NBFCs wake up to a tougher world

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Mumbai | Updated: November 11, 2014 1:45 AM

RBI brings them on a par with banks by raising capital adequacy requirement, net owned fund limit to mitigate risks

In a move towards a level playing field, the Reserve Bank of India has imposed tough norms for non-banking finance companies (NBFCs), bringing them on a par with banks. However, the regulator has softened the blow by limiting the norms to companies having asset size of Rs 500 crore and above.

“The new rules are bad news for NBFCs engaged in small business financing including transport financing. The Mor committee recommendations of differentiated provisioning based on the risk profile of players don’t seem to have been accepted,” said group director, Shriram Group, GS Sundararajan.

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RBI has given ample time to NBFCs to adhere to the new norms. For NBFCs belonging to a group, the entire group asset would be taken into consideration while determining the threshold of Rs 500 crore, the RBI said. Tier-I capital and provisioning for both standard assets and NPAs have been raised to levels currently prescribed for banks. “We are fully complaint with norms specified by RBI since we follow prudent accounting practices,” said Bajaj Finserv managing director Sanjiv Bajaj.

All NBFCs will need to have net owned funds of Rs 1 crore by March 2016 and Rs 2 crore by March 2017, the RBI has mandated. “It will be incumbent upon such NBFCs, the NOF of which currently falls below Rs 2 crore, to submit a statutory auditor’s certificate certifying compliance to the revised levels at the end of each of the two financial years as given above,” the central bank said in its guidelines on Monday.

From FY16, all NBFCs with asset size of over Rs 500 crore will be labelled systemically important and will have to keep Tier-I capital of 8.5% and raise it to 10% by March 2017.

Over the next three financial years — by March 2018 — these NBFCs will have to provide 0.40% for standard loans and declare a loan as non-performing once the interest or principal is due beyond 90-days. Currently, NBFCs were allowed to declare a loan as NPA after repayments were due beyond 180 days and overdue for 12 months or more in case of lease rental and hire purchase instalments.

“We already treat an account as NPA after 90 days of interest overdue, even though the regulatory requirement is 180 days. Therefore, the revision in guidelines would not affect us much,” said I Unnikrishnan, Manappuram Finance executive director.

On an immediate basis, for FY16, systemically important NBFCs must keep a standard asset provisioning of 0.30%. NBFCs will also have to adhere to the norms of early recognition of distressed assets prescribed for banks.

Further, only rated asset finance companies will be allowed to accept public deposits, RBI said. All unrated asset finance companies will have to procure a rating by March 2016 without which these companies cannot renew deposits.

As a step towards meeting the broad objective of harmonising regulations to the extent possible within the NBFC sector, the credit concentration norms for asset finance companies will be in line with other NBFCs with an immediate effect. All existing excess exposures would be allowed to run off till maturity, RBI said.

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