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The Reserve Bank of India has proposed tighter norms for non-banking financial companies (NBFCs) on capital requirements, risk weights, provisioning norms and asset classification.
The central bank has proposed that stake transfer of NBFCs of more than 25 per cent will need RBI’s prior approval. In addition, NBFCs with an asset size of Rs 1,000 crore or more will require RBI’s approval for appointment of a chief executive officer.
The central bank has released the revised draft guidelines with regard to NBFC regulations, based on the recommendations of the Usha Thorat committee, set up to review the existing regulatory and supervisory framework of such entities.
For all captive NBFCs, those primarily engaged in financing a parent company’s products, the tier-I capital requirement is proposed to be raised to 12 per cent from the present 7.5 per cent. NBFCs involved in financing to sensitive sectors such as stock markets, real estate and commodities, will also have to maintain 12 per cent tier-I capital. For all other NBFCs, the tier-I capital requirement is proposed to be raised to 10 per cent from 7.5 per cent. The overall capital adequacy requirement is proposed to be retained at 15 per cent.
It is proposed that risk weight for NBFCs not sponsored by banks should be 125 per cent for commercial real estate exposure and 150 per cent for capital market exposure.
RBI also says asset classification norms for NBFCs should be in line with those of banks, though in a phased manner. At present, while banks classify an asset as non-performing if repayment is due for 90 days, it is 180 days for NBFCs. From April 1, 2014, it is proposed, NBFCs will classify an account as an NPA if payment is overdue for 120 days and follow the 90-day norm a year later.
“Further, it is proposed to raise the provisioning for standard assets from 0.25 per cent to 0.40 per cent of the outstanding amount from March 31, 2014, for all NBFCs,” said RBI.
The banking regulator has said all deposit-taking NBFCs should be rated by a credit rating agency and unrated entities will not be allowed to accept public deposits.
Such unrated NBFCs are to be given a year to get themselves rated, if they wish to continue to accept deposits.
The NBFC recognistion threshold is proposed to be raised.. The revised draft says a company not accepting deposits will qualify for registration as an NBFC if and when its financial assets aggregate Rs 25 crore and constitute 75 per cent and above of its total assets, and the financial income constitutes 75 per cent or above of its gross income. Existing NBFCs will be given two years, with some milestones, for achieving the minimum threshold on financial assets.
The central bank also said if a group had floated multiple NBFCs, those would not be viewed on a standalone basis. Instead, their total assets are to be aggregated to determine if such consolidation leads to the cutoff limit prescribed for a systemically important NBFC, of Rs 100 crore of assets.
Regarding liquidity management, RBI said entities should maintain high quality liquid assets in cash and there should not be any liquidity gap in the 1-30 days bucket.