RBI moots tighter norms for NBFCs

Capital adequacy to be retained at 15%

The Reserve Bank of India (RBI) has proposed tighter norms for non-banking financial companies ( NBFCs) on capital requirements, risk weightage, provisioning norms and asset classification.

RBI has proposed that stake transfer of NBFCs above 25 per cent will need RBI’s prior clearance. In addition, NBFCs with an asset size of Rs 1,000 crore or more will require RBI’s approval for appointment of a chief executive officer, the central bank said on its official website while placing Draft Guidelines based on the Usha Thorat Committee Report on issues and concerns in NBFC sector.

The revised draft guidelines envisage that for all captive NBFCs, those primarily engaged in financing a parent company’s products, the tier-I capital requirement is proposed to be raised to 12 per cent from the present 7.5 per cent. NBFCs involved in financing to sensitive sectors such as stock markets, real estate and commodities, will also have to maintain 12 per cent tier-I capital. For all other NBFCs, the tier-I capital requirement is proposed to be raised to 10 per cent from the current 7.5 per cent. The overall capital adequacy requirement is proposed to be retained at 15 per cent.  It is proposed that risk weight for NBFCs not sponsored by banks should be 125 per cent for commercial real estate exposure and 150 per cent for capital market exposure.

RBI also said asset classification norms for NBFCs should be in line with those of banks, though in a phased manner. At present, while banks classify an asset as non-performing if repayment is due for 90 days, it is 180 days for NBFCs. From April 1, 2014, it is proposed, NBFCs will classify an account as an NPA if payment is overdue for 120 days and follow the 90-day norm a year later. “Further, it is proposed to raise the provisioning for standard assets from 0.25 per cent to 0.40 per cent of the outstanding amount from March 31, 2014, for all NBFCs,” the draft guidelines said.

The banking regulator has said that all deposit-taking NBFCs should be rated by a credit rating agency and unrated entities will not be allowed to accept public deposits.  Such unrated NBFCs are to be given a year to get themselves rated, if they wish to continue to accept deposits.

The NBFC recognition threshold is also proposed to be raised. As per the revised draft, a company not accepting deposits will qualify for registration as an NBFC if and when its financial assets aggregate Rs 25 crore and constitute more than 75 per cent of its total assets, and financial income constitutes 75 per cent or above of gross income. Existing NBFCs will be given two years, with some milestones, for achieving the minimum threshold on financial assets.

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