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Notification No. NHB.HFC.DIR.1/CMD/2010

Whereas the National Housing Bank had issued Housing Finance Companies (NHB) Directions, 2001 in respect of matters relating to acceptance of deposits by housing finance companies, prudential norms for income recognition, accounting standards, asset classification, provision for bad and doubtful assets, capital adequacy and concentration of credit/ investments to be observed by the housing finance companies and matters to be included in the Auditors Report by the auditors of such housing finance companies and matters ancillary and incidental thereto and amended the said Directions from time to time.

2. And whereas it is considered desirable to issue consolidated Directions incorporating the amendments made from time to time.

3. Now therefore, the National Housing Bank having considered it necessary in the public interest and being satisfied that for the purpose of enabling the National Housing Bank to regulate the housing finance system of the country to its advantage, it is necessary to give the Directions mentioned below, hereby in exercise of the powers conferred, by sections 30, 30A, 31 and 33 of the National Housing Bank Act, 1987 ( 53 of 1987) and of all the powers enabling it in this behalf, and in supercession of the aforementioned directions gives the Directions hereinafter specified.

	CHAPTER I - PRELIMINARY
	Short title, commencement and applicability of the Directions 1. (1) These Directions shall be known as the Housing Finance Companies (NHB) Directions, 2010. They shall come into force from the date of publication in the Official Gazette and any reference in these Directions to the date of commencement thereof shall be deemed to be a reference to that date. (2) Unless otherwise directed by the National Housing Bank, these Directions except the Directions contained in Chapter IV shall be applicable to every housing finance company registered under section 29A of the National Housing Bank Act, 1987 (53 of 1987). Directions contained in Chapter IV shall be applicable to every auditor of a housing finance company.
	Definitions 2. (1) In these Directions, unless the context otherwise requires, (a) “banking company” means a banking company as defined in Section 5(c) of the Banking Regulation Act, 1949 (10 of 1949); (b) “breakup value” means the equity capital and reserves as reduced by intangible assets and revaluation reserves, divided by the number of equity shares of the investee company; (c) “carrying cost” means book value of the assets and interest accrued thereon but not received; (d) “company” means a company as defined in Section 45 I (aa) of the Reserve Bank of India Act, 1934 (2 of 1934) but does not include a company which is being wound up under any law for the time being in force; (e) "control" shall have the same meaning as is assigned to it under clause (c) of sub-regulation (1) of regulation 2 of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997;
	(f) “current investment” means an investment which is by its nature readily realisable and is intended to be held for not more than one year from the date on which such investment is made; (g) “deposit” shall have the same meaning as assigned to it in Section 45 I (bb) of the Reserve Bank of India Act, 1934 (2 of 1934); (h) “depositor” means any person who has made a deposit with the housing finance company or a heir, legal representative, administrator or assignee of the depositor; (i) “doubtful asset” means a term loan, or a leased asset, or a hire purchase asset, or any other asset, which remains a substandard asset for a period exceeding two years; Provided that with effect from March 31, 2005, “doubtful asset” shall mean a term loan, or a leased asset, or a hire purchase asset, or any other asset, which remains a sub-standard asset for a period exceeding twelve months;
	(j) “earning value” means the value of an equity share computed by the average of profits after tax as reduced by the preference dividend and adjusted for extra ordinary and non recurring items, for the immediately preceding three years and further divided by the number of equity shares of the investee company and capitalised at the following rate:- (i) in case of predominantly manufacturing company, eight percent; (ii) in case of predominantly trading company, ten percent; and (iii) in case of any other company, including a Housing Finance Company, twelve percent; Note: If an investee company is a loss making company, the earning value will be taken as zero; (k) “ fair value” means the mean of the earning value and the breakup value; (l) “free reserves” shall include the balance in the share premium account, capital and debenture redemption reserves and any other reserve shown or published in the balance sheet of the company and created through an allocation of profits, not being (1) a reserve created for repayment of any future liability or for depreciation in assets or for bad debt or (2) a reserve created by revaluation of the assets of the company; (m) “housing finance company” means a company incorporated under the Companies Act, 1956 (1 of 1956) which primarily transacts or has as one of its principal objects, the transacting of the business of providing finance for housing, whether directly or indirectly; (n) “hybrid debt” means capital instrument which possesses certain characteristics of equity as well as of debt; (o) “Innovative perpetual debt” means hybrid debt issued in accordance with the terms and conditions stipulated in the Circular issued by National Housing Bank in this regard.
	(p) “lending public financial institution” means – (i) a public financial institution specified in or under section 4A of the Companies Act, 1956 (1 of 1956); or (ii) a State Financial Corporation or a State Industrial Investment Corporation; or (iii) a scheduled commercial bank; or (iv) the General Insurance Corporation of India established in pursuance of the provisions of section 9 of the General Insurance Business (Nationalisation) Act, 1972 (57 of 1972); or (v) any other Institution which the National Housing Bank may, by notification, specify in this behalf; (q) “long term investment” means an investment other than a current investment; (r) “loss asset” means – (i) an asset which has been identified as loss asset by the housing finance company or its internal or external auditor or by the National Housing Bank, to the extent it is not written off by the housing finance company; and (ii) an asset which is adversely affected by a potential threat of non recoverability due to any one of the following, namely:-
	(a) non-availability of security, either primary or collateral, in case of secured loans and advances; (b) erosion in value of security, either primary or collateral, is established; (c) insurance claim, if any, has been denied or settled in part; (d) fraudulent act or omission on the part of the borrower; (e) the debt becoming time barred under Limitation Act, 1963 (36 of 1963); (f) inchoate or defective documentation. Explanation- For the removal of doubt, it is clarified that mere right of the housing finance company to file suit against the borrower/guarantor for recovery of dues does not debar the National Housing Bank or the auditors to consider the asset or part thereof as loss asset due to aforesaid reasons; (s) “net asset value” means the latest declared net asset value by the concerned mutual fund in respect of that particular scheme; (t) “net book value” means - (i) in the case of hire purchase asset, the aggregate of overdue and future installments receivable as reduced by the balance of the unmatured finance charges and further reduced by the provisions made as per paragraph 24(2)(i) of these directions; (ii) in the case of leased assets, aggregate of capital portion of overdue lease rentals accounted as receivable and depreciated book value of the lease asset as adjusted by the balance of lease adjustment account;
	(u) “net owned fund” means net owned fund as defined under section 29A of the National Housing Bank Act, 1987 including paid up preference shares which are compulsorily convertible into equity capital.
	(v) “non-performing asset” (referred to in these directions as “NPA”) means:- (i) a loan asset, in respect of which, interest has remained past due for six months; (ii) a term loan (other than the one granted to an agriculturist or to a person whose income is dependent on the harvest of crops) inclusive of unpaid interest, when the installment is overdue for more than six months or on which interest amount remained past due for six months; (iii) a bill of exchange which remains over due for six months; (iv) the interest in respect of a debt or the income on a receivable under the head ‘other current assets’ in the nature of short term loans/advances, which facility remained over due for a period of six months; (v) any dues on account of sale of assets or services rendered or reimbursement of expenses incurred, which remained over due for a period of six months; (vi) the lease rental and hire purchase installment, which has become over due for a period of more than twelve months; (vii) an inter corporate deposit, in respect of which interest or principal has remained over due for a period of six months;
	Provided that with effect from March 31, 2005, “non-performing asset” shall mean:- (i) an asset, in respect of which, interest has remained overdue for a period of ninety days or more; (ii) a term loan (other than the one granted to an agriculturist or to a person whose income is dependent on the harvest of crops) inclusive of unpaid interest, when the installment is overdue for a period of ninety days or more or on which interest amount remained overdue for a period of ninety days or more; (iii) a demand or call loan, which remained overdue for a period of ninety days or more from the date of demand or call or on which interest amount remained overdue for a period of ninety days or more; (iv) a bill which remains overdue for a period of ninety days or more; (v) the interest in respect of a debt or the income on receivables under the head ‘other current assets’ in the nature of short term loans/advances, which facility remained overdue for a period of ninety days or more; (vi) any dues on account of sale of assets or services rendered or reimbursement of expenses incurred, which remained over due for a period of ninety days or more; (vii) the lease rental and hire purchase installment, which has become over due for a period of ninety days or more; (viii) an inter corporate deposit, in respect of which interest or principal has remained overdue for a period of ninety days or more.
	(ix) a term loan granted to an agriculturist or to a person whose income is dependent on the harvest of crops if the installment of principal or interest thereon remains unpaid: (a) for two crop seasons beyond the due date if the income of the borrower is dependent on short duration crops, or (b) for one crop season beyond the due date if the income of the borrower is dependent on long duration crop. Explanation – (1) For the purpose of this sub-clause “long duration” crops would be crops with crop season longer than one year and crops, which are not “long duration” crops, would be treated as “short duration” crops. (2) The crop season for each crop means the period up to harvesting of the crops raised, would be as determined by the State Level Bankers’ Committee in each State.
	(w) “owned fund” means paid up capital including preference shares compulsorily convertible into equity shares, free reserves, balance in share premium account and capital reserves representing surplus arising out of sale proceeds of asset, excluding reserves created by revaluation of asset, as reduced by accumulated loss balance, book value of intangible assets and deferred revenue expenditure, if any;
	(x) “past due” means an amount of income or interest which remains unpaid for a period of thirty days beyond the due date; (y) “public deposit” means a deposit but does not include the following, namely:- (i) any amount received from the Central Government or a State Government or any amount received from any other source and whose repayment is guaranteed by the Central Government or a State Government or any amount received from a local authority or any public housing agency, or a foreign Government or any other foreign citizen, authority or person; (ii) any amount received from the National Housing Bank, established under the National Housing Bank Act, 1987 (53 of 1987), or the Industrial Development Bank of India established under the Industrial Development Bank of India Act, 1964 (18 of 1964) or the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956 (31 of 1956) or the General Insurance Corporation of India and its subsidiaries established in pursuance of the provisions of section 9 of the General Insurance Business (Nationalisation) Act, 1972 (57 of 1972) or the Small Industries Development Bank of India established under the Small Industries Development Bank of India Act, 1989 (39 of 1989) or the Unit Trust of India established under the Unit Trust of India Act, 1963 (52 of 1963) or National Bank for Agriculture and Rural Development established under the National Bank for Agriculture and Rural Development Act, 1982 or an Electricity Board constituted under the Electricity (Supply) Act, 1948 or the Tamil Nadu Industrial Investment Corporation Ltd., or the National Industrial Development Corporation of India Ltd., or the Industrial Credit & Investment Corporation of India Ltd., or the Industrial Finance Corporation of India Ltd., or the Industrial Investment Bank of India Ltd., or State Trading Corporation of India Ltd., or the Rural Electrification Corporation Ltd., or the Minerals and Metals Trading Corporation of India Ltd., or the Agricultural Finance Corporation Ltd., or the State Industrial and Investment Corporation of Maharashtra Ltd., or the Gujarat Industrial Investment Corporation Ltd.,or Asian Development Bank or International Finance Corporation or ^[Japan Bank for International Cooperation (JBIC)^][1]or Kreditanstalt für Wiederaufbau (KfW) or any other institution that may be specified by the National Housing Bank in this behalf;
	(iii) any amount received by a housing finance company from another company; (iv) any amount received by way of subscription to any share, stock, bonds or debentures pending the allotment of the said shares, stock, bonds or debentures and any amount received by way of calls in advance on shares, in accordance with the Articles of
	Association of the housing finance company so long as such amount is not repayable to the members under the Articles of Association of the housing finance company; (v) any amount received from a person who at the time of receipt of the amount was a Director of the housing finance company or any amount received from its shareholders by a private housing finance company or by a private housing finance company which has become a public housing finance company under section 43A of the Companies Act, 1956 and continues to include in its Articles of Association provisions relating to the matters specified in clause (iii) of sub-section (1) of section 3 of the Companies Act, 1956 (1 of 1956): Provided that the Director or shareholder, as the case may be, from whom the money is received furnishes to the housing finance company at the time of giving the money, a declaration in writing to the effect that the amount is not being given out of funds acquired by him by borrowing or accepting from others; Provided further that in the case of joint shareholders of a private limited company, money received from or in the name of the joint shareholders except the first named shareholder shall not be eligible to be treated as the receipt of money from the shareholder of the company; (vi) any amount raised by the issue of bonds or debentures secured by the mortgage of any immovable property of the housing finance company; or by any other asset or with an option to convert them into shares in the housing finance company provided that in the case of such bonds or debentures secured by mortgage of any immovable property or secured by other assets, the amount of such bonds or debentures shall not exceed the market value of such immovable property/ other assets; (vii) any amount brought in by the promoters by way of unsecured loan in pursuance of stipulations of lending institutions subject to the fulfillment of the following conditions, namely :- (a) the loan is brought in pursuance of the stipulation imposed by the lending public financial institution in fulfillment of the obligation of the promoters to contribute such finance, (b) the loan is provided by the promoters themselves and/or by their relatives, and not from their friends and business associates, and (c) the exemption under this sub-clause shall be available only till the loan of the lending public financial institution is repaid and not thereafter; (viii) any amount received from a mutual fund which is governed by the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996; (ix) any amount received as hybrid debt or subordinated debt the minimum maturity period of which is not less than sixty months; (x) any amount received from a relative of a director of a housing finance company; ^[(xi) any amount received by issuance of commercial paper, in accordance with the guidelines issued by the Reserve Bank of India, vide Circular No. IECD.3/08.15.01/2000-2001 dated October 10, 2000.^][2] Note : The deposit shall be accepted only on an application made by the depositor containing therein a declaration that as on the date of deposit, he is related to the specific director in the capacity of a relative as defined under Companies Act, 1956 (1 of 1956);
	(z) “public housing agency” shall include any authority, constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages or for both. (za) “securities” means securities as defined in section 2(h) of the Securities Contracts (Regulation) Act, 1956 (42 of 1956); (zb) “standard asset” means the asset in respect of which, no default in repayment of principal or payment of interest is perceived and which does not disclose any problem nor carry more than normal risk attached to the business;
	(zc) “sub-standard asset” means - (i) an asset, which has been classified as non-performing asset for a period not exceeding two years; Provided that with effect from March 31, 2005, an asset, which has been classified as non-performing asset for a period not exceeding twelve months shall be a sub-standard asset; (ii) an asset, where the terms of the agreement regarding interest and/or principal have been re-negotiated or rescheduled after release of any instalment of loan or an inter-corporate deposit which has been rolled over, until the expiry of one year of satisfactory performance under the re-negotiated or rescheduled terms: Provided that where a delay in completion of a project is caused on account of factors beyond the control of the project implementing agency, terms of the loan agreement regarding interest and/ or principal may be rescheduled once before the completion of the project and such loans may be treated as standard asset, subject to the condition that such reschedulement shall be permitted only once by the Board of Directors of the concerned housing finance company and that interest on such loan is paid regularly and there is no default; Provided further that where natural calamities impair the repaying capacity of a borrower, terms of the loan agreement regarding interest and/ or principal may be rescheduled and such loans shall not be classified as sub-standard; the classification of such loans would thereafter be governed by the revised terms and conditions;
(zd) “subordinated debt” means a fully paid up capital instrument, which is unsecured and is subordinated to the claims of other creditors and is free from restrictive clauses and is not redeemable at the instance of the holder or without the consent of the supervisory authority of the housing finance company. The book value of such instrument shall be subjected to discounting as provided hereunder:

		Remaining maturity of the instruments	Rate of discount (%)
		(i) up to one year	100
		(ii) More than one year but upto two years	80
		(iii) More than two years but upto three years	60
		(iv) More than three years but upto four years	40
		(v) More than four years but upto five years	20
to the extent such discounted value does not exceed fifty percent of the Tier-I capital;
	(ze) “substantial interest” means holding of a beneficial interest by an individual or his spouse or minor child, whether singly or taken together in the shares of a company, the amount paid up on which exceeds ten percent of the paid up capital of the company; or the capital subscribed by all the partners of a partnership firm; (zf) “tier-I capital” means owned fund as reduced by investment in shares of other housing finance companies and in shares, debenture, bonds, outstanding loans and advances including hire purchase and lease finance made to and deposits with subsidiaries and companies in the same group exceeding, in aggregate, ten percent of the owned fund; (zg) “tier-II capital” includes the following:- (i) preference shares (other than those compulsorily convertible into equity); (ii) revaluation reserves at discounted rate of fifty five percent; ^[(iii) general provisions (including that for standard assets) and loss reserves to the extent these are not attributable to actual diminution in value or identifiable potential loss in any specific asset and are available to meet unexpected losses, to the extent of one and one fourth percent of risk weighted assets^];[3] (iv) hybrid debt; (v) subordinated debt to the extent the aggregate does not exceed Tier-I capital; and
	(zh) ‘Tiny deposit’ means the aggregate amount of public deposits not exceeding Rs. 10,000/- standing in the name of the sole or the first named depositor in the same capacity in all the branches of the housing finance company. (2)Words or expressions used but not defined herein and defined in the National Housing Bank Act, 1987 shall have the same meaning as assigned to them therein. Any other words or
	expressions not defined herein or in the National Housing Bank Act, 1987 shall have the same meaning as assigned to them in the Reserve Bank of India Act, 1934 (2 of 1934), Banking Regulation Act, 1949 (10 of 1949) and the Companies Act, 1956 (1 of 1956); (3) (a) If any question arises as to whether a company is a financial institution or not, such question shall be decided by the National Housing Bank in consultation with the Central Government. (b) If any question arises as to whether a company is a housing finance company, the same shall be decided by the National Housing Bank.

[1] Substituted by NHB.HFC.DIR. 4 / CMD/2012 dated January 19 , 2012 published in the Gazette of India, Part III Section 4 dated February 18 , 2012. Prior to its substitution, the words in the clause (y)(ii) read as under;

“………International Finance Corporation or the Overseas Economic Cooperation Fund (OECF) or…..”

[2] Inserted by NHB.HFC.DIR. 4 / CMD/2012 dated 19^th January , 2012 published in the Gazette of India, Part III Section 4 dated 18^th February , 2012.

[3] Substituted by NHB.HFC.DIR.3/CMD/2011 dated August 5, 2011 published in the Gazette of India, Part III Section 4 dated August 27, 2011. Prior to its substitution, sub-clause(iii) read as under:

“(iii) general provisions and loss reserves to the extent these are not attributable to actual diminution in value or identifiable potential loss in any specific asset and are available to meet unexpected losses to the extent of one and one fourth percent of risk weighted assets;”

Pages

The Housing Finance Companies (NHB) Directions, 2010

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