Experts believe this is also been seen as step to bring NBFCs and HFCs on the same page when it comes to CAR

The National Housing Bank has proposed to raise the capital adequacy ratio (CAR) for housing finance companies (HFCs) and cap their borrowing to 12 times their net worth, after the IL&FS fiasco exposed weaknesses in the profile of some HFCs. This is to be done in a phased manner, by March 31, 2022.

Currently, the HFCs have to maintain a minimum CAR, consisting of Tier I and Tier II capital, of not less than 12 per cent, while their borrowings are capped at 16 times their net worth.

The CAR will be increased to 13 per cent by March 31, 2020, to 14 per cent by March 31, 2021, and finally to 15 per cent by March 31, 2022. Moreover, the National Housing Bank (NHB) has proposed that the amount of public deposits that the deposit-taking HFCs can take should be capped at three times of their net worth.

The NHB has asked for comments and suggestions from HFCs and other stakeholders by March 31, 2019, on the changes. Analysts said the regulator has been mulling the move (for higher capital standard and cap on leverage) for some time. But, the liquidity crisis in the immediate aftermath of Infrastructure Leasing & Financial Services (IL&FS) group defaults in the second quarter revealed the weaknesses in some HFCs’ profile. This hastened the efforts to initiate revision in norms.