager of the branch/ office shall read out the rules of business and other terms and conditions in the presence of a witness, if required by the customer.

(10) HFC must allow the visually impaired customer to take a loan or avail any other facilities offered by them jointly with anybody that he/ she chooses including person(s) who is/are visually impaired.

(11) Visually impaired customers may be allowed to appoint a person/ persons as their Power of Attorney or Mandate Holder to operate their account, if the visually impaired customer so desires.

(12) The Officer/ Manager of the branch/ office must inform a visually impaired customer/ prospective customer of his rights and liabilities before offering the product.

(13) The documentation requirements of a visually impaired customer must be the same as any other customer. The account has to be clearly marked as "the account holder is visually impaired".

(14) The HFC shall provide a copy of all documents to visually impaired customer in digital form also, if required.

(15) The HFC shall provide a copy of the KFS and other Most Important Terms and Conditions (MITC) as at Annex XI as applicable, to visually impaired customer in braille form or text readable PDF, if so desired by them.

(16) The HFC shall preferably provide Electronic Clearing Service (ECS) facility to the visually impaired customer.

(17) It should be noted that these guidelines are only illustrative and by no measures exhaustive.

A.16 Providing facilities to persons with disabilities: Compliance with Hon’ble Supreme Court Order dated April 30, 2025 in the matter of Pragya Prasun and Ors. vs Union of India (W.P.(C) 289 of 2024) and Amar Jain vs Union of India & Ors. (W.P.(C) 49 of 2025)

260. Attention of the HFC is drawn to the Order of the Hon’ble Supreme Court dated April 30, 2025 in the matter of Pragya Prasun and Ors. vs. Union of India (W.P.(C) 289 of 2024) and Amar Jain vs. Union of India & Ors. (W.P.(C) 49 of 2025). The HFC shall undertake appropriate measures to ensure compliance with the above Supreme Court Order, as applicable.

B. Need for public notice before closure of the branch/office

261. The HFC shall give at least three months public notice prior to the date of closure of any of its branches/offices in, at least, one leading national newspaper and a leading local (covering the place of branch/ office) vernacular newspaper indicating therein the purpose and arrangements being made to service the depositors, etc.

C. Rounding off of transactions to the Nearest Rupee

262. All transactions of the HFC, including payment of interest on deposits/ charging of interest on advances, shall be rounded off to the nearest rupee, i.e., fractions of 50 paise and above shall be rounded off to the next higher rupee and fractions of less than 50 paise shall be ignored. It shall be ensured that cheques/drafts issued by clients containing fractions of a rupee shall not be rejected by them.

D. Fair Lending Practice - Penal Charges in Loan Accounts

263. The HFC shall adhere to following instructions for charging penal charges on loans. These instructions shall, however, not apply to Credit Cards, External Commercial Borrowings, Trade Credits and Structured Obligations which are covered under product specific directions.

(1) Penalty, if charged, for non-compliance of material terms and conditions of loan contract by the borrower shall be treated as ‘penal charges’ and shall not be levied in the form of ‘penal interest’ that is added to the rate of interest charged on the advances. There shall be no capitalisation of penal charges i.e., no further interest computed on such charges. However, this will not affect the normal procedures for compounding of interest in the loan account.

(2) The HFC shall not introduce any additional component to the rate of interest and ensure compliance to these guidelines in both letter and spirit.

(3) The HFC shall formulate a Board approved policy on penal charges or similar charges on loans, by whatever name called.

(4) The quantum of penal charges shall be reasonable and commensurate with the non-compliance of material terms and conditions of loan contract without being discriminatory within a particular loan / product category.

(5) The penal charges in case of loans sanctioned to ‘individual borrowers, for purposes other than business’, shall not be higher than the penal charges applicable to non-individual borrowers for similar non-compliance of material terms and conditions.

(6) The quantum and reason for penal charges shall be clearly disclosed by the HFC to the customers in the loan agreement and most important terms & conditions / Key Fact Statement (KFS) as applicable, in addition to being displayed on bank’s website under Interest rates and Service Charges.

(7) Whenever reminders for non-compliance of material terms and conditions of loan are sent to borrowers, the applicable penal charges shall be communicated. Further, any instance of levy of penal charges and the reason therefor shall also be communicated.

In the case of existing loans, the switchover to new penal charges regime shall be ensured on next review or renewal date.

E. Key Facts Statement (KFS) for Loans & Advances

264. The following instructions shall be applicable in cases of all retail and MSME term loan products extended by the HFC. Credit card receivables are exempted from the provisions given below:

(1) The HFC shall provide a KFS to all prospective borrowers to help them take an informed view before executing the loan contract, as per the standardised format given in the Annex XI. The KFS shall be written in a language understood by such borrowers. Contents of KFS shall be explained to the borrower and an acknowledgement shall be obtained that they have understood the same.

(2) The KFS shall be provided with a unique proposal number and shall have a validity period of at least three working days for loans having tenor of seven days or more, and a validity period of one working day for loans having tenor of less than seven days.

Explanation: Validity period refers to the period available to the borrower, after being provided the KFS by the HFC, to agree to the terms of the loan. The RE shall be bound by the terms of the loan indicated in the KFS, if agreed to by the borrower during the validity period.

(3) The KFS shall also include a computation sheet of annual percentage rate (APR), and the amortisation schedule of the loan over the loan tenor. APR will include all charges which are levied by the HFC. Illustrative examples of calculation of APR and disclosure of repayment schedule for a hypothetical loan are given below:

(i) Illustration for computation of APR for Retail and MSME loans

Sr. No.	Parameter	Details
1	Sanctioned Loan amount (in Rupees) ( Sl no. 2 of the KFS template – Part 1)	20,000
2	Loan Term (in years/ months/ days) (Sl No.4 of the KFS template – Part 1)
a)	No. of instalments for payment of principal, in case of non-equated periodic loans	-
b)	Type of EPI Amount of each EPI (in Rupees) and nos. of EPIs (e.g., no. of EMIs in case of monthly instalments) (Sl No. 5 of the KFS template – Part 1)	Monthly 970 24
c)	No. of instalments for payment of capitalised interest, if any	-
d)	Commencement of repayments, post sanction (Sl No. 5 of the KFS template – Part 1)	30 days
3	Interest rate type (fixed or floating or hybrid) (Sl No. 6 of the KFS template – Part 1)	Fixed
4	Rate of Interest (Sl No. 6 of the KFS template – Part 1)	15 %
5	Total Interest Amount to be charged during the entire tenor of the loan as per the rate prevailing on sanction date (in Rupees)	3,274
6	Fee/ Charges payable (in Rupees) Note: Where such charges cannot be determined prior to sanction, the HFC may indicate an upper ceiling	400
A	Payable to the HFC (Sl No.8A of the KFS template-Part 1)	240
B	Payable to third-party routed through HFC (Sl No.8B of the KFS template – Part 1)	160
7	Net disbursed amount (1-6) (in Rupees)	19,600
8	Total amount to be paid by the borrower (sum of 1 and 5) (in Rupees)	23,274*
9	Annual Percentage rate- Effective annualized interest rate (in percentage) (Sl No.9 of the KFS template-Part 1) Note: Computed on net disbursed amount using IRR approach and reducing balance method	17.07%
10	Schedule of disbursement as per terms and conditions	Detailed schedule to be provided
11	Due date of payment of instalment and interest	DDMMYYYY

* The difference in repayment amount calculated from the total of instalments given under the detailed repayment schedule i.e., ₹23,280 (=970*24) vis-à-vis the amount of ₹23,274 (₹20,000 (loan amount) + ₹3,274 (Interest charges) mentioned under (11) is due to rounding off the instalment amount of ₹969.73 to ₹970 under the detailed repayment schedule.

(ii) Illustrative Repayment Schedule under Equated Periodic Instalment for the above-mentioned hypothetical loan

Instalment No.	Outstanding Principal (in Rupees)	Principal (in Rupees)	Interest (in Rupees)	Instalment (in Rupees)
1	20,000	720	250	970
2	19,280	729	241	970
3	18,552	738	232	970
4	17,814	747	223	970
5	17,067	756	213	970
6	16,310	766	204	970
7	15,544	775	194	970
8	14,769	785	185	970
9	13,984	795	175	970
10	13,189	805	165	970
11	12,384	815	155	970
12	11,569	825	145	970
13	10,744	835	134	970
14	9,909	846	124	970
15	9,063	856	113	970
16	8,206	867	103	970
17	7,339	878	92	970
18	6,461	889	81	970
19	5,572	900	70	970
20	4,672	911	58	970
21	3,761	923	47	970
22	2,838	934	35	970
23	1,904	946	24	970
24	958	958	12	970

(4) Charges recovered from the borrowers by the HFC on behalf of third-party service providers on actual basis, such as insurance charges, legal charges etc., shall also form part of the APR and shall be disclosed separately. In all cases wherever the HFC is involved in recovering such charges, the receipts and related documents shall be provided to the borrower for each payment, within a reasonable time.

(5) Any fees, charges, etc. which are not mentioned in the KFS, cannot be charged by the HFC to the borrower at any stage during the term of the loan, without explicit consent of the borrower.

(6) The KFS shall also be included as a summary box to be exhibited as part of the loan agreement.

F. Conduct related aspects.

265. HFCs shall ensure compliance with ‘Reserve Bank of India (Non-Banking Financial Companies – Responsible Business Conduct) Directions, 2025’ on conduct related aspects of following matters:

(1) Lending Against Gold and Silver Collateral under

(2) Microfinance Borrowers

(3) Reset of Floating Interest Rate on Equated Monthly Instalments (EMI) based Personal Loans

(4) Release of Movable / Immovable Property Documents on Repayment/ Settlement of Personal Loans

G. Release of Movable / Immovable Property Documents on Repayment/ Settlement of Personal Loans

G.1 Release of Movable / Immovable Property Documents

266. The HFC shall release all the original movable / immovable property documents and remove charges registered with any registry within a period of 30 days after full repayment/ settlement of the loan account.

267. The borrower shall be given the option of collecting the original movable / immovable property documents either from the branch where the loan account was serviced or any other office of the HFC where the documents are available, as per her / his preference.

268. The timeline and place of return of original movable / immovable property documents shall be mentioned in the loan sanction letters issued on or after the effective date.

269. In order to address the contingent event of demise of the sole borrower or joint borrowers, the HFC shall have a well laid out procedure for return of original movable / immovable property documents to the legal heirs. Such procedure shall be displayed on the website of the HFC along with other similar policies and procedures for customer information.

G.2 Compensation for delay in release of Movable / Immovable Property Documents

270. The HFC shall communicate to the borrower reasons for delay in releasing of original movable / immovable property documents or failing to file charge satisfaction form with relevant registry beyond 30 days after full repayment/ settlement of loan. In case where the delay is attributable to the HFC, it shall compensate the borrower at the rate of ₹5,000/- for each day of delay.

271. In case of loss/damage to original movable / immovable property documents, either in part or in full, the HFC shall assist the borrower in obtaining duplicate/certified copies of the movable / immovable property documents and shall bear the associated costs, in addition to paying compensation as indicated at paragraph 270 above. However, in such cases, an additional time of 30 days will be available to the HFC to complete this procedure and the delayed period penalty will be calculated thereafter (i.e., after a total period of 60 days).

272. The compensation provided under these directions shall be without prejudice to the rights of a borrower to get any other compensation as per any applicable law.

H. Guidelines related to Recovery of Loans

273. The HFC shall put in place a mechanism for identification of the borrowers facing repayment related difficulties, engagement with such borrowers and providing them necessary guidance about the recourse available.

274. Recovery shall be made at a designated/ central designated place decided mutually by the borrower and the HFC. However, field staff shall be allowed to make recovery at the place of residence or work of the borrower if the borrower fails to appear at the designated/ central designated place on two or more successive occasions.

275. The HFC or its agent shall not engage in any harsh methods towards recovery. Without limiting the general application of the foregoing, following practices shall be deemed as harsh:

(1) Use of threatening or abusive language

(2) Persistently calling the borrower and/ or calling the borrower before 9:00 a.m. and after 6:00 p.m.

(3) Harassing relatives, friends, or co-workers of the borrower

(4) Publishing the name of borrowers

(5) Use or threat of use of violence or other similar means to harm the borrower or borrower’s family/ assets/ reputation

(6) Misleading the borrower about the extent of the debt or the consequences of non-repayment

276. The HFC shall have a dedicated mechanism for redressal of recovery related grievances. The details of this mechanism shall be provided to the borrower at the time of loan disbursal.

Chapter-XI – Miscellaneous Instructions

A. Finance for Housing Projects-Incorporating clause in the terms and conditions to disclose in pamphlets/ brochures/ advertisements information regarding mortgage of property to the HFC

277. While granting finance to housing/ development projects, HFC shall stipulate as part of the terms and conditions that:

(1) The builder/ developer/ company shall disclose in the pamphlets/ brochures/ display boards on-site, the name (s) of the HFC/ other lenders to which the property is mortgaged.

(2) The builder/ developer/ company shall append the information relating to mortgage while publishing advertisement of a particular scheme in newspapers/ magazines etc.

(3) The builder/ developer/ company shall indicate in their pamphlets/ brochures that they would provide No Objection Certificate (NOC)/ permissions of the mortgagee HFC for sale of flats/ property, if required.

The HFC shall ensure compliance of the above terms and conditions and funds shall not be released unless the builder/ developer/ company fulfils the above requirements.

A.1 Housing Loans

278. Housing Loan for Building Construction

(1) In cases where the applicant owns a plot/ land and approaches the HFC for a credit facility to construct a house, a copy of the sanctioned plan by competent authority in the name of the person applying for such credit facility must be obtained by the HFC before sanctioning the home loan.

(2) An affidavit-cum-undertaking must be obtained from the person applying for such credit facility that he shall not violate the sanctioned plan, the construction shall be strictly as per the sanctioned plan and it shall be the sole responsibility of the executant to obtain completion certificate within 3 months of completion of construction, failing which the HFC shall have the power and the authority to recall the entire loan with interest, costs and other usual bank charges.

(3) An architect appointed by the HFC must certify at various stages of construction of building that the construction is strictly as per sanctioned plan. He/ She shall also certify, at a particular point of time that the completion certificate of the building issued by the competent authority has been obtained.

279. Housing Loan for purchase of constructed property/ built up property

(1) In cases where the applicant approaches the HFC for a credit facility to purchase the built-up house/ flat, it should be mandatory for him to declare by way of an effective affidavit-cum-undertaking that built up house has been constructed as per the sanctioned plan and/or building by-laws and as far as possible has a completion certificate also.

(2) An Architect appointed by the HFC must also certify before disbursement of the loan that built up house is strictly as per the sanctioned plan and/or building by-laws.

280. No loan shall be given in respect of those properties which fall in the category of unauthorised colonies unless and until they have been regularized and development and other charges paid.

281. No loan shall also be given in respect of properties meant for residential use but which the applicant intends to use for commercial purposes and declares so while applying for loan.

A.2 Disbursement of housing loan to individuals linked to the stages of construction

282. Disbursal of housing loans sanctioned to individuals shall be strictly linked to the stages of construction of the housing projects/ houses and upfront disbursal shall not be made in case of incomplete/ under-construction/ green field housing project/ houses.

283. The HFC while introducing any kind of product shall take into account the customer suitability and appropriateness issues and also ensure that the borrowers/ customers are made fully aware of the risk and liabilities under such products.

284. In cases of projects sponsored by Government/ Statutory Authorities, The HFC may disburse the loans as per the payment stages prescribed by such authorities, even where payments sought from house buyers are not linked to the stages of construction, provided such authorities have no past history of non-completion of projects.

285. The HFC shall desist from offering loan products involving servicing of the loan dues by builders/ developers etc. on behalf of the borrowers.

286. The HFC shall have in place a well-defined mechanism for effective monitoring of the progress of construction of housing projects and obtaining consent of the borrower(s) prior to release of payments to the builder/developer.

287. The HFC while extending finance shall take into account the stipulations laid down under RERA, as applicable.

A.3 Need for ensuring due diligence in the matter of deployment of funds by HFCs

288. The HFC shall take proper and adequate security for the loans. In case a loan is to be sanctioned on unsecured basis, the same shall be in accordance with the Board approved policy of the HFC.

289. The HFC shall review and strengthen their credit appraisal systems. Wherever documents of title are submitted as security for loans, there should be a system of verification of their genuineness, especially in large value loans. Wherever a chartered accountant certificate, property valuation certificate, legal certificate, guarantee/ line of credit or any other third-party certification is submitted by the borrower, the HFC shall independently verify the authenticity of such certification by directly communicating with the concerned authority issuing the certificate. Indirect confirmation may also be resorted to, i.e. indicating to the issuer that in case there is no response by certain deadline, it would be assumed that the certificate is genuine.

290. The HFC shall ensure that the documents are not given directly to the customers for verification, etc. to obviate any frauds.

291. The HFC shall ensure that the borrowers have obtained all required permissions/ clearances from Government/ Local Government/ Statutory Authorities for the project. In case of construction loans, there should be system in place for physical verification/ project progress monitoring with proof (snap shots) and technical reports ought to be put up to the competent authorities/ committee/ board at regular intervals.

292. While appraising loan proposals involving real estate, HFC shall ensure that the borrowers have obtained prior permission from Government/ Local Government/ other Statutory Authorities for the project, wherever required. To ensure that the loan approval process is not hampered on account of this, while the proposals may be sanctioned in the normal course, the disbursements shall be made only after the borrower has obtained the requisite clearances from the Government/ other Statutory authorities.

293. Any relaxation in terms and conditions either at the time of sanction or anytime thereafter should also be in accordance with Board approved policy of the HFC, as also in conformity with the regulatory directions / guidelines. The cases and reasons for such relaxation should be clearly recorded. Any rescheduling of the loan shall be done with the prior approval of the Board/ Competent Authority and in accordance with applicable directions / guidelines in this regard.

B. Ratings of financial product issued by HFCs

294. All HFCs having assets of ₹100 crore and above shall furnish information about downgrading/ upgrading of assigned rating of any financial product issued by them, within fifteen days of such a change in rating, to NHB.

C. HFCs not to be partners in partnership firms

295. No HFC shall contribute to the capital of a partnership firm or become a partner of such firm.

296. In this connection;

(1) Partnership firms shall also include Limited Liability Partnerships (LLPs).

(2) The aforesaid prohibition shall also be applicable in respect of Association of persons, these being similar in nature to partnership firms.

297. The HFC which had already contributed to the capital of a partnership firm/ LLP/ Association of persons or are a partner of a partnership firm/ LLP or member of an Association of persons shall seek early retirement from the partnership firm/ LLP / Association of persons.

D. Submission of data to Credit Information Companies (CICs) - Format of data to be submitted by Credit Institutions

298. The HFC shall comply with the instructions contained in the Reserve Bank of India (Non-Banking Financial Companies – Credit Information Reporting) Directions, 2025.

E. Non - Reckoning of Fixed Deposits with banks as Financial Assets

299. Investments in fixed deposits shall not be treated as financial assets and receipt of interest income on fixed deposits with banks shall not be treated as income from financial assets. Besides, bank deposits constitute near money and can be used only for temporary parking of idle funds, and/or in cases where the funds are parked in fixed deposits initially to fulfil the requirement of registration as HFC, till commencement of housing finance business.

F. Reporting Platform for Corporate Bond Transactions

300. All HFCs should report their secondary market OTC trades in corporate bonds within 15 minutes of the trade on any of the stock exchanges (NSE, BSE and MCX-SX). The provisions of the circular dated IDMD.PCD.10/14.03.06/2013-14 dated February 24, 2014, as amended from time to time, shall be adhered to in this regard.

G. Transactions in Government Securities

301. Every HFC shall undertake transactions in Government securities through its gilt account or its demat account or any other account, as permitted by the Reserve Bank.

H. Implementation of Green Initiative of the Government

302. All HFCs shall take proactive steps for increasing the use of electronic payment systems, elimination of post-dated cheques and gradual phase-out of cheques in their day to day business transactions which would result in more cost-effective transactions and faster and accurate settlements.

303. The HFC should invariably use e-banking facilities while transacting with builders/ tripartite arrangements in builders’ projects/ corporates. Further, HFC’s should ensure that borrowers/ users of this facility are not charged any additional fee for the same.

I. Attempt to defraud using fake bank guarantee-modus operandi.

304. Instances of fraud have been brought to the notice of the Reserve Bank wherein Bank Guarantees (BGs) purportedly issued by a couple of bank branches in favour of different entities were presented for confirmation by other commercial banks/ individuals representing some beneficiary firms. The BGs were submitted along with Confirmation Advice/ Advice of Acceptance. One of the beneficiaries was the reporting banks customer. The remaining beneficiaries and applicants were neither the customers of the bank nor were they known to the bank branch officials.

305. A scrutiny of the said BG revealed that these bank guarantees were fake and the signatures of the bank officials appearing on the BG were forged. The bank branches purported to have issued the BGs also confirmed that they had not issued the same. Even the format of the BGs and their serial numbers did not match with that of the bank.

306. The HFC shall take notice of the above facts in order to exercise due caution while handling such cases.

J. Disbursal of loan amount in cash

307. Every HFC shall ensure compliance with the requirements under sections 269SS and 269T of the Income Tax Act, 1961, as amended from time to time.

K. Treatment of Deferred Tax Assets (DTA) for computation of capital and creation of Deferred Tax Liability (DTL) on Special Reserve

308. DTA shall be treated as an intangible asset and shall be deducted from Tier 1 Capital.

309. Deferred Tax Liability (DTL) should be created on Special Reserve created and maintained under Section 36(1)(viii) of the Income Tax Act, 1961. DTL for amounts transferred to Special Reserve shall be charged to the statement of Profit and Loss of that year. In view of the requirement to create DTL on Special Reserve, HFC may reckon the entire Special Reserve for the purpose of computing Tier 1 Capital.

L. Filing of Security Interest in CERSAI

310. HFC shall file and register the records of security interest created in their favour with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI). Further, HFC shall ensure meticulous compliance in the matter of registration of the applicable records with the CERSAI on an ongoing basis as per the instructions issued from time to time.

M. Legal Entity Identifier for Borrowers

311. HFC shall ensure compliance with the instructions on ‘Legal Entity Identifier for Borrowers’ under Reserve Bank of India (Non-Banking Financial Companies – Credit Risk Management) Directions, 2025.

N. Valuation of Properties – Empanelment of Valuers

312. The HFC is required to put in place a Board approved valuation policy for putting in place a system/ procedure for realistic valuation of properties/ fixed assets and also for empanelment of valuers in accordance with the details contained in Annex XII.

O. Display of information - Secured assets possessed under the SARFAESI Act, 2002

313. The HFC shall comply with the relevant instructions as contained in Reserve Bank of India (Non-Banking Financial Companies – Credit Information Reporting) Directions, 2025.

P. Technical Specifications for all participants of Account Aggregator ecosystem

314. In terms of provisions of Reserve Bank of India (Non-Banking Financial Companies - Account Aggregator) Directions, 2025, HFC fall under the definition of ‘Financial Information Provider’ and ‘Financial Information User’ in the Account Aggregator (AA) ecosystem. NBFC Account Aggregator (AA) consolidates financial information, as defined in above-mentioned Directions, of a customer held with different financial entities, spread across financial sector regulators adopting different IT systems and interfaces. In order to ensure that such movement of data is secured, duly authorised, smooth and seamless, it has been decided to put in place a set of core technical specifications for the participants of the AA ecosystem. Reserve Bank Information Technology Private Limited (ReBIT), has framed these specifications and published the same on its website (www.rebit.org.in). The HFC acting either as ‘Financial Information Provider’ or ‘Financial Information User’ are expected to adopt the technical specifications published by ReBIT, as updated from time to time.

Q. Submission of Financial Information to Information Utilities

315. All HFCs are advised to adhere to the relevant provisions of Insolvency and Bankruptcy Code (IBC), 2016 and Insolvency and Bankruptcy Board of India (IBBI) Information Utilities (IUs) Regulations, 2017 and put in place appropriate systems and procedures to ensure compliance to the provisions of the Code and Regulations.

R. National Disaster Management Guidelines on ensuring Disaster Resilient construction of Building and Infrastructure

316. The HFC shall adopt the guidelines issued by the National Disaster Management Authority (NDMA) and suitably incorporate them as a part of their loan policies, procedures and documentations.

S. Detection and Impounding of Counterfeit Notes- Reporting of data to NHB

317. The HFC are required to furnish to the FIU-IND information relating to all cash transactions where forged or counterfeit currency notes or bank notes have been used as genuine or where any forgery of a valuable security or a document has taken place facilitating the transactions.

318. As an additional measure, HFC are advised to furnish a quarterly report to the NHB along the lines of Annexure-VI of the Reserve Bank of India (RBI) Master Circular-Detection and Impounding of Counterfeit Notes dated July 01, 2020, as amended from time to time, and similar instructions issued by the Reserve Bank. The above report should be furnished to the NHB within 7 days of the end of the quarter. A "nil" report should be sent in case no counterfeit has been detected during the quarter.

T. Guidelines for Entry of Housing Finance Companies into Insurance Business

319. Guidelines for entry of housing finance companies into insurance business are enclosed in Annex XIII.

U. Participation of HFCs in Ready Forward Contracts and accounting therof

320. The HFC not accepting/ holding public deposits and having an asset size of ₹100 crore and above are allowed to participate in repo transactions in corporate debt securities. Further, all HFCs are allowed to enter into repo transactions in Government Securities. For these transactions, HFC shall follow Repurchase Transactions (Repo) (Reserve Bank) Directions, 2018, as amended from time to time.

V. Participation in exchange traded currency derivatives

321. In order to hedge their underlying exposures, HFC are allowed to participate in the following SEBI recognized exchanges, as clients, subject to adherence to relevant instructions as issued by the Reserve Bank:

(1) Participation in Currency Futures – All HFCs can participate in currency futures exchanges, subject to the guidelines issued in the matter by Foreign Exchange Department of the Reserve Bank and necessary disclosures in balance sheet in accordance with guidelines issued by SEBI.

(2) Participation in Currency Options – Non-deposit taking HFC with asset size of ₹1000 crore and above can participate in currency options exchanges subject to the guidelines issued in the matter by Foreign Exchange Department of the Reserve Bank and necessary disclosures in balance sheet in accordance with guidelines issued by SEBI.

Note: HFC may continue to participate in permitted currency derivatives in OTC market, as hitherto, for hedging their underlying exposures, subject to adherence to relevant instructions as issued by the Reserve Bank.

W. Participation in Interest Rate Futures

322. (1) All HFCs can participate in the designated Interest rate Futures (IRF) exchanges recognized by SEBI, as clients, subject to adherence to instructions contained in Rupee Interest Rate Derivatives (Reserve Bank) Directions, 2019 dated June 26, 2019, as amended from time to time, for the purpose of hedging their underlying exposures.

(2) Non-deposit taking HFC with asset size of ₹1,000 crore and above (as per audited balance sheet of immediately preceding financial year) are permitted to participate in the interest rate futures market on recognized stock exchanges, as trading members, subject to adherence to instructions contained in Rupee Interest Rate Derivatives (Reserve Bank) Directions, 2019 dated June 26, 2019, as amended from time to time.

(i) Note: HFC may continue to participate in Forward Rate Agreements and Interest Rate Swaps in OTC market, as hitherto, for hedging their underlying exposures, subject to adherence to relevant instructions as issued by the Reserve Bank.

X. Credit Default Swaps (CDS)

323. The HFC are permitted to participate in CDS market as users only and they shall buy credit protection only to hedge their credit risk on corporate bonds they hold. They shall not sell protection and hence, shall not enter into short positions in the CDS contracts. However, they are permitted to exit their bought CDS positions by unwinding them with the original counterparty or by assigning them in favour of buyer of the underlying bond or by assigning the contract to any other eligible market participant through novation (only in case of events such as winding-up or mergers/ acquisitions). Apart from complying with relevant instructions governing CDS, HFC, as users, shall also ensure adherence to the guidelines as provided in Reserve Bank of India (Non-Banking Financial Companies – Credit Risk Management) Guidelines, 2025 as amended from time to time, which shall be applicable, mutatis-mutandis, to them.

Y. Issue of co-branded credit cards

324. The HFC are allowed to issue co-branded credit cards, subject to the instructions prescribed in Reserve Bank of India (Non-Banking Financial Companies – Credit Cards: Issuance and Conduct) Directions, 2025, as amended from time to time.

Z. Guidelines on Wilful Defaulters

325. The HFC shall comply with the instructions contained in the Reserve Bank of India (Non-Banking Financial Companies – Treatment of Wilful Defaulters and Large Defaulters) Directions, 2025.

AA. Every housing finance company shall, within one month from the commencement of business, deliver to the NHB, a written statement containing a list of -

326. (1) The names and the official designations of its principal officers.

(2) The complete postal address, telephone number/s and fax number/s of the registered/corporate office.

(3) The names and residential addresses of the directors of the company.

(4) The names and office address of the auditors of the company and

(5) The specimen signature of the officers authorised to sign on behalf of the HFC on the returns specified by NHB.

any change in the list referred to in paragraph 326 above shall be intimated to the NHB within one month from the occurrence of such change.

AB. Appropriation of Reserve Fund created as per Section 29C of the National Housing Bank Act, 1987

327. The HFC may withdraw from the said reserve fund, the excess amount credited (in excess of the statutory minimum of 20 per cent) in the previous years for any business purposes subject to suitable disclosure in the balance sheet.

328. The HFC which have transferred only the statutory minimum in the previous years may withdraw from the reserve fund, with prior permission of the Reserve Bank, only for the purpose of provisioning for non-performing assets subject to the conditions that:

(1) there is no debit balance in the profit and loss account, and

(2) the reasons for such withdrawal are stated explicitly in the balance sheet.

329. If any such appropriation made is not informed to the Reserve Bank and NHB as per the provisions of the National Housing Bank Act, 1987, it would be construed as a violation of the regulatory provisions and appropriate penalty would be leviable for such contravention.

AC. Supervision of HFCs

330. The responsibility of supervision of HFC will rest with the NHB.

AD. Contravention of regulatory requirement by HFC – Guidelines for levying penalty

331. In accordance with Section 52A of the National Housing Bank Act, 1987, RBI/ NHB is empowered to impose penalty on a housing finance company for any contravention of the Act or the directions made thereunder.

AE. Inspection of HFC

332. The inspection of HFC shall be carried out by NHB in accordance with the section 34 of the National Housing Bank Act, 1987.

Chapter-XII – Regulations applicable for HFCs in Upper Layer

333. The following regulatory instructions applicable to Non-Banking Financial Companies (NBFCs) in Upper Layer shall be mutatis mutandis applicable to HFCs in Upper Layer:

(1) Guidelines on ‘Common Equity Tier 1 (CET1) capital’ as specified in Reserve Bank of India (Non-Banking Financial Companies – Prudential Norms on Capital Adequacy) Directions, 2025

(2) Guidelines on ‘differential standard asset provisioning’ as specified in Reserve Bank of India (Non-Banking Financial Companies – Income Recognition, Asset Classification and Provisioning) Directions, 2025

(3) Guidelines on ‘Disclosures in Financial Statements - Notes to Accounts of NBFCs’ as specified in Reserve Bank of India (Non-Banking Financial Companies – Financial Statements: Presentation and Disclosures) Directions, 2025

(4) Guidelines on ‘Large Exposure Framework’ and ‘Internal Exposure Limits’ as specified in Reserve Bank of India (Non-Banking Financial Companies – Concentration Risk Management) Directions, 2025

(5) Guidelines on ‘Qualification of Board Members’ and ‘Listing & Disclosures’ as specified in Reserve Bank of India (Non-Banking Financial Companies – Governance) Directions, 2025

(6) Guidelines on ‘Transition Plan’ as specified in Reserve Bank of India (Non-Banking Financial Companies – Registration, Exemptions and Framework for Scale Based Regulation) Directions, 2025

334. In addition, regulatory instructions applicable to HFCs in middle layer as specified in these Directions shall also be applicable to HFCs in Upper Layer, unless stated otherwise.

Chapter-XIII – Regulations applicable for HFCs in Top Layer

335. The HFC falling in the Top Layer of the regulatory structure shall, inter alia, be subject to higher capital charge. Such higher requirements shall be specifically communicated to the HFC at the time of its classification in the Top Layer. There will be enhanced and intensive supervisory engagement with these HFCs.

Chapter-XIV – Reporting Requirements

A. Copies of balance sheet and accounts together with the Directors’ report to be furnished to the NHB

336. A copy of the financial statements, including consolidated financial statement, if any, along with the auditor’s report and report of the Board of the Directors and all the documents which are required to be attached to such financial statements under the Companies Act 2013, duly adopted at the annual general meeting of the company, shall be submitted to NHB within fifteen days of the date of the annual general meeting.

B. Auditor’s Certificate

337. Every housing finance company holding/ accepting public deposits shall furnish to the NHB, along with the copy of the audited balance sheet as provided under paragraph 336, a copy of the auditor’s report to the Board of Directors and a certificate from its auditors to the effect that the full amount of liabilities to the depositors of the company including interest payable thereon are properly reflected in the balance sheet and that the company is in a position to meet the amount of such liabilities to the depositors.

C. Returns to be submitted to the NHB

338. Without prejudice to the provisions of paragraph 336 above, HFC shall comply with any reporting requirements prescribed by the NHB from time to time.

Chapter-XV - Repeal and Other Provisions

A. Repeal and saving

339. With the issue of these Directions, the existing Directions, instructions, and guidelines as applicable to Housing Finance Companies stand repealed, as communicated vide notification dated XX, 2025. The Directions, instructions and guidelines repealed prior to the issuance of these Directions shall continue to remain repealed.

340. Notwithstanding such repeal, any action taken or purported to have been taken, or initiated under the repealed Directions, instructions, or guidelines shall continue to be governed by the provisions thereof. All approvals or acknowledgments granted under these repealed lists shall be deemed as governed by these Directions.

B. Application of other laws not barred

341. The provisions of these Directions shall be in addition to, and not in derogation of the provisions of any other laws, rules, regulations, or directions, for the time being in force.

C. Interpretations

342. For the purpose of giving effect to the provisions of these Directions or in order to remove any difficulties in the application or interpretation of the provisions of these Directions, the RBI may, if it considers necessary, issue necessary clarifications in respect of any matter covered herein and the interpretation of any provision of these Directions given by the RBI shall be final and binding.

D. Saving of action taken or that may be taken for contravention of the regulations issued previously by NHB

343. The repeal of the existing Directions, instructions, and guidelines, shall not in any way affect:

(1) any right, obligation or liability acquired, accrued or incurred thereunder;

(2) any penalty, forfeiture, or punishment incurred in respect of any contravention committed thereunder;

(3) any investigation, legal proceeding or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture or punishment as aforesaid; and any such investigation, legal proceedings or remedy may be instituted, continued, or enforced and any such penalty, forfeiture or punishment may be imposed as if those directions had not been superseded.