Mumbai/New Delhi: India will soon give Reserve Bank of India (RBI) power to regulate housing finance companies (HFCs), which will almost certainly lead to the lenders facing stringent asset quality reviews, two sources with direct knowledge of the matter said.
That could have major repercussions for about 80 HFCs, the largest of which include Indiabulls Housing Finance Ltd, Housing Development Finance Corporation and Dewan Housing Finance Corporation, leading to them facing unprecedented scrutiny and the potential for major financial penalties and restriction on their activities if improper practices are discovered.
In late 2015, the RBI started a similar review of bank assets amid allegations that lenders were hiding the extent of the bad debts on their books.
During multiple asset quality reviews of banks, the RBI revealed a plethora of areas where lenders were under reporting their bad loans. It initially led to financial penalties for some lenders and eventually fed into decisions to impose tougher restrictions on their loan books while their bad debts remained high.
The housing finance companies, which are part of the broader shadow banking sector known as non-banking finance companies (NBFCs), are currently regulated by the National Housing Board, and the central bank has no direct authority over them.
The other NBFCs are very loosely regulated, with various regulators including the RBI having some role but no one being fully accountable.
