Housing Finance Company Registration

Housing Finance is a company engaged in the business of providing finance for housing, whether directly or indirectly. The Housing Finance Company is a type of Non-Banking Financial Company (NBFC) having the main object of providing financing for the acquisition or construction of houses.  Housing Finance Companies are regulated by the National Housing Bank (NHB). According to the National Housing Bank Act 1987, it is mandatory for any housing finance company to obtain a certificate of registration from the National Housing Bank.

This certificate of registration is absolutely necessary for a housing finance company to initiate activities relating to housing finance. Not doing so, is an offense as per the provisions of the National Housing Bank, 1987. Certificate of registration issued is according to the category of Housing Finance Companies which are further in terms of types of liabilities, by NHB, into deposit and non-deposit accepting HFCs. National Housing Bank plays a significant role in the housing finance sector.

The Indian housing finance sector is deemed to be entering into the second phase of development in terms of integration with the capital markets and debt. All thanks to the free-market approach, NHB (National Housing Bank) placed an effective system of responsive regulation in maintaining credibility and stability in terms of resource development, policy development, and institution building of the housing finance sector in India.

In times to come, Housing Finance Companies will grow fastest as the trend is going to be bullish making a huge scope of opportunities in India. To support this statement, the past decade’s progress in the housing sector and various reports of different groups are available which will give a clear view of the future of housing finance companies in India.

Any housing finance company is required to obtain a certificate of registration before initiating any work. To procure this license, the applicant company shall submit a physical copy of the application (in duplicate) and requisite documents to the National Housing Bank head office. Another condition is a demand draft of Rs.10,000/- in favor of the National Housing Bank payable at New Delhi. These requisite documents that any applicant is made mandatory to submit along with the application are:-

• Certified copy of MOA (Memorandum of Association) & AOA (Article of Association);
• Requirement for demand draft of Rs. 10,000 / - in favor of NHB, New Delhi;
• Board resolution stating the Company's intention and approval to apply before the NHB;
• Certificate by specialist in respect of meeting the terms of minimum NOF (Net Owned Fund) of Rs. 10 crores;
• The company's business plan for the next 3 years;
• Company Profile;
• Business profile of MD / Directors / CEO etc;
• Audited Funds over the past three years, if any;
• Certificate of education and experience of directors and staff;
• Professional certificate in respect of the source of the company's capital;
• Details of the company to which the promoters/directors, associated

Filing of application with requisite documents is not the certification of registration and the certificate will only be issued after scrutinizing of the other conditions as well. This condition must be complied with by the housing finance company to start a real estate business:

• It must primarily sell or have its primary objectives of conducting a housing finance business, whether direct or indirect; and
• It must have a minimum purse of Rs. 10 crores.

The NHB, after its satisfaction in the implementation of the following conditions (given below) has been granted under subsection (4) of Section 29A of the National Bank Act, corporation, may issue a Certificate of Registration.

• HFC is in a position to pay current or future depositors in full when their claims increase;
• HFC matters are not or will not be done in a way that would harm the interests of those who keep them now or in the future;
• The general character of the proposed HFC management or managers will not jeopardize the public interest or the interests of their sponsors;
• Housing Finance Company has adequate facilities and leadership opportunities;
• Public interest will be granted on the issuance of a certificate of registration to the HFC for start-up or business in India;
• The issuance of a registration certificate will not jeopardize the functioning and growth of the housing finance sector in the country; and
• Any other condition, the fulfilment of which is in the view of the NHB, will be required to ensure that the start-up or business in India of the HFC will not endanger the public interest or investors.

Housing Finance Companies are regulated by the National Housing Bank Act provisions. Some of the provision of regulation of National Housing Bank Act, 1987 those regulate the housing finance companies are:

• Requirement for Registration and a Net Owned Fund – Apart from registration under the Companies act, it is mandatory to register with NHB. And a housing finance company must ensure that they have net owned funds amounting to minimum Rs. 1000 lakhs.
• The retention of a percentage of the assets in the specified securities - Every Real Estate Finance Company will invest and continue to invest in India on innumerable approved securities, of a value not exceeding the current market value of those securities, the value of which, when a business closes on any day, shall not be less than five per cent or such a high percentage not exceeding twenty-five percent as the National Housing Bank, from time to time and by notice, may specify, with the remaining deposits at the close of business on the last working day of the preceding second quarter.
• Creation of a Saved Fund for Housing Finance Companies.
• Control or prohibition of the issuance of trust or advertisement.
• Determination of Unexplained Behaviours of HFCs.
• Collection of deposit details and provisioning indicators.
• Issuance of indicators to HFCs auditors relating to financial statements and disclosure requirements.
• Denial of acceptance of deposits and division of assets.
• Penalty for violating the provisions of the Act or the guidelines. Completion of the application in respect of deviant HFCs.

If any of the housing finance companies fail to comply with the conditions of the National Housing Bank, it reserves the right to cancel the certification of any Housing Finance Company. However, the cancellation will be subjected to certain conditions for any housing finance company. These directions, which may cost the housing finance company its license are:

1. That the Housing Finance Company has ceased their operation of business in India.

2. Housing Finance Company has not complied with the National Housing Bank’s terms and conditions. These terms and conditions of NHB include:

• That the Housing Finance Company did not comply with the direction issued under the provision of Chapter V of the National Housing Bank Act 1987.
• Maintenance of accounts according to the requirement of any law, direction or order issued under the provisions of chapter V of the National Housing Bank Act 1987.
• According to National Housing Bank act, Housing Finance Company is mandatory to submit its books of accounts in lieu of demand by inspecting authority of NHB.
• Prohibited from accepting deposit in respect of an order made by NHB under the provisions of chapter V of National Housing Bank Act and that order is in force for a period more than 3 months.