RBI BEGINS MONITORING HFCs

  • The Reserve Bank of India (RBI) has started monitoring the liquidity position, asset-liability gap and repayment schedules of Housing
    Finance Companies (HFCs) on a daily basis after the liquidity crisis hit these firms, resulting in defaults.
  • Mortgage lenders are regulated by the National Housing Bank.

What is a Mortgage?

  • A Mortgage is a loan in which property or real estate is used as Collateral.
  • The borrower enters into an agreement with the lender (usually a bank) wherein the borrower receives cash upfront then makes payments over a set time span until he pays back the lender in full.
  • A mortgage is often referred to as home loan when it is used for the purchase of a home.
  • The central bank is of the view that the since the liquidity crisis of the HFCs could have a spill over effect on the other segments in the financial sector, including banks, and hence, could affect financial stability, it was necessary to monitor these entities on a regular basis.
  • The non-banking financial sector, particularly the mortgage lenders, are fighting a crisis of confidence with banks having stopped lending to these entities since the debt default by IL&FS in September last year.
  • NBFCs saw their cost of funds going up sharply in the last few months. This has impacted their business growth as the lenders have to cut down on their loan disbursements.
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