In a bid to prevent any financial irregularities and make the non-banking financial companies (NBFCs) safer, the Reserve Bank of India (RBI) on Monday asked non-deposit taking NBFCs to raise the minimum capital to risk-weighted assets ratio (CRAR) from 10% now to 12% with immediate effect and further to 15% with effect from April 1, 2009.
Unveiling the draft guidelines for the systemically important entities, RBI said it has reviewed the disclosure norms for such NBFCs and that these NBFCs should make additional disclosures in their balance sheets from the year ending March 31, 2009. These will relate to CRAR, derivatives deals entered during the year, risk exposure to derivatives, including both qualitative disclosure (risk management policies and systems in place) and quantitative disclosure (notional principal amount, credit exposure, marked to market positions); exposure to realty sector, both direct and indirect and the maturity pattern of assets and liabilities.
In view of the possibilities of leveraged investments, and asset-liability mismatch resulting from use of short-term sources to fund NBFC activities, the Reserve Bank of India has further decided to introduce a system of half-yearly reporting for these NBFCs.
The half-yearly returns would comprise three parts. They are statement of structural liquidity in format ALM, statement of short term dynamic liquidity in format ALM, and statement of interest rate sensitivity in format ALM.
To enable the above class of NBFCs to fine-tune their existing MIS, such reporting would commence with effect from the period beginning September 30, 2008 and the reporting frequency would continue to be half-yearly for the year ended March 31, 2009. However, the frequency of supervisory reporting of the structural liquidity position will be monthly, with effect from month ending April 30, 2009, the central bank said.
?The Reserve Bank of India wants to control the gearing of such non-deposit taking NBFCs with asset size of Rs 100 crore and above. Basically, they want to ensure that the borrowing capacity gets reduced, as there are systematic risks that sometimes occur. Hence, they have decided to increase the capital adequacy minimum capital to risk weighted assets ratio. With the frequency of reporting getting increased, there will not be any kind of manipulation in the books, which would ensure greater transparency in the working of such NBFCs,? said Mahesh Thakkar, director-general of Finance Industry Development Council.
?I think the central bank feels there is an overexposure to sectors like real estate. There is overtrading/overlending in certain sectors like derivatives and stock markets, which the central bank wants to keep an eye on. Overall, the draft guidelines are as per what we expected. This would help in better transparency for the working of NBFCs,? he said.