NBFCs hope for time from RBI to adhere to tougher regulations

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Mumbai | Published: November 1, 2014 2:37 PM

New norms, to come into effect soon, based on recommendations of Thorat panel

Non-banking finance companies are hoping that the Reserve Bank of India will give them adequate time to adjust to tougher norms once the regulator prescribes guidelines to bring them on a par with banks.The RBI, in its bi-monthly policy statement, had said it would soon issue norms for NBFCs pertaining to capital, asset classification, provisioning, deposit acceptance, corporate governance and consumer protection.

The guidelines will be based on the recommendations of the committee under RBI former deputy governor Usha Thorat which gave its report in August 2011. “I am sure the regulator will give some time to NBFCs for conforming,” said Ramesh Bawa, managing director and CEO of IL&FS Financial Services.

The committee has recommended that NBFCs should declare a loan as non-performing when the non-payment of interest or principal stretches beyond 90 days, instead of the present 180-day cycle. The panel has also suggested higher capital adequacy ratios and risk weightages.

The change in NPA classification is expected to increase most NBFCs provisions and impact their profits. But, NBFC officials said some of them have already readied for stringent norms as the recommendations of the Thorat committee had come three years ago and were expected to be eventually notified as norms. “We have been readying ourselves for the norms as the recommendations had come long back,” said Bawa of IL&FS Financial Services. “Many NBFCs have been preparing themselves,” said Keki Mistry, vice-chairman and CEO at HDFC.

In fact, the RBI has already notified several recommendations as norms. For instance, in August, the central bank had limited the amount NBFCs can lend against the collateral of pledged shares to only 50% of the value of the shares. NBFCs were also mandated to accept Group-1 shares (or frequently traded shares) as collateral while giving loans of R5 lakh and above. Some NBFC officials are hoping that the central bank would notify norms that are heterogenous keeping with the diversity of the NBFC sector. “NPA classification for different classes of assets needs to be different,” said the head of an NBFC associated with a large conglomerate on the condition of anonymity.

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