NHB Asks HFC Di­rec­tors to be ‘Fit & Proper’

FIND­ING A WAY OUT Move comes at a time when spot­light is on cor­po­rate gover­nance

The Economic Times - - Markets: Beating Volatility - At­madip.Ray@ times­group.com

Kolkata: The Na­tional Hous­ing Bank (NHB) has di­rected all hous­ing fi­nance com­pa­nies with min­i­mum as­set of .₹ 50 crore to fol­low the guide­line of “fit and proper” for their di­rec­tors and tighten risk man­age­ment tools. The mis­sive, aimed at strength­en­ing the .₹ 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 such as Tata Sons and In­fosys.

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 .₹ 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 HFCs 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.

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