Housing Finance Company Registration

A Housing Finance Company is a type of NBFC that primarily engages in the business of constructing houses and providing finance for property acquisition, including plot improvement and new home construction. It is mandatory for a Housing Finance Company to have housing finance as its primary objective in the Memorandum of Association (MOA). Only the National Housing Bank (NHB) has the authority to grant Housing Finance Company Registration.

Concept of National Housing Bank

The National Housing Bank (NHB) serves as the apex financial institution for housing finance in India. It was established to promote and regulate housing finance institutions at regional and national levels. NHB ensures financial and operational support to housing finance companies.

All Housing Finance Companies must acquire a Certificate of Registration (COR) from NHB before commencing operations. As per the NHB Act 1987, any company conducting housing finance activities without a COR is subject to penalties.

NHB classifies Housing Finance Companies into deposit-accepting and non-deposit Housing Finance Companies.

Role of National Housing Bank

NHB plays a crucial role in the housing finance sector by maintaining stability, reliability, and resource development. It also integrates the housing finance sector with capital and debt markets, ensuring a responsive regulatory framework.

Benefits of Housing Finance Company Registration

1.       Provides Housing Loans to Individuals – Helps individuals secure housing loans at affordable rates.

2.       Provides Housing Loans to Companies – Assists companies in acquiring properties for employee accommodation.

3.       Facilitates Redevelopment – Aids in slum rehabilitation and rural area development.

Eligibility Criteria for Housing Finance Company Registration

As per Section 29A of the NHB Act 1987, a Housing Finance Company must fulfill the following requirements:

1.       Must be an NBFC – The company must be registered as a Non-Banking Financial Company with RBI.

2.       Minimum Net Owned Funds – The company must maintain a net worth of at least Rs 20 crores.

3.       Registered under the Companies Act – Must be incorporated under the Companies Act 2013 or 1956.

4.       Housing Finance as Primary Objective – The business must explicitly include housing finance as its core activity.

5.       Public Interest Compliance – The company’s management and operations should align with public welfare.

Regulatory Bodies for Housing Finance in India

1.       Reserve Bank of India (RBI)

2.       National Bank for Agriculture & Rural Development (NABARD)

3.       Ministry of Corporate Affairs (MCA)

4.       National Housing Bank (NHB)

5.       Securities & Exchange Board of India (SEBI)

NHB has set regulatory guidelines covering:

·         Asset Classification

·         Financial Support

·         Prudential Rules for Income Acknowledgment

·         Deposit-taking Regulations

Conditions for Granting HFC Registration

According to Section 29A(4) of the NHB Act 1987, an HFC must satisfy the following:

1.       Solvency – Must be capable of repaying present and future depositors.

2.       Ethical Business Operations – Should not operate in a manner detrimental to public interest.

3.       Adequae Capital Structure – Must have a strong financial base.

4.       Public Interest Focus – Must ensure financial stability and contribute to the public good.

5.       Compliance with NHB Regulations – Must adhere to NHB’s conditions to prevent harm to depositors or the public.

Documents Required for Housing Finance Company Registration

·         Memorandum & Articles of Association (MOA & AOA)

·         Company Profile

·         Demand Draft of Rs 10,000/- favoring NHB, New Delhi

·         Board Resolution Approving Registration Application

·         Three-Year Business Plan

·         Certificate Confirming Minimum Net Owned Fund (NOF) of Rs 20 Crores

·         Profiles of CEO, Directors, and Managing Directors

·         Details of Companies Linked to Directors

·         Last Three Years’ Financial Audit Reports

Procedure for Obtaining Housing Finance Company Registration

The process for obtaining Housing Finance Company Registration through Fastzeal involves the following steps:

1. Download the Application for Registration

The first step requires the applicant to download the application form from the official website of the National Housing Bank (NHB) at nhb.org.in.

2. Attach Required Documents with the Application

The applicant company must attach all necessary documents along with the application form. Additionally, a demand draft in favor of the National Housing Bank (NHB) must be annexed and submitted to the NHB Head Office.

3. Verification of Authenticity

The National Housing Bank will thoroughly verify the authenticity and legitimacy of the submitted documents and application.

4. Issuance of Housing Finance Company Registration

Upon successful verification, the National Housing Bank will issue a Certificate of Registration, serving as official proof of the Housing Finance Company’s registration.

Situations Leading to Cancellation of Housing Finance Company Registration

A Housing Finance Company registration may be canceled under the following circumstances:

·         The company ceases to operate in India.

·         Non-compliance with NHB’s prescribed regulations, including:

·         -  Failure to comply with guidelines and directions issued under Chapter V of the NHB Act, 1987.

·          - Failure to maintain accounts as per legal provisions.

·          - Non-submission of books of accounts and other documents when requested by NHB inspectors.

·          - If the company has been prohibited from accepting deposits for at least three months under an NHB order.

Post-Registration Compliances for Housing Finance Companies

After registration, Housing Finance Companies must fulfill the following compliance requirements:

·         Development of Loan Processes & Policies (including Appraisal Techniques & Tools)

·         Establishing IT Infrastructure & Organizational Structure

·         Drafting Policies & Legal Operations

·         Regulatory Compliance with NHB

·         Resource Mobilization & Credit Risk Management

·         Implementation of Scoring Models & MIS Formats

Mandatory Compliances for Housing Finance Companies

Registered Housing Finance Companies must adhere to the following mandatory compliance requirements:

·         Filing Annual, Half-Yearly, and Quarterly Returns regarding prudential norms and liquid asset maintenance.

·         Submission of Auditor-certified Annual Reports & Financial Statements.

·         Timely filing of returns for changes in registered office or directors.

·         Compliance with IND-AS (Indian Accounting Standards).

·         Submission of advertisements or statements in lieu thereof for public deposits.

Difference Between Housing Finance Companies and Banks

While both Housing Finance Companies and Banks engage in financial activities such as investments and loans, key differences include:

Housing Finance Companies cannot accept Demand Drafts (DDs).

Housing Finance Companies are not part of the payment and settlement system and cannot issue cheques.

Depositors of Housing Finance Companies do not get benefits from the Deposit Insurance & Credit Guarantee Corporation, unlike bank depositors.