In a bid to create a smooth credit line for housing finance companies (HFC) and meet the Modi government's goal of housing for all by 2022, the National Housing Bank (NHB) has proposed the central government to ease the capital adequacy ratio (CAR) norms. The move is a great step towards further strengthening the capitalisation structures of the HFCs. This will go a long way in ensuring that HFCs have enough capital in their balance sheets to be future ready especially in the case of Black Swan events.

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Speaking on the development Ravindra Sudhalkar, ED & CEO, Reliance Home Finance told Zee Business Online in a written statement, “We welcome the proposal of NHB on increasing the capital adequacy ratio (CAR) for home finance companies. Similarly, lowering leverage levels by HFCs is a good move that will help control the over speeding sector. But, regulators need to make easy availability of capital for HFCs with a strong balance sheet, as liquidity crunch is acting as a huge roadblock to the overall growth of the housing market. Going forward availability of capital will play a crucial role particularly if we have to achieve the government goal of housing for all by 2022.”

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Hailing the NHB move Ramratthinam S – CEO, Muthoot Homefin (India) Limited said, “The proposed measures on the higher minimum capital requirement and lower borrowing limit are better expected to integrate the HFCs with the broader banking and financial system in the long run. These regulatory measures are expected to bring in  greater stability to the housing finance ecosystem and improve confidence among various stakeholders."

Ramratthinam of Muthoot Homefin said that most of the HFCs would be able to meet the revised CAR norms as their CARs are in the range of 15-16 per cent. They have adequate cushion to raise Tier II Capital and shore up the CAR, if required. Also capital adequacy for HFC is supported by lower risk weight on smaller ticket-size home loans which today is the growth is for most HFCs. "The regulator should also facilitate easy availability of capital for HFCs with a strong focus on affordable housing segment,” said Ramratthinam. 

Anil Kaul, Managing Director, Tata Capital Housing Finance said, "NHB ’s proposed guidelines to progressively enhance CAR is a great step towards further strengthening the capitalisation structures of the HFCs. This will go a long way in ensuring that HFCs have enough capital in their balance sheets to be future ready especially in case of Black Swan events." He said that TCHFL has historically maintained significantly higher capitalization ratios (than the regulatory requirement) adding, "We welcome NHB’s proposal. We will continue to focus on growth and harness the potential or opportunities of this sector."