How to Start a HOUSING FINANCE COMPANY REGISTRATION

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Overview of Housing Finance Company Registration

A Housing Finance Company (HFC) is a type of Non-Banking Financial Company (NBFC) primarily engaged in the business of providing finance for the construction or acquisition of houses, including plot development and new house construction. These companies are regulated by the National Housing Bank (NHB) in India. As per the National Housing Bank Act, 1987, obtaining a Housing Finance Company Registration Certificate from the NHB is mandatory before commencing operations in the housing finance sector in India.

What is the National Housing Bank (NHB)?

The National Housing Bank (NHB) is a statutory body established by the Parliament of India to promote and regulate housing finance institutions across the country. Its role is to enhance the availability of housing finance, assist in the development of housing finance institutions, and connect them with the broader financial system. NHB also provides financial support to housing finance institutions and enforces regulations to ensure their proper functioning. If any housing finance company operates in India without obtaining the Housing Finance Company Registration Certificate, it may face substantial penalties.

Objectives of the National Housing Bank:

  • Promote a robust, efficient, and cost-effective housing finance system to serve all population segments and integrate it with the broader financial system.
  • Mobilize and channel resources for the housing sector.
  • Encourage public agencies to facilitate and provide service land for housing projects.
  • Establish and supervise a network of dedicated housing finance institutions.

Regulatory Bodies for the Housing Finance Sector in India:

  • Reserve Bank of India (RBI)
  • National Bank for Agriculture and Rural Development (NABARD)
  • Ministry of Corporate Affairs (MCA)
  • National Housing Bank (NHB)
  • Securities and Exchange Board of India (SEBI)
 
 
 
 

Criteria for Obtaining Housing Finance Company Registration

As per Section 29A of the NHB Act, 1987, a company cannot engage in the business of housing loans or housing finance unless it meets the following requirements:

  1. The company must be registered under the Companies Act, 2013 or 1956.
  2. A minimum Net Owned Fund (NOF) of ₹20 crores is required.
  3. The company must obtain registration as a Non-Banking Financial Company (NBFC) from the Reserve Bank of India (RBI).
  4. The primary objective of the company should be to finance housing and other commercial properties. In addition to providing finance, the company must be financially viable, with management acting in good faith for the public interest.

Conditions for Grant of HFC License by NHB

Once an application for Housing Finance Company Registration is submitted, the National Housing Bank (NHB) will review the application and issue a Registration Certificate after ensuring that the following conditions are met:

  1. The Housing Finance Company must be capable of fully repaying its current or future depositors as their claims arise.
  2. The company should have a solid capital structure and promising earnings prospects.
  3. The company must not engage in any activities that could harm the interests of its current or future depositors.
  4. After receiving the registration certificate, the company must operate in the public interest.

Essential Documents Required for Housing Finance Company Registration

Following is the list of all the vital documents required for Housing Finance Company Registration in India:

  • A copy of the AOA (Article of Association) and MOA (Memorandum of Association) of the proposed Company;
  • Details regarding the Company’s profile;
  • Demand Draft in favour of the NHB payable at New Delhi;
  • Board Resolution stating the Company’s objective and approval to record application before National Housing Bank;
  • Next three years Business Plan of the Company;
  • Submit a certificate issued by a professional related to meeting the conditions of minimum Net Owned Fund of Rs. 20 crores;
  • Business profile of CEO or Directors or MD, etc.;
  • Details of Company which directors are related;
  • Previous three years of a financial audit.

Procedure for Housing Finance Company Registration

The following is the step-by-step process for obtaining Housing Finance Company (HFC) Registration:

  1. File the Application: The first step is to download the application form, fill it out accurately with all the required details.

  2. Attach the Required Documents: After completing the application form, gather all the necessary documents as specified and attach them to the application. Then submit the completed application and documents to the National Housing Bank (NHB).

  3. Verification: Upon submission, the NHB officials will verify the application and all accompanying documents for accuracy and completeness.

  4. Issuance of Certificate: If the NHB is satisfied with the application and supporting documents, they will issue a Registration Certificate, which will serve as official proof of the Housing Finance Company Registration.

Reasons for Cancellation of Housing Finance Company Registration

The National Housing Bank (NHB) may cancel the registration of a Housing Finance Company (HFC) under certain conditions, typically when the company fails to comply with the NHB Act and its regulations. Some of the reasons for cancellation include:

  1. Discontinuation of Business: The company stops conducting its housing finance business within India.

  2. Non-Compliance with NHB Regulations: The HFC fails to adhere to the terms and conditions set by the NHB.

  3. Failure to Follow NHB Directives: The company does not comply with the directions issued by the NHB under Chapter V of the NHB Act, 1987.

  4. Failure to Submit Required Documents: The company fails to provide its books of accounts and other relevant documents when requested by NHB's inspecting authorities.

  5. Non-Compliance with Accounting Requirements: The HFC fails to maintain accounts according to legal requirements or as directed by the NHB under the provisions of the NHB Act.

 
 
 
 

Obligatory Compliances for HFCs toward National Housing Bank

Following are some essential companies that should be followed by Housing Finance Companies:

  • It is necessary for every Housing Finance Company to file a yearly return, half-yearly return, and quarterly return concerning provident norms, care of liquid assets, respectively;
  • Copy of the Annual Report and Financial Statement;
  • Housing Finance Companies have to obey the provisions of IND-AS;
  • Yearly submission of the certificate of auditor, certifying the HFC’s capability to repay deposits;
  • Filing a copy of a statement in lieu thereof or advertising petitioning public deposits;
  • Timely return in respect of change in directors, change in registered office, etc.

Post-Registration Formalities for HFC

Once the certificate of Housing Finance Company Registration is obtained, HFCs require to complete the following post-registration formalities:

  • MIS Format;
  • Board Structure;
  • Development of Loan Processes;
  • Product Advancement;
  • Lawful Operations;
  • Credit Risk Management;
  • Advancement of IT Infrastructure;
  • Improvement of Loan Policies, comprising appraisal tools and techniques;
  • Regulatory of NHB and compliance necessities;
  • Policies Drafting and Organizational Structure;
  • Resource Mobilization.

What is the primary difference between Housing Finance Companies and Banks?

Activities of both the Housing Finance Company and Banks are involved in making investments and advancing, but there is some difference between them, and you can check the same below:

  • Housing Finance Companies cannot accept DDs (Demand Drafts);
  • Housing Finance Companies are not eligible to form any part of the settlement & payment system and cannot issue cheques drawn on itself;
  • The facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of Housing Financing Companies, unlike banks.