The Reserve Bank of India issued the Housing Finance Companies Directions, 2025 thru Notification dated 28 November 2025. The Directions consolidate and modernize prudential, governance and disclosure norms for Housing Finance Companies (HFCs), aligning many aspects with NBFC rules under the RBI’s Scale-Based Regulation (SBR) framework. This guide explains the major provisions and practical compliance points HFCs should action now.
1. Legal basis, applicability and supervisory structure
The Directions are issued under RBI powers and specific statutory provisions, notably Sections 45L and 45MA of the Reserve Bank of India Act, 1934 and Sections 30, 30A, 32 and 33 of the National Housing Bank (NHB) Act, 1987. They apply to every HFC registered under Section 29A of the NHB Act, with Chapter IX directed at auditors. The Directions took effect when published on the RBI website and they repeal prior HFC directions while preserving actions already underway under them. Supervision and reporting obligations for HFCs are to be carried out with the NHB (the Supervisor for HFCs), and penalties and enforcement follow the NHB Act. HFCs are to be classified into SBR layers (Middle or Upper) depending on scale and complexity.
2. Who is an HFC? definitions and Principal Business Criteria
The Directions reiterate a precise definition of housing finance: lending for purchase, construction, reconstruction, renovation, plot purchase with intent to build (within three years), loans to builders, public agencies for residential projects, slum rehabilitation and related, while explicitly excluding loans against mortgage for non-housing purposes and loans for furnishing. To be an HFC, a company must satisfy the Principal Business Criteria: at least 60% of total assets in housing finance and at least 50% in individual housing loans. These criteria reflect the earlier October 2020 Principal Business Criteria and continue to be enforced.
3. Net Owned Fund (NOF) and capital framework: updated specifics
The RBI specifies ₹20 crore as the minimum Net Owned Fund (NOF) required for a company to commence or continue housing finance as its principal business (with transitional relief for certain legacy HFCs previously allowed to meet interim thresholds). HFCs not meeting NOF will be treated as NBFC-ICC and must apply for conversion of registration.
On capital ratios, HFCs must maintain a minimum capital ratio (CRAR) of 15%, with Tier 1 capital at least 10%. Tier 2 capital must not exceed 100% of Tier 1. The Directions incorporate detailed risk weights for different asset types and require an Internal Capital Adequacy Assessment Process (ICAAP). Additional technical points include Tier-2 instrument eligibility conditions, adjustments to Tier 1 for deferred tax assets (DTA), and a 50% credit conversion factor (CCF) for undisbursed portions of housing loans when calculating off-balance sheet exposures. HFCs should refer to the cross-referenced NBFC prudential norms for the full technical eligibility and calculation rules.
4. Asset classification, SMA and provisioning: clarified points
Asset classification follows standard NBFC/IRACP principles: assets must be classified as Standard, Sub-standard, Doubtful or Loss. Restructuring or rescheduling does not automatically lead to upgradation, recoveries and criteria must be met. HFCs must identify incipient stress using the SMA framework: SMA-0 (up to 30 days), SMA-1 (31–60 days), SMA-2 (61–90 days). Agricultural accounts follow crop season-based rules where applicable.
Provisioning rules are explicit. Loss assets require full write-off or 100% provisioning if retained in books; doubtful assets require provisioning based on both secured and unsecured portions (25–100% of secured portion depending on duration), and sub-standard assets carry a 15% general provision. Standard assets attract general provisioning by category (e.g., individual housing loans attract specific standard asset provisioning). Certain exceptions apply for guaranteed portions under approved schemes. Also note the no-write-back rule for prior provisioning when loans are rescheduled due to natural calamities.
5. LTV rules and property valuation: additional valuation rigor
LTV ceilings are set to limit leverage: housing loans up to ₹30 lakh should not exceed 90% LTV; loans above ₹30 lakh and up to ₹75 lakh should not exceed 80% LTV; and loans above ₹75 lakh should not exceed 75% LTV. The LTV numerator includes total outstanding (principal + accrued interest + charges) and excludes stamp duty and registration for valuation calculations except for affordable units costing up to ₹10 lakh where those costs may be included to encourage lending.
The Directions impose stricter valuation protocols for higher-ticket loans, requiring multiple valuation reports (including at least one independent report) and empanelment standards for valuers. HFCs must document valuer qualifications and ensure independent technical verification for construction financing and larger exposures. Refer to the Directions and cross-referenced valuation guidance for thresholds and empanelment requirements.
6. Governance, Board duties and fit-and-proper standards
The Board must approve a broad set of policies (ICAAP, investment, lending to related parties, interest rate model, valuation policy, grievance redressal, CRO appointment and independence, compensation policy with malus/clawback provisions). The Board must conduct regular reviews of risk management, corporate governance compliance, Fair Practices Code (FPC) adherence and construction project monitoring. The fact-check highlights the need to explicitly note the NOF ₹20 crore requirement, CRO standards, valuer empanelment criteria and recovery agent due-diligence and training.
7. Concentration, exposures and investment restrictions
HFCs face exposure limits to control concentration and related-party risks. Notable caps include limits on exposure to group entities engaged in real-estate (for example, exposures capped by reference to Tier 1 capital), restrictions on investments in land/buildings (limited to a percentage of capital funds and subject to disposal timelines for acquired assets), and constraints on equity exposure to other HFCs or group companies. Capital market exposure is capped as a share of net worth, with a further sub-limit for direct equity-like exposure. HFCs should review the Directions for precise thresholds and aggregation rules.
8. Public deposits, liquidity and operational rules
Deposit-taking HFCs must meet minimum credit rating criteria to accept deposits. They must also maintain liquid assets: minimum investment in approved securities and a combined buffer in bank deposits/NHB bonds plus approved securities are prescribed (with phased increases effective July 1, 2025). The fact-check also reminds HFCs to observe deposit-related ceilings relative to NOF, valuation rules for approved securities, and run-off rules for excess deposits. Daily valuation practices and proper documentation must be implemented.
9. Reporting, disclosures and transparency expectations
The Directions require detailed disclosures in statutory accounts and on websites: NPAs and provisions, penalties imposed by RBI/NHB, reserve fund disclosures and project exposure details. HFCs must also ensure regular supervisory returns to the NHB, half-yearly statutory returns, CERSAI filings for secured assets and prominent public disclosures (such as KFS/MITC/APR and fees/rates). Ensure MIS and filing calendars are updated to capture these frequencies.
10. Fair Practices Code, recovery conduct and consumer protection
RBI reiterates that HFCs must follow a robust Fair Practices Code: clear communication of rates and charges, transparent sanction letters, no coercive recovery, and an effective grievance redressal mechanism. Operational details called out in the fact-check include DSA/DMA conduct rules (reasonable calling hours, no misleading information), guarantor notification procedures, prepayment terms, and accessibility measures (for example KFS in accessible formats). HFCs should update operational manuals and training to embed these standards.
11. Implementation roadmap: practical actions for HFCs
- Board approvals: update policy suite (ICAAP, valuation, lending, exposure limits, FPC) and record Board minutes.
- Capital and NOF: confirm NOF ₹20 crore and regulatory capital ratios; if short, plan capital raise or conversion to NBFC-ICC.
- Valuation & empanelment: revise valuer panel, require independent valuations for higher tickets, document procedures.
- Provisioning & IRACP alignment: align provisioning templates and stress testing to the updated percentages and write-off rules.
- Deposits & liquidity: ensure rating compliance, calculate liquid asset buffers and monitor deposit/borrowing multiples against NOF.
- Disclosures & reporting: update account notes, website disclosures, internal MIS for NHB returns, CERSAI and statutory filing calendars.
- Training & consumer safeguards: train DSAs/DMAs, update recovery agent agreements, embed accessibility and grievance protocols.
Conclusion
The RBI HFC Directions, 2025 strengthen prudential standards, governance and consumer protections for housing finance in India and align HFC supervision with the broader NBFC SBR approach. The fact-check confirms the guide’s overall accuracy while adding technical clarifications, notably the statutory sections invoked, NOF threshold, Tier-2 instrument specifics, valuation protocols, SMA/agricultural NPA timelines, deposit-related ceilings and enhanced reporting expectations. HFCs