RBI for tighter NBFC norms | mumbai | Hindustan Times
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RBI for tighter NBFC norms

The Reserve Bank of India on Monday suggested stricter norms for non-banking financial companies (NBFCs), which includes increasing the capital and provisioning requirements - a move that will put pressure on their profit margins and increase the cost of lending to the borrowers.

mumbai Updated: Aug 30, 2011 01:01 IST
HT Correspondent

The Reserve Bank of India on Monday suggested stricter norms for non-banking financial companies (NBFCs), which includes increasing the capital and provisioning requirements - a move that will put pressure on their profit margins and increase the cost of lending to the borrowers.

"The risk weights for NBFCs that are not sponsored by banks or that do not have any bank as part of the group may be raised to 150% for capital market exposures and 125% for Commercial Real Estate (CRE) exposures," suggested the working group on the issues and concerns of NBFCs headed by former RBI deputy governor Usha Thorat.

While retaining the minimum net owned fund requirement at Rs 2 crore, RBI suggested a minimum asset size of more than Rs 50 crore for all new NBFCs. "Existing NBFCs below this limit may de-register or be asked to seek a fresh certificate of registration at the end of two years," said a note from RBI.

Tier I capital for Capital to Risk Weighted Assets Ratio (CRAR) purposes shall be at 12% in three years, it said.

Another key recommendation is making asset classification and provisioning norms of NBFCs similar to banks in a phased manner. The RBI note also suggested income tax deductions akin to banks.http://www.hindustantimes.com/images/HTPopups/300811/30_08_11_buz4.jpg

Major NBFC players had mixed reaction to the latest recommendations. "Since the capital adequacy levels increased the credit cost - the cost of lending to the borrowers - will go up," said N. Sivaraman, president and whole time director, L&T Finance. As per him, the asset classification norms similar to banks - terming any loan overdue of 90 days as substandard with 15% provisioning - does not seem to be fit for the NBFC operations.

"Defenitely there are some tightening. We believe more developmental notices will come in the future, especially one that will allow fund raising through ECBs (external commercial borrowings) and setting up a refinancing body," said Ramesh Iyer, MD, Mahindra Financial Service.