The Reserve Bank of India (RBI) on Monday proposed new regulations for non-banking finance companies (NBFCs) which include seeking prior approval from the central bank for mergers and acquisition where 25% or above shares of an NBFC change hands.
The report of the RBI Working Group on the issues in the NBFC Sector proposed that “any transfer of shareholding, direct or indirect, of 25 percent and above, change in control, merger or acquisition of any registered NBFC should have prior approval of the Reserve Bank.”
The group was chaired by Usha Thorat, former deputy governor of the RBI and now director for Centre for Advanced Financial Research and Learning (CAFRAL).
An NBFC is a non-banking institution involved in the business of receiving deposits or lending to various classes of consumers. All NBFCs that raise funds from public are supposed to be registered with the central bank.
Some of the leading NBFCs in the country are Reliance Capital, Bajaj Finance and Shriram Transport Finance.
The proposed guidelines also said that the RBI should register only those new NBFCs that have a minimum asset size of more than Rs 50 crore, while those who were not raising funds from the public could be exempted from registration provided their assets are below Rs1,000 crore.
The group also said that NBFCs could be asked to maintain certain liquidity ratios such that cash, bank balances and holdings of government securities fully cover the gaps, if any, between cumulative outflows and cumulative inflows for the first 30 day.
“Asset classification and provisioning norms similar to banks to be brought in phased manner for NBFCs. Suitable income tax deduction akin to banks may be allowed for provisions made under the regulations. Accounting norms applicable to banks may be applied to NBFCs,” said a note from the working group.
The group also proposed to improve a host of disclosure and risk management norms for NBFCs.