Context:
National Housing Bank (NHB) is conducting surprise inspections of housing finance companies (HFCs) following the Aviom Housing Finance fraud case. These inspections complement NHB’s annual credit reviews and aim to ensure compliance, transparency, and proper fund utilization.
Key Focus Areas of NHB’s Investigations
- Proper allocation of refinancing funds to ensure they reach the intended borrowers.
- Accuracy in bad loan reporting and prevention of data manipulation.
- Validation of investment portfolios to detect any fraudulent transactions.
- Transparency in affordable housing disclosures, particularly regarding borrower eligibility for refinancing and government subsidies.
Impact of Aviom Housing Finance Fraud on NHB Regulations
- Aviom reported potential payment delays due to fraudulent financial records.
- NHB initiated a third-party forensic audit after uncovering manipulated mutual fund account statements during an on-site inspection.
- This prompted NHB to tighten regulatory oversight across the housing finance sector.
Revised Bad Loan Reporting Rules
- HFCs must report bad loan data on the 1st of each month to prevent data manipulation.
- NHB found that some lenders were deferring bad loan recognition by carrying forward overdue payments into the next month.
- Previously, HFCs submitted data between the 10th and 12th of each month, raising concerns about reporting accuracy.
Action Against Misselling of Insurance Policies
- NHB found that some home financiers were bundling insurance policies with housing loans without full disclosure.
- NHB issued two key directives:
- December 10, 2024: HFCs must obtain explicit borrower consent before selling bundled insurance.
- March 12, 2025: HFCs must offer insurance from at least two providers, ensuring transparency and competitive pricing.
- NHB warned that rising insurance income in net interest earnings suggests potential misselling practices.
NHB Strengthens Oversight to Prevent Financial Misconduct
- The NHB’s intensified inspections aim to safeguard borrower interests, improve financial disclosures, and prevent fraud in the housing finance sector.
- These regulatory measures will enhance transparency, improve compliance, and protect borrowers from unfair practices.
- HFCs must now adhere to stricter reporting norms, ensuring ethical lending practices and financial stability.
