On Wednesday, the Reserve Bank of India said that all systemically important non-deposit taking non-banking financial companies (NBFCs), with an asset size of Rs 100 crore and above, may augment their capital by the issue of perpetual debt instruments (PDI) up to 15% of Tier I capital.
The central bank has taken this step in a bid to help these NBFCs to garner funds for increasing business and meeting regulatory requirements.
?Such PDI shall be eligible for inclusion as Tier I capital to the extent of 15% of total Tier I capital as on March 31 of the previous accounting year,? the RBI said in a statement.
The minimum investment in each such issue or tranche by single investor shall not be less than Rs 5 lakh, the RBI said.
?The amount of PDI in excess of amount admissible as Tier I shall qualify as Tier II capital within the eligible limits,? the central bank said.
The interest payable to the investors may be either at a fixed rate or at a floating rate referenced to a market determined rupee interest benchmark rate.
NBFCs shall issue PDI as plain vanilla instruments only. However NBFCs may issue PDI with a ?call option? subject to strict compliance given that the instrument has run for a minimum period of ten years from the date of issue and call option shall be exercised only with the prior approval of RBI.
?While considering the proposals received from NBFCs for exercising the call option, the RBI would, among other things, take into consideration the NBFC?s CRAR position both at the time of exercise of the call option and after the exercise of the call option,? the statement said.
NBFCs issuing such instruments shall submit a report to the regional office in whose jurisdiction the NBFC is registered giving details of the debt raised, including the terms of issue of PDI with a copy of the offer document soon after the issue is completed.
The RBI said that NBFCs shall not grant advances against the security of the PDI issued by them. NBFCs shall make suitable disclosures in their annual report about the amount of funds raised through PDI during the year and outstanding at the close of the financial year, percentage of the amount of PDI of the amount of its Tier I capital and mention the financial year in which interest on PDI has not been paid.
While framing policy as regards PDI, the board of directors of the NBFCs shall ensure that sufficient disclosures are made to the investor which clarify the type of the instrument, the risks associated and its uninsured nature so as to enable the investor to make informed investment decision.
Prudential norms on derivatives revised
The Reserve Bank of India has changed its earlier rule -any receivable representing positive mark-to-market value of a derivative contract, if overdue for a period of 90 days or more, is required to be treated as non-performing asset and also makes all other funded facilities granted to the client as non-performing asset, following the principle of borrower-wise classification.
On a review of the matter, RBI has now been decided to confine the applicability of the principle of borrower-wise asset classification to only the overdues arising from forward contracts and plain vanilla swaps and options. Accordingly, any amount, representing positive mark-to-market value of the foreign exchange derivative contracts (other than forward contract and plain vanilla swaps and options) that were entered into during the period April 2007 to June 2008, which has already crystallised or might crystallise in future and is / becomes receivable from the client, should be parked in a separate account maintained in the name of the client / counterparty.
This amount, even if overdue for a period of 90 days or more, will not make other funded facilities provided to the client, NPA on account of the principle of borrower-wise asset classification, though such receivable overdue for 90 days or more shall itself be classified as NPA, as per the extant IRAC norms. The classification of all other assets of such clients will, however, continue to be governed by the extant IRAC norms.
