India’s housing finance companies (HFCs) are coming under increased regulatory scrutiny following concerns over lending irregularities, borrower misclassification, and operational lapses. The Reserve Bank of India (RBI) and the National Housing Bank (NHB) have reportedly intensified inspections to ensure compliance with prudential lending norms. This comes at a time when HFCs are expanding aggressively into affordable housing and semi-urban segments, raising questions about risk management and long-term sustainability.
Regulatory Lens on Lending Faults
Recent inspections flagged cases of loan misreporting, including incorrect borrower categorization between housing and non-housing loans.
Some firms allegedly engaged in over-leveraging of borrowers and loopholes in collateral assessment.
The RBI and NHB are now seeking detailed clarifications from several HFCs on credit appraisal systems and non-performing asset (NPA) recognition standards.
Growth Outpacing Controls
The housing finance sector has grown rapidly in recent years, supported by affordable housing demand, urban migration, and government subsidies under PMAY (Pradhan Mantri Awas Yojana).
However, analysts warn that credit growth has outpaced internal risk controls in some HFCs.
Smaller and mid-tier firms, in particular, face challenges in technology adoption, credit underwriting, and governance practices.
Systemic Concerns
HFCs are crucial players, with total assets exceeding ₹15 lakh crore as of FY25.
Lapses in this sector can ripple into the broader NBFC ecosystem, already under watch due to past liquidity stress.
Regulators worry that aggressive lending without robust due diligence could fuel asset quality problems similar to those seen in NBFCs during 2018–19.
Possible Policy Responses
Stricter guidelines on loan classification and credit assessment frameworks.
Enhanced audit and compliance reporting requirements for HFCs.
Push for greater digitization of loan origination and borrower verification to minimize fraud.
Stronger corporate governance standards to align HFC practices with regulated banks.
Why This Matters
Consumer Protection: Safeguards borrowers from mis-selling and over-leverage.
Financial Stability: Ensures HFCs don’t become a source of systemic stress in NBFC space.
Policy Credibility: Reinforces regulator’s oversight role in maintaining housing finance discipline.
Investor Confidence: Transparent practices are vital to sustain domestic and global investor trust in India’s NBFC sector.
Affordable Housing Goals: Proper checks ensure government housing schemes achieve intended outcomes without defaults spiraling.
