RBI raises capital requirements for NBFCs eight-fold
11 Nov 2014
The Reserve Bank of India (RBI) on Monday announced revised guidelines for non-banking financial companies (NBFCs), prescribing a higher capital base for getting registered with the central bank.
As per the new norms, an NBFC raising public deposits should have minimum Net-Owned Fund (NOF) of Rs2 crore by 2017 to have the Certificate of Registration (CoR) intact. This is an eight-fold increase from the Rs25 lakh mandated now.
By March 2016, the NBFC would have to raise the NOF to Rs1 crore.
Although RBI had raised the minimum NOF requirement for new companies applying for grant of CoR to commence business of an NBFC to Rs2 crore as far back as April 1999, the minimum NOF for companies that were already in existence before 21 April 1999 was retained at Rs25 lakh.
Given the need for strengthening the financial sector and technology adoption, and in view of the increasing complexities of services offered by NBFCs, it will be mandatory for all NBFCs to attain a minimum NOF of Rs2 crore by the end of March 2017, RBI stated.
The tighter norms are based on the recommendations of the Working Group on Issues and Concerns in the NBFC sector chaired by Usha Thorat and the Committee on Comprehensive Financial Services for Small Businesses and Low Income Households chaired by Nachiket Mor.
''A lighter regulatory framework has been placed on NBFCs other than for those with large asset sizes and deposit accepting. For NBFCs with large asset sizes, and for all deposit accepting NBFCs, regulations have been harmonised across NBFCs, and to some extent, with banks. The intent is to create a level playing field that does not unduly favour or disfavour any institution,'' RBI stated.
It further stated that in limited areas where harmonisation has resulted in strengthening the regulations, generally adequate time has been given to manage the transition. The regulator will then focus on the most important and systemic risks.
NBFCs that are part of a corporate group or are floated by a common set of promoters will not be viewed on a standalone basis. The total assets of NBFCs in a group, including deposit taking NBFCs, if any, will be aggregated to determine if such consolidation falls within the asset sizes of the two categories. Regulations as applicable to the two categories will be applicable to each of the NBFC-ND within the group.
At present, all NBFCs-D and NBFCs-ND with asset size of Rs100 crore and above are required to have minimum CRAR of 15 per cent. Consequently, Tier 1 capital cannot be less than 7.5 per cent. For Infrastructure Finance Companies (IFCs), however, Tier 1 capital cannot be less than 10 per cent. Similarly, NBFCs primarily engaged in lending against gold jewellery have to maintain a minimum Tier 1 capital of 12 per cent with effect from 1 April 2014.
Since the business activities of NBFCs, being generally 'niche' in nature, concentration risk associated with such businesses, and on account of the re-definition of systemic importance, all NBFCs-ND, which have an asset size of Rs500 crore and above, and all NBFCs-D, should maintain minimum Tier 1 Capital of 10 per cent. The compliance to the revised Tier 1 capital will be in two phases - 8.5 per cent by end of March 2016 and 10 per cent by end of March 2017.
Also, RBI said, against the current asset classification under which an asset is classified as non-performing when it has remained overdue for a period of six months or more for loans; and overdue for twelve months or more in case of lease rental and hire purchase installments, as compared to 90 days for banks, it has been decided to align classification norms for NBFCs-ND-SI and NBFCs-D with that of banks, in a phased manner.
