Housing Finance Company Registration

A housing finance company (HFC) is a financial institution that primarily acts as a loan arrangement for the purchase or construction of residential properties. These loans can also cover home renovations and repairs. Housing finance companies play a key role in the development of the housing sector by promoting the accessibility of home loans and contributing to the construction and real estate industry. They operate with a business model that targets specific housing needs, and offer a wide range of loan products such as home purchase loans, construction loans, home improvement loans and loans for land purchase.

What is a Housing Finance Company Registration?

Housing finance company registration refers to the process through which an entity seeking to operate as an HFC is granted the required approval by the National Housing Bank (NHB). This registration ensures that the company complies with the guidelines and regulations set by the NHB and adheres to the legal, financial and operational standards required to operate in the housing finance sector.

The registration process is essential to maintaining the integrity of the housing finance industry, providing confidence to consumers, investors and the government. Registered HFCs are authorized to disburse home loans, accept deposits and engage in other financial activities related to housing finance under the supervision of the National Housing Bank.

Difference between Housing Finance Company and a Bank

Both housing finance companies (HFCs) and banks provide financial services, but they differ in several important aspects. HFCs specialize in housing-related products, such as home loans, construction loans, and home improvement loans, while banks offer a range of services in addition to home loans, including savings accounts, personal loans, and business loans. HFCs are regulated by the National Housing Bank (NHB), with a particular focus on housing finance, while banks are regulated by the Reserve Bank of India (RBI), which oversees a broader financial sector. 

HFCs rely primarily on external funding sources such as bonds and equity, while banks have access to customer deposits and interbank borrowing. HFCs are regulated by the National Housing Bank (NHB), with a particular focus on housing finance, while banks are regulated by the Reserve Bank of India (RBI), which oversees a broader financial sector. HFCs rely primarily on external funding sources such as bonds and equity, while banks have access to customer deposits and interbank borrowing.

The National Housing Bank (NHB) is the regulatory authority for housing finance companies (HFCs) in India, established under the National Housing Bank Act, 1987. Its main objective is to promote housing finance and ensure orderly growth of the sector. The NHB plays a key role in the registration of HFCs, including:

• Issuance of licenses: NHB issues licenses to entities wishing to operate as HFCs, ensuring compliance with financial and legal norms.
• Setting standards and guidelines: The NHB establishes policies, frameworks, and guidelines for HFCs, covering capital maintenance, financial transparency, and customer protection.
• Monitoring and surveillance: NHB regularly monitors and inspects HFCs, ensures adherence to guidelines and mandates periodic reporting.
• Promoting housing finance: NHB supports HFCs with financial assistance, bonds, and initiatives to promote home ownership, especially for low-income groups.
• Consumer protection: NHB protects the interests of consumers through credit practices and dispute resolution.

Registering as a housing finance company has many benefits, both for the company itself and for consumers. These benefits include:

• Credibility and trust: Registration with the NHB lends credibility to HFCs, which instills confidence among borrowers and investors. It ensures that the company follows industry standards and operates legally.
• Access to funding: Registered HFCs can raise funds from various sources, including capital markets, investors, and other financial institutions. This access to funding is critical to their ability to make home loans.
• Legal recognition: A registered HFC has legal recognition under the NHB Act, which authorizes it to engage in housing finance activities.
• Regulatory oversight: Being registered ensures that the company is under the supervision of the NHB, ensuring that it complies with regulations relating to operations, financial health and consumer protection.

According to Section 29A of the National Housing Bank Act, 1987, a Housing Finance Company (HFC) cannot commence the operation of providing housing loans until it fulfills the specified criteria. Below are the key eligibility criteria for obtaining a housing finance company registration:

• Must be a Non-Banking Financial Company (NBFC): A business entity wishing to operate as a housing finance company must first register as a Non-Banking Financial Company (NBFC) with the Reserve Bank of India (RBI).
• Net Owner’s Fund (NOF): The housing finance company should maintain a minimum Net Owner’s Fund (NOF) of Rs. 20 crore. Applicants must meet this net worth requirement to qualify for registration.
• Registered under the Companies Act, 2013: The company must be incorporated and registered as a Private Limited Company under the provisions of the Companies Act, 2013 (or Companies Act, 1956).
• Housing finance activities in the commodity segment: The commodity segment of the company must explicitly include financing of housing loans and commercial premises. In addition to providing finance, the company must have a clear structure for generating revenue from these activities.
• Good faith management and operation: The company must be managed and operated in good faith, giving priority to the interests of the public and consumers. The company should operate with a focus on consumer welfare and public interest.

Different Regulatory Bodies Operating in India Housing Sector

In India, the key regulatory bodies in the housing sector include:

• RBI (Reserve Bank of India)
• NABARD (National Bank for Agriculture & Rural Development)
• MCA (Ministry of Corporate Affairs)
• NHB (National Housing Bank)
• SEBI (Securities & Exchange Board of India)

The NHB sets guidelines for housing finance companies including asset classification, financial assistance, income recognition, and deposit regulation. Effective management of housing finance sector involves coordination between RBI, NHB and Govt. NHB regulates lending by housing finance companies, while RBI provides financial support to them.

Basic Conditions for Granting the HFC Registration

Based on the provisions of the section 29A subsection (4) of the National Housing Bank 1987, the basic conditions that are to be fulfilled for the issuance of HFC Registration are as follows:

• Financial stability: The Housing Finance Company (HFC) must be capable of paying off its current and future depositors and investors in full as their claims arise.
• Business integrity: The Company’s operations must not be harmful to the interests of its depositors or investors, and its business affairs should not be adverse.
• Public interest: The HFC’s operations and policies must align with the general public’s interest, without harming investors or depositors.
• Capital adequacy: The HFC must have a strong and sufficient capital structure.
• Earnings prospects: The company should be able to provide better earnings prospects.
• Public service: The HFC must aim to serve the public interest once it receives its Certificate of Registration (COR) and starts operations in India.
• Additional conditions: The National Housing Bank may impose any other condition to ensure the HFC’s operations do not harm the public or investor interests.

Mandatory Compliances for Housing Finance Company

Mandatory compliances for Housing Finance Companies include:

• Filing annual, half-yearly, and quarterly returns on prudential norms and liquid assets.
• Submitting an annual certificate from the auditor confirming deposit repayment capability.
• Providing audited financial statements and annual report.
• Timely filing returns for changes in registered office or directors.
• Furnishing a copy of advertisements related to public deposits or a statement in lieu.
• Complying with all IND-AS provisions.

Some documents required for obtaining Housing Finance Company Registration in India are as follows:

• Furnish a copy of the Article of Association (AOA) and Memorandum of Association (MOA) of the said company
• Details about the Company’s profile
• Furnish a Board Resolution (BR) mentioning that the Company’s aim and approval to record registration application before the National Housing Bank
• Comprehensive Business Plan stating the next three years goals and objectives of the Company
• Acquiesce a certificate issued by any professional stating that the said company has duly met the conditions of minimum NOF (Net Owned Fund) of Rs 20 crores

The stages involved in the procedure for obtaining the Housing Finance Company Registration are as follows:

• Download the application form: The first step is to visit the official website of the National Housing Bank (NHB) at nhb.org.in and download the application form for Housing Finance Company Registration.
• Complete the application: After downloading the application, the applicant must fill it out accurately, ensuring that all required details are provided.
• Attach required documents: The applicant company needs to gather and attach all necessary documents along with the completed application. These documents typically include financial statements, incorporation certificates, and other relevant legal papers.
• Pay the registration fee: The company must also prepare a demand draft in favour of the National Housing Bank. This draft is the required payment for the application and must be included when submitting the form.

Circumstances Leading to the Cancellation of HFC Registration

Situations that can lead to the Cancellation of Housing Finance Company Registration:

• Ceases operations: If the Housing Finance Company stops operating or carrying out its business functions in India.
• Non-compliance with NHB guidelines: Failure to comply with any guidelines or directions issued by the National Housing Bank (NHB) under the National Housing Bank Act, 1987.
• Non-compliance with accounting standards: Failure to maintain accounts as per the law, NHB provisions, or any order from NHB.
• Non-submission of documents: Failure to submit books of accounts and other documents as required by NHB during inspections.
• Deposit acceptance restrictions: If the company is prohibited from accepting deposits by NHB and the order remains in force for three months or more.

Post Registration Compliances for Housing Finance Company

Post-Registration Compliance Requirements for a Housing Finance Company:

• Loan process development
• Formulation of loan policies, including appraisal methods & tools
• Establishment of IT infrastructure
• Board structure setup
• Organizational structure design
• Policy drafting
• Product development
• Legal operations management
• Adherence to NHB regulations
• Compliance with regulatory requirements
• Resource mobilization
• Credit risk management
• Scoring model implementation
• MIS reporting format

Fees for registering a housing finance company with the National Housing Bank (NHB) vary based on factors such as the type of application, scale of operations, and financial structure. Typically, the registration process involves application fees, processing fees to review submissions, and compliance costs to meet regulatory requirements. After registration, companies may face ongoing compliance costs, such as reporting and audits. Additionally, an annual renewal fee is required to maintain registration with the NHB. The exact fee structure depends on the company's financial status, business model, and operational scale, so it is advisable to consult the NHB for the latest details.

Corpseed is one of the top consulting firms, offering comprehensive support in financial businesses, guiding businesses through the necessary processes. When it comes to housing finance company registration, Corpseed provides expert guidance to ensure the registration process is smooth and compliant with regulations. Our team offers valuable services that save time and effort, ensuring that every requirement is met for a successful registration.

• Regulatory compliance: Corpseed ensures that all legal and regulatory requirements set by the Reserve Bank of India (RBI) and other relevant authorities are met.
• Document preparation: Our team assists in the preparation and submission of documents required for the registration process, ensuring accuracy and completeness.
• Application submission: We helps in correct filing of application forms with the required authorities, reducing the chances of errors or rejection.
• Licensing and approvals: We help the housing finance company in obtaining necessary licenses and approvals to operate.
• Ongoing support: Corpseed offers ongoing support even after registration, assisting businesses with any additional compliance or operational needs.