Budget 2019: Government To Return Regulation Of Housing Finance Companies From NHB To The Reserve Bank Of India

The central government plans to return regulatory as well as supervisory powers over housing finance companies from the National Housing Bank (NHB), to the Reserve Bank of India (RBI).

“The NHB, besides being a lender, is the regulator of the housing finance sector. This gives a somewhat conflicting and difficult mandate to the NHB,” Union Finance Minister Nirmala Sitharaman said in her maiden budget speech.

The necessary proposals to return regulatory and supervisory powers over housing finance companies to the RBI have been made in the Finance Bill 2019, she said.

It may be recalled that recently, the Union Finance Minister had stated that the government was considering giving more powers to the RBI to regulate the struggling shadow banking sector, though she was not specific.

Presently, 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 RBI has no direct authority over them.

The other NBFCs are very loosely regulated, with various regulators including the RBI having some regulatory role, though none of them are fully accountable.

Earlier, the RBI had sought more regulatory powers so that it could be more effective in handling liquidity crunches in the housing finance sector, which have hit lending and the overall economy.

Having regulatory powers over housing finance companies is expected to make it easier for the RBI to open credit lines for these firms if necessary.

However, shifting regulatory powers over the housing finance sector to the RBI is expected to take place later this year, since it will require a change to the RBI Act.