Slide: 2

Liquid Asset Requirement:

Deposit-taking HFCs must maintain liquid assets equivalent to:
13% of public deposits by January 1, 2025 (8% in unencumbered approved securities).
15% by July 1, 2025 (10% in unencumbered approved securities).
Public Deposit Ceiling:
Reduced from 3 times to 1.5 times of Net Owned Funds (NOF).
HFCs with excess deposits must let them run off to maturity without renewing or accepting fresh
deposits.
Shortened Deposit Tenure:
Public deposits must now have a tenure of 12-60 months (earlier up to 120 months).
Risk Mitigation:
HFCs are permitted to hedge risks through derivatives, including:
Currency derivatives and interest rate futures.
Credit Default Swaps (CDS) to hedge corporate bond risks (selling protection not
allowed).
Investment Restrictions:
New board-approved internal limits required for investments in unquoted shares.
Limits to be part of overall capital market exposure.
Co-branded Credit Cards:
HFCs allowed to issue co-branded credit cards under RBI guidelines.
Enhanced Governance:
Annual financial statements must be finalized within 3 months of fiscal year-end.
Prior approval from NHB required for extensions, with interim proforma balance sheets to be
submitted.
 Slide: 3

Capital Raising: NCDs are a critical tool for HFCs to raise long-term funds without diluting
equity ownership. This is particularly important for privately held HFCs aiming to retain control
while expanding their capital base2.
Liquidity Management: NCDs provide a stable and predictable source of funding, enabling
HFCs to meet liquidity requirements during periods of high housing loan demand3.
Regulatory Framework: The issuance of NCDs by HFCs is governed by a multifaceted
regulatory framework involving the RBI, NHB, and SEBI. Recent regulatory changes have
aligned HFC guidelines with those of NBFCs, ensuring consistency and transparency3.
Risk Management: Regulatory oversight ensures proper risk management, safeguarding both
HFCs and investors. Secured NCDs reduce default risks for smaller investors, while unsecured
NCDs cater to sophisticated institutional investors3.
Operational Stability: NCDs strengthen the debt portion of HFCs' capital structure, supporting
their financial resilience and operational stability

Long-term financial instruments known as non-convertible debentures (NCDs) are issued

by businesses, including HFCs, to raise money from investors.

NCDs are not convertible into equity shares of the issuing business, in contrast to
convertible debentures. NCDs are divided into the following categories:

•Secured NCDs, which lower investor risk by being backed by the company's assets.

•Unsecured NCDs: Higher risk but higher rewards because they are not backed by assets.

Obligations of debtors and creditors towards the DGCA for submission of dues and
exercising remedies in cases of debtor insolvency respectively

To obtain long-term capital, HFCs privately offer NCDs to sophisticated and institutional
investors. These private placements are now subject to more stringent regulatory
obligations under the RBI's new rules.
Secured NCDs
These reduce investor risk by being backed by the issuer’s assets.
In case of default, investors have a legal claim over the collateral.
Unsecured NCDs
These do not have collateral backing, making them riskier for investors.
Due to higher risk, they offer better returns in terms of interest rates.

Slide: 4
The previous Chapter XI of the Master Direction – Non-Banking Financial Company – Housing
Finance Company (Reserve Bank) Directions, 2021, has been repealed. In its place, Paragraph
58 of the Master Direction – Reserve Bank of India (Non-Banking Financial Company – Scale
Based Regulation) Directions, 2023, now applies to HFCs.
58. Raising Money through Private Placement by NBFCs NBFCs shall follow the guidelines on
private placement of Non-Convertible Debentures (NCDs) given in Annex XV. The provisions
of Companies Act, 2013 and Rules framed thereunder shall be applicable wherever not
contradictory.
ANNEX XV:
1. NBFCs must establish a Board-approved resource planning policy, covering planning horizons
and private placement periodicity.
2. Key instructions include:
Minimum subscription per investor: ₹20,000.
NCD issuances are categorized into: a. Less than ₹1 crore (max 200 secured subscribers per
year). b. ₹1 crore or above (no subscriber limit; issuers may opt for unsecured debentures).
Debentures must fund NBFC's balance sheet, not group entities or affiliates.
NBFCs cannot offer loans against their own debentures.
3. Tax-exempt bonds by NBFCs are excluded from these guidelines.
4. NCDs with maturity up to one year follow RBI’s Master Direction (2024) for Commercial
Paper and NCDs.
HFCs are now subject to the same regulatory framework as NBFCs under the SBR guidelines.
This alignment subjects HFCs to enhanced monitoring and reporting standards, ensuring a
uniform regulatory environment across financial entities.
The new guidelines require HFCs to adhere to detailed disclosure norms and strictly regulate the
usage of funds raised through NCDs. This move aims to enhance transparency and protect
investor interests by ensuring that funds are utilized appropriately and stakeholders are well-
informed.

Slide: 5 & 6
HFCs must follow NBFC regulations under the SBR framework.
Auditor certification is removed, with peer-to-peer certificates replacing it.
1. Applicability of Regulations
Previous Guidelines (Master Direction 2021):
HFCs were governed by Chapter XI of the RBI Master Direction (2021), which had
separate and distinct regulatory provisions for HFCs.
The regulatory framework was not aligned with the Scale-Based Regulation (SBR)
Directions applicable to NBFCs.
Revised Guidelines (January 2024 Notification):
HFCs are now aligned with Paragraph 58 of the NBFC Scale-Based Regulation (SBR)
Directions, 2023.
This change ensures that HFCs are regulated under a uniform framework applicable to all
NBFCs.
It brings consistency in risk management, governance, and compliance standards between
HFCs and other NBFCs.
2. Auditor Certification Requirement
Previous Guidelines (Master Direction 2021):
HFCs were required to obtain mandatory certification from auditors confirming
compliance with financial norms and other prudential regulations.
This certification was an additional regulatory requirement, increasing compliance costs
and procedural burdens.
Revised Guidelines (January 2024 Notification):
The mandatory auditor certification requirement has been removed.
However, auditors will continue to perform their standard statutory duties, such as
financial statement audits, risk assessments, and compliance reviews.
This change reduces regulatory burden while maintaining financial oversight through
standard audit procedures.
3. Categorization of Non-Convertible Debentures (NCDs)
Previous Guidelines (Master Direction 2021):
There was no specific categorization for NCDs based on subscription amounts.
HFCs could issue NCDs without any structured differentiation based on investor type or
subscription limits.
Revised Guidelines (January 2024 Notification):
RBI has introduced a structured categorization of NCDs, classifying them into two
distinct categories:
NCDs of Less than ₹1 Crore:
Can have a maximum of 200 secured subscribers per year.
This ensures that smaller investments remain controlled and prevent
excessive retail exposure.
NCDs of ₹1 Crore and Above:
 No restriction on the number of subscribers.
These NCDs can be unsecured, allowing greater flexibility in structuring
debt instruments for larger institutional investors.
This categorization provides better investor protection, aligns with risk-based regulation,
and ensures greater transparency in debt issuance.
5. Security Requirements for NCDs
Previous Guidelines (Master Direction 2021):
All Non-Convertible Debentures (NCDs) issued by HFCs were required to be secured,
meaning they had to be backed by assets or collateral.
No provision allowed the issuance of unsecured NCDs, even for large investors.
Revised Guidelines (January 2024 Notification):
HFCs can now issue unsecured NCDs if the subscription amount is ₹1 crore or above.
These unsecured NCDs will not be treated as public deposits, ensuring investor
protection and regulatory clarity.
This change provides greater flexibility in capital-raising options for HFCs, especially
from institutional investors.
6. Purpose of Issuance of NCDs
Previous Guidelines (Master Direction 2021):
There was no explicit restriction on how funds raised through NCDs could be deployed.
HFCs could use these funds for lending, investments, or even group companies without
regulatory limitations.
Revised Guidelines (January 2024 Notification):
The funds raised through NCDs must be deployed exclusively on the HFC’s own balance
sheet.
Prohibited from diverting funds to group entities, affiliates, or related businesses.
This ensures that the primary focus remains on housing finance, preventing financial
mismanagement or risk transfer within conglomerates.
7. Loans Against Own Debentures
Previous Guidelines (Master Direction 2021):
There was no specific prohibition preventing HFCs from offering loans against their own
debentures.
This posed risks of excessive leverage and circular funding, where companies could
artificially inflate their financial standing.
Revised Guidelines (January 2024 Notification):
Explicitly prohibited for HFCs to extend loans against their own debentures.
This regulation prevents financial engineering loopholes and strengthens financial
discipline in the sector.
Slide: 7

Implications for HFCs:

Regulatory Alignment:
 The alignment with NBFC regulations ensures uniformity in the regulatory framework,
simplifying compliance processes for Housing Finance Companies (HFCs).
However, smaller HFCs may face challenges in adapting to stricter compliance
requirements, such as enhanced disclosure norms and fund usage restrictions.
Fund Deployment Restrictions:
Funds raised through Non-Convertible Debentures (NCDs) must now be deployed
exclusively on the HFC's own balance sheet.
This restriction prohibits the use of funds for group entities or affiliates, ensuring focused
operational growth and reducing systemic risks.
Prohibition on Loans Against Own Debentures:
HFCs are explicitly prohibited from extending loans against their own debentures,
mitigating risks associated with circular financing and ensuring financial stability.
Enhanced Transparency:
Stricter disclosure requirements demand detailed reporting on the usage of funds raised
through NCDs, promoting accountability and investor confidence.
Implications for Investors:
Increased Confidence:
Enhanced transparency and stricter eligibility criteria for HFCs issuing NCDs provide
investors with greater confidence in the financial stability and governance of these
entities.
Categorization of NCDs:
The introduction of two categories of NCDs—secured (less than ₹1 crore) and unsecured
(₹1 crore and above)—offers tailored investment opportunities for diverse investor
profiles.
Risk Assessment:
Improved credit rating requirements for HFCs issuing NCDs enable investors to make
more informed decisions based on clearer risk assessments.

Slide: 8

HFCs must revise their internal policies and ensure their compliance frameworks align with the
new RBI regulations.
Strengthening credit rating strategies is essential for maintaining favorable borrowing conditions.
Engaging legal and regulatory advisors can help navigate complex compliance requirements.
Continuous monitoring is necessary to ensure adherence to updated guidelines, reducing the risk
of non-compliance penalties.
Enhanced Transparency:
Investors benefit from stricter disclosure norms, improving visibility into the utilization of funds
and financial stability of HFCs.
Categorization of NCDs:
Introduction of secured and unsecured NCD categories tailors investment opportunities for
diverse investor profiles, balancing risk and reward preferences.
Secured NCDs (< ₹1 crore) offer stable returns, while unsecured NCDs (≥ ₹1 crore) cater to
high-risk, high-return profiles.
Informed Investment Decisions:
Improved credit rating requirements aid investors in making selective and informed decisions
based on clearer risk assessment metrics.
Increased Investor Confidence:
Transparency measures and stricter fund usage restrictions foster trust among institutional and
retail investors, enhancing overall market sentiment.
Broader Investment Opportunities:
The new framework opens up avenues for high-net-worth individuals and institutional investors
to explore diverse financing instruments, such as unsecured NCDs, with confidence

Slide: 9(Conclusion)

The RBI aims to standardize financial regulations across India's financial sector.
HFCs now need to comply with NBFC private placement norms.
 The updated guidelines boost investor confidence and ensure more structured financial
practices.
However, smaller HFCs with lower credit ratings might face challenges in adapting.
To maintain smooth fundraising and operational efficiency, HFCs must quickly adjust to
these stricter regulations.

Slide: 10
1. Repeal of HFC-Specific Rules & Alignment with NBFCs
Previously, Housing Finance Companies (HFCs) had a separate regulatory framework for issuing
Non-Convertible Debentures (NCDs) through private placements. With this change, RBI has
repealed the specific provisions under the Master Direction – Non-Banking Financial Company –
Housing Finance Company (Reserve Bank) Directions, 2021. Instead, HFCs will now follow the
same guidelines as Non-Banking Financial Companies (NBFCs) under the Scale-Based
Regulation (SBR) framework (Master Direction – RBI (Non-Banking Financial Company –
Scale-Based Regulation) Directions, 2023).

2. Stricter Investor Eligibility & Subscription Criteria

RBI introduced tighter regulations regarding who can invest in privately placed NCDs issued by
HFCs and how much they must invest:
Minimum investment: ₹20,000 per investor.
Categorization of private placements:
qFor investments below ₹1 crore: The total number of investors per financial year is capped at
200, and these NCDs must be fully secured.
qFor investments of ₹1 crore and above: No upper limit on investors, but issuers must ensure
compliance with enhanced due diligence norms.

3. Enhanced Disclosure & Resource Planning Policy

RBI now mandates that HFCs must have a board-approved Resource Planning Policy covering:
Planning horizon (short-term vs long-term borrowing strategy).
Frequency of private placements (how often NCDs will be issued).
Risk management measures to ensure financial stability.