The Reserve Bank of India has revised the framework for non-banking finance companies (NBFCs), tightening rules related to minimum net owned funds, deposit acceptance ratio, capital norms, asset classification rules, corporate governance and more.
As per the revised norms, NBFCs in operation before April 1999 will have to raise their minimum net owned funds (NOF) to Rs 1 crore by March 2016 and further to Rs 2 crore by March 2017 from Rs 25 lakh currently or risk cancellation of their permits.
Besides, NBFCs will also be required to mark a loan as bad loan if the interest has not been paid for 90 days or 3 months. As of now, NBFCs mark a loan as bad loan only if the interest is not paid for six months while for banks it is three months. Provisions for standard assets have also been raised from 0.25 per cent of the loans outstanding to 0.40 per cent of loans. The norm will, however, come into effect in a phased manner starting in March 2016 till March 2018.
For deposit-taking NBFCs, the revised norms suggest that unrated asset-financing NBFCs that accept deposits must get an investment grade rating by March 2016 or stop accepting deposits.
Moreover, till March 2016, the unrated asset finance companies which are sub-investment grade can only renew deposits on maturity and not accept fresh deposits till they get an investment-grade rating. All asset financing NBFCs will be allowed to accept deposits up to 1.5 times their net owned funds, down from four times their net owned funds earlier.
Previously, non-deposit taking NBFCs with assets over Rs 100 crore were considered systemically important, but this cut-off has now been increased to Rs 500 crore “in light of the overall increase of growth of the NBFC sector.â€
RBI has also asked all non-deposit taking NBFCs with an asset size of Rs 500 crore to streamline the core capital adequacy ratio of 10 per cent, compared with a range of 7.5 per cent to 12 percent at present. NBFCs have been given time till March 2017 to comply with the norms.
RBI said the final recommendations draw from the Thorat committee and suggestions made by the committee on comprehensive financial services for small businesses and low-income households headed by former ICICI Bank Ltd executive Nachiket Mor. The first recommendation to bring regulatory changes in the sector was suggested by a committee headed by former deputy governor Usha Thorat in 2011.
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NBFC-Factor
Meanwhile, RBI said that an NBFC for registering as NBFC-Factor is required to ensure that its financial assets in the factoring business constitute at least 50 per cent of its total assets and its income derived from factoring business is not less than 50 per cent of its gross income. This was 75 per cent earlier.
(Edited by Joby Puthuparampil Johnson)
