Tightening norms for non-banking financial companies (NBFCs), the Reserve Bank of India on Monday raised the capital adequacy requirement and the net owned fund limit, among others, with an objective to mitigate risks in the sector.
With a view to streamlining the regulations for the sector, the RBI also revoked temporary suspension on issuance of Certificate of Registration (CoR) to companies that want to conduct business of non-banking financial institution (NBFI). As per the latest directives, the RBI has raised the limit for NBFCs to maintain the net owned fund (NOF) requirement to four times by 2017 to Rs.2 crore.
At present, the NOF requirement is at Rs.25 lakh. In a phased manner, the NBFCs would be required to raise it to Rs.1 crore by March, 2016, and to further double it to Rs.2 crore by 2017. “NBFCs failing to achieve the prescribed ceiling within the stipulated time period shall not be eligible to hold the CoR (Certificate of Registration) as NBFCs. The bank will initiate the process for cancellation of CoR against such NBFCs,” it said in a notification.
Also, NBFCs primarily engaged in lending against gold jewellery, will have to maintain a minimum Tier I capital (or equity capital) of 12 per cent with effective from April 1 as against existing requirement of 10 per cent.
For deposit and non-deposit taking NBFCs, Capital to Risk (Weighted) Assets Ratio or CRAR, which includes Tier I capital of 7.5 per cent, is 15 per cent at present.
However, as per the new norms, NBFCs have to raise the Tier I capital to 8.5 per cent by end of March 2016 and 10 per cent by March, 31, 2017. Towards provisioning of standard assets, the RBI said that NBFCs would be required to raise it to 0.3 per cent by end of March 2016; 0.35 per cent by March 2017 and to 0.4 per cent by end of March 2018.
Presently, every NBFC is required to make a provision for standard assets at 0.25 per cent of the outstanding.
In the interest of harmonisation, the asset classification norms for NBFCs-ND-SI and NBFCs-D will be brought in line with that of banks, the RBI said. “At present, an asset is classified as non-performing asset 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 instalments, as compared to 90 days for banks.”
For NBFCs-ND with an asset size of less than Rs.500 crore, the RBI said they shall not be subjected to any regulation either prudential or conduct of business regulations, example, Fair Practices Code (FPC), KYC, if they have not accessed any public funds and do not have a customer interface. Also, those having customer interface will be subjected only to conduct of business regulations including FPC, KYC, if they are not accessing public funds.
“Those accepting public funds will be subjected to limited prudential regulations but not conduct of business regulations if they have no customer interface...Where both public funds are accepted and customer interface exist, such companies will be subjected both to limited prudential regulations and conduct of business regulations,” the RBI said.
