A Reserve Bank of India (RBI) panel has advocated tough new norms for non-banking financial companies (NBFCs) with the aim of strengthening the regulatory and supervisory framework for such lenders.
Besides prescribing threshold limits, the Working Group headed by former RBI Deputy Governor Usha Thorat suggested that NBFCs should be subjected to the same regulations as banks with regard to provisioning norms and lending to stock brokers and merchant bankers.
"Accounting norms applicable to banks may be applied to NBFCs," it added.
The Working Group further said that all NBFCs with assets of over Rs 1,000 crore, whether listed or unlisted, should be made to comply with Clause 49 of SEBI's listing agreement, which pertains to the composition of a company's board of directors.
It also called for annual stress tests and inspection of such NBFCs to ascertain their vulnerability.
The panel also suggested that NBFCs should have a minimum 12 per cent Tier-I capital adequacy ratio -- which is the ratio of the bank's core capital to its risk -- within three years of registration.
It also recommended assigning a higher risk weight to the capital market and commercial real estate exposure of NBFCs that are not sponsored by a bank or do not have any bank as part of their group.
The RBI panel suggested the imposition of a risk weight of 150 per cent for capital market loans and 125 per cent for commercial real estate loans by such NBFCs.
It also advocated giving NBFCs benefits under the Securities and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act.
The panel, however, suggested retention of the minimum net-owned fund requirement (NOF) for all new NBFCs that wish to register with the RBI at the present Rs 2 crore till the RBI Act is amended.
"The RBI should, however, insist on a minimum asset size of over 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," it said in the report.
Moreover, any transfer of shareholding, direct or indirect, of 25 per cent and above, a change in control, merger or acquisition of any registered NBFC should have prior approval of the Reserve Bank, the panel suggested.
The Working Group also called for recognition that registration as NBFC with RBI provides comfort to lenders and investors and enables leveraging of public funds and simplification and