RBI makes NBFC regulations stricter to create level field with banks - Economic Times

KOLKATA: Reserve Bank of India has made regulations stricter for non-banking finance companies with systemic importance to create a level playing field between them and the banks, a move which was long overdue.

Big companies will now face higher capital norms and tighter provisions while those which do not take any public deposits get more freedom to do business.

"For NBFCs with large asset sizes, and for all deposit accepting NBFCs, regulations have been harmonised across NBFCs, and to some extent, with banks. The intent is to create a level playing field that does not unduly favour or disfavour any institution," RBI said Monday.

Companies with an asset size of Rs 500 crore and above, and all the deposit taking NBFCs will have to raise minimum tier 1 Capital to 8.5% by end of March 2016 and 10% by end of March 2017.

RBI has tightened the asset classification norms for these two sets of NBFCs to bring them at par with banks. This will be done in a phased manner up to March 31, 2018.

An asset is classified as non performing if it has remained overdue for 90 days in banks. But currently, NBFCs enjoy a lighter rule with their assets turning NPAs 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.

With the revised guidelines in place, the regulator has revoked its temporary suspension of licenses for the sector which was in force since April 1, 2014.

RBI has also revised the threshold to Rs 500 crore from Rs 100 crore for defining systemic significance for NBFCs given the overall growth of the sector over the years.

New companies will have to bring Rs 2 crore to the table to get a licence and the old ones with smaller capital will get two-and-a-half years for raise up to this level.

NBFC accepting funds from public will have to get themselves rated by March 31, 2016. Those entities that do not get an investment grade rating by March 31, 2016, will not be allowed to renew existing or accept fresh deposits thereafter. In the intervening period, i.e. till March 31, 2016, unrated companies or those with a sub-investment grade rating can only renew existing deposits on maturity, and not accept fresh deposits, till they obtain an investment grade rating.

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