India’s housing finance sector does not collapse overnight. It rots slowly—under the watch of a regulator that repeatedly claims surprise after the damage is already done.
The pattern is now impossible to ignore. Time and again, large housing finance frauds have erupted not because there were no warning signs, but because the warnings were either missed, ignored, or buried deep inside compliance files that never translated into decisive action. At the centre of this recurring failure sits the National Housing Bank (NHB), the statutory regulator meant to be the sector’s first line of defence.
What makes NHB’s record troubling is not the absence of powers—but the absence of timely action.
DHFL: A ₹34,000-Crore Failure That the Regulator “Didn’t See”
Few financial scandals have exposed regulatory fragility as starkly as the collapse of Dewan Housing Finance Ltd. (DHFL). The fraud—now pegged at over ₹34,000 crore—did not materialise in a vacuum. It unfolded over years, through aggressive lending, opaque related-party transactions, ballooning leverage, and questionable asset quality.
Yet, as court proceedings dragged on years after DHFL’s implosion, an uncomfortable question resurfaced: where was the regulator while the damage was being built?
In December 2025, the spotlight turned sharply back on NHB when the Supreme Court of India questioned the regulator’s oversight failures during hearings related to the DHFL case. The court explicitly sought explanations on why NHB failed to detect or prevent the fraud despite its mandate to supervise housing finance companies, vet refinance exposure, and flag governance risks early.
The significance of this moment cannot be overstated. This was not an allegation by a political opponent or a media house—it was the country’s highest court asking whether the regulator had abdicated its responsibility.
NHB had access to inspection reports. It had refinancing data. It had the authority to intervene. And yet, DHFL was allowed to metastasise into one of India’s largest financial disasters before collapsing under its own weight in 2019.
The question that refuses to go away: Was NHB merely a passive observer while systemic risk was being manufactured?
Aviom Housing Finance: Action After Admission, Not Detection
Defenders of NHB often point to the Aviom India Housing Finance case as proof that the regulator can act decisively. After all, NHB ordered a forensic audit, appointed EY, and its findings eventually led to the supersession of Aviom’s board by the RBI.
But this narrative conveniently omits a critical fact.
The fraud at Aviom came to light only after the company self-reported it.
Inflated mutual fund investments. Manipulated bank balances. Cash positions that existed more on paper than in reality. These were not overnight accounting errors—they were sustained misrepresentations that evaded detection during routine regulatory inspections.
This raises an unsettling question: If a mid-sized housing finance company can manipulate financials for years without triggering regulatory alarms, what does that say about NHB’s supervisory architecture?
The Aviom case does not demonstrate regulatory strength; it exposes regulatory lag. Action was swift only after the damage had already been acknowledged by the violator itself.
For a regulator that has repeatedly spoken about early-warning systems, risk-based supervision, and tighter governance norms, this is an uncomfortable contradiction.
A Pattern of “After-the-Fact” Regulation
Taken together, DHFL and Aviom reveal a consistent pattern: NHB tends to act after frauds explode into public view, not before they metastasise.
There is no allegation here of bribery, collusion, or personal enrichment. The problem is arguably more damaging than that. It is institutional complacency.
A regulator that relies excessively on disclosures rather than verification.
A supervisor that flags risks only once balance sheets implode.
A watchdog that barks loudly after the intruder has already emptied the house.
This failure is not abstract. It directly impacts banks, mutual funds, insurance companies, and ultimately taxpayers—who are forced to absorb the cost of regulatory blind spots through bailouts, write-offs, and financial instability.
Accountability Without Consequences?
Perhaps the most disturbing aspect of NHB’s track record is the absence of visible accountability at the top.
Despite repeated sector-wide failures, probing court questions, and forensic audits exposing deep governance lapses at regulated entities, there has been no meaningful public reckoning within NHB itself. No clear explanation of what failed internally. No transparent review of inspection frameworks. No fixing of responsibility at the board or MD level.
Regulatory credibility does not erode because frauds occur—it erodes when frauds recur under the same supervisory regime without introspection or reform.
The Question India Must Ask
If NHB cannot detect systemic abuse in housing finance companies before courts, lenders, and enforcement agencies step in—then what exactly is its preventive role?
India does not need regulators that merely document disasters after they happen. It needs regulators that stop them from happening in the first place.
Until NHB confronts its repeated oversight failures honestly—and until its leadership is held accountable for regulatory blind spots—the housing finance sector will remain vulnerable, not because of rogue promoters, but because of a regulator that consistently arrives too late.
And in finance, arriving late is often indistinguishable from not arriving at all. |
