RBI moots tough norms for NBFCs

The panel, headed by former Deputy Governor Usha Thorat, in its report on Issues & Concerns in NBFC Sector, suggested that all new NBFCs should have minimum net owned fund of Rs 2 crore.  However, RBI should insist on minimum asset size of more than Rs 50 crore for registering any new NBFC.

Existing NBFCs below this limit may deregister or be asked to seek a fresh certificate of registration at the end of two years. In effect, risk weights for NBFCs not sponsored by banks may be raised to 150 per cent for capital market exposures while the same may be raised to 125 per cent for real estate exposures, it said.

Provisioning norms, similar to banks, have to be brought in phased manner for NBFCs, it said. At the same time, asset classification similar to banks to be brought in phased manner for NBFCs. 

NBFCs should have a minimum 12 per cent Tier I capital adequacy ratio within three years of registration, it suggested. In April this year, RBI increased provisioning norms for banks from 10 to 15 per cent on sub-standard assets while restructured assets too have to be provided at two per cent as against 0.25-1 per cent earlier.

For the purpose of applicability of registration and supervision, the total assets of all NBFCs in a group should be taken together to determine the cut off limit of Rs 100
crore.

The report also made it clear that all NBFCs with assets of Rs 1,000 crore and above, whether listed or not, should be required to comply with Clause 49 of Sebi Listing Agreements including mandatory disclosures.

Disclosure for NBFCs with assets over Rs 100 crore may include provision coverage ratio, liquidity ratio, asset liability profile, extent of financing of parent company products, movement of non-performing assets (NPAs), off-balance sheet exposures, structured products and securitisations/assignments.

NBFCs with assets of Rs 1000 crore and above should be inspected annually with an annual stress test carried out to ascertain their vulnerability.