A task force on non-banking finance institutions, set up by industry chamber Ficci, on Wednesday said the regulations for NBFCs in the country are not fit for the growth of the sector and need to be on par with those for banks.
The Reserve Bank of India last week asked non-deposit taking NBFCs with assets worth more than Rs 100 crore to raise the capital to risk asset ratio (CRAR) to 12% by March 31, 2009, and 15% by March 31, 2010 to cushion against risky loans.
?In the system, everything has to play its role and should be helped to play its role. This (NBFC sector) is a weak link and has to be treated differently. It requires development-oriented regulation, but what the regulator (RBI) is doing is to strengthen the regulation without focusing on its development,? MS Verma, chairman, Ficci Task Force on NBFC, told reporters after releasing a report on the sector here.
?While the sector could increase the CRAR to 12%, anything more than that would kill the industry,? Sundaram finance deputy managing director Srinivas Acharya said.
The task force also said the NBFCs are not allowed to issue hybrid instruments to raise capital or to go to the debt recovery tribunal to recover bad loans, which limit the sector?s performance. NBFCs are allowed to raise core capital through issue of equity or Tier-II bonds, while banks can raise capital also through preference shares.
?These capital raising options have high cost attached to them and put immense pressure on NBFCs to take risks and deliver supernormal returns to the shareholders?Banks have been given capital enhancing options which are comparatively less costlier and lets the banks focus on the core business activities rather than taking excessive risks,? the task force said in its report.