Need For a Separate Regulator For Housing Finance firms..!

Me. Keki Mistry, the vice - chairman and chief executive officer of Indias biggest mortgage lender HDFC, emphasised the need for a separate regulator for housing finance while commenting that norms for housing finance companies such as HDFC are the same as those of banks.

Housing finance companies (HFCs) have the same provisioning norms, LTV ratio &  risk weight like banks, Mistry said in a statement seen as a response to SBI Chairman Mr. Pratip Chaudhuri who on recently suggested that all housing loan companies should be regulated by a uniform set of rules and governed by a single regulator, preferably RBI (Reserve Bank of India).

While housing loans given by banks are regulated by the RBI, loans extended by housing finance companies such as LIC Housing Finance  (LIC HFL)or HDFC are regulated by the National Housing Bank. (NHB)

Housing finance firms maintain provisions of 2 % of the loan value in case or  / dual rate loans and maintains LTV ratio of 80 % like banks.

SBI Chairman Mr. Pratip Chaudhuri on Saturday pitched for a single regulator for all housing loans.

Mr. Chaudhuri had also said a single regulator would help remove the regulatory arbitrage that exists between banks &  housing finance companies.

For example, the removal of pre-payment penalty on housing loans was first implemented by NHB for housing finance companies, and only later for banks by the RBI.

 

Mistry pointed out, When prepayment charges were removed, NHB did it for HFCs and there was a brief time when banks were levying these charges.

He said that objective of setting up a separate housing regulator was to meet housing shortage. There is shortage of housing even now.

NHB was set up in 1988 was to promote housing expansion and the purpose still continues, said Mistry.

Banks currently accounts for more than twothird of home loans disbursed and this is not the first time that the largest bank and the largest housing finance company have clashed.

SBIs introduction of what its rivals called a teaser loan scheme, in which borrowers paid a low rate for the initial few years, and saw it increase significantly after that initial period, prompted HDFC chairman Mr. Deepak Parekh to comment,"I would like to see it die down, but it must be done universally,.

Currently, the RBI regulates the housing loans provided by banks, while the National Housing Bank is the regulator for housing loans disbursed by housing finance companies such as HDFC Ltd and LIC Housing Finance Co Ltd.

Mr. Akeel Master, Head, Financial Services, KPMG India, bringing all lending activities under the purview of a single regulator seems to be the way forward.

“Having more than one regulator for similar activities sometimes leads to conflict of interest and gives rise to certain regulatory arbitrage” Mr. Akeel Master told BL.

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