The National Housing Bank has directed all housing finance companies with minimum asset of Rs 50 crore to follow “fit and proper” criteria for their directors and tighten risk management tools.
The missive, aimed at strengthening the Rs 5-lakh crore housing finance architecture, also makes chief executives responsible for any breach of “fit and proper” rules in selection of directors.
The development comes at a time when the spotlight is on corporate governance and the role of independent directors in some of India’s top companies.
Industry leaders, however, believe that NHB is now trying to regulate the smaller, unlisted and new entrants more effectively.
Small housing finance companies (HFCs) mostly focus on the affordable housing segment—estimated by Crisil to be about Rs 1.3 lakh crore in size as on March 2016 and accounting for over a quarter of the housing loans. The market share of mid-sized HFCs has grown to 17% in 2016 from 11% in 2014. Crisil said new entrants in this segment are growing at a CAGR of 40% due to its high growth potential.
NHB told HCFs to adhere to the directions with immediate effect and to keep it in the loop in case of any change in the structure of their boards. There are two types of HFCs – deposit-taking entities such as the Housing Development Finance Corporation, and the non-deposit-taking ones, and both have been asked to follow the rules.
“It’s a welcome move. The small and unlisted entities are the prime targets of this direction,” said R Nambirajan, managing director of DHFL Vysya Housing Finance
NHB has told HFCs to form an audit committee consisting of not less than three members of the board, and a nomination committee to ensure “fit and proper” status of proposed and existing directors. It has also directed them to set up a risk management committee and asset liability management committee without fail.
“All applicable HFCs shall ensure that a policy is put in place with the approval of the board of directors for ascertaining the fit and proper criteria of the directors at the time of appointment, and on a continuing basis,” NHB said in its note. It said managing directors should certify that “fit and proper” criteria in selection of the directors has been followed.