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BS REPORTER Mumbai, 10 November In a bid to bring non- banking financial company (NBFC) norms in line with those of banks, the Reserve Bank of India ( RBI) on Monday unleashed tighter rules for NBFCs. According to the new guidelines, NBFCs will require higher minimum capital, have less time to declare bad loans, and a board- approved fit and proper criteria for director appointments. The new norms, which will be implemented in a phased manner, are made applicable for NBFCs that manage funds worth ₹ 500 crore and for those that accept public deposits. The central bank will also start granting fresh NBFC licences. "A lighter regulatory framework has been placed on NBFCs other than for those with large asset sizes and deposit accepting. For NBFCs with large asset sizes, and for all deposit- accepting NBFCs, regulations have been harmonised across NBFCs, and to some extent, with banks," said RBI, adding that the intent was to create a level- playing field that does not unduly favour any institution. To harmonise the deposit acceptance regulations across all deposit- taking NBFCs ( NBFCsD) and move to a regime of only credit- rated NBFCs- D accessing public deposits, existing unrated asset finance companies ( AFCs) have been asked to get themselves rated by March 31, 2016. " Those AFCs that do not get an investment grade rating by March 31, 2016, will not be allowed to renew existing or accept fresh deposits thereafter," RBI noted. According to current regulations, an asset is classified as non- performing when it remains overdue for six months or more for loans and overdue for 12 months or more in case of lease rental and hire- purchase instalments, compared with 90 days for banks. The new norms proposed to reduce the period in a phased manner so that the norms are at par with banks by March 31, 2018. In the past, NBFCs had opposed this on two grounds. One, their borrowers generally come from the unorganised and informal sections of the economy. There are often some difficulties in repayment of due to issues such as fuel cost increase, insurance and so forth but this doesn't essentially translate into default. Also, NBFCs don't get any tax benefit on their provisioning, while banks do. Vibha Batra, senior vice- president and cohead (financial sector rating) at ICRA, said the revised norms are balanced but there would be short- term pain. " The economy is picking up and the regulator has a long transition period to meet stringent asset quality norms," she said. Similarly, provisioning for standard assets, which is 0.25 per cent for NBFCs now, is proposed to be increased to 0.40 per cent by March 2018, in line with banks. On capital, however, larger and deposit- taking NBFCs will have to increase their minimum tier- 1 capital adequacy ratio to 10 per cent by March 2017, from 7.5 per cent now. The overall capital adequacy ratio ( asset size of ₹ 100 crore), has been retained at 15 per cent. The regulator has also tightened the corporate governance and disclosure norms for NBFCs. Besides that, RBI said NBFCs that are part of a corporate group or are floated by a common set of promoters, will not be viewed on astandalone basis. Raises capital requirement, proposes stricter NPA guidelines; norms to be introduced in a phased manner by April 2018; aim to bring norms on a par with those for banks QUICK COMPARISON OF NBFC NORMS NEW NORM EXISTING NORM Mandated minimum ~ 2 cr by the end of March 2017; ~1 crore by the end of March 2016 Minimum netowned fund for firms in existence before April 21, 1999, was retained at ~ 0.25 cr NET OWNED FUND Will have to get themselves rated by March 31, 2016 Unrated company complying with rules of netowned fund, prudential norms and capital adequacy allowed to accept or renewpublic deposits UNRATED ASSET FINANCE COMPANIES Non- deposit taking NBFCs with assets less than ~500 crore and systemically important NBFCs with assets of over ~ 500 crore Non- deposit taking NBFCs with assets less than ~ 100 crore and non– deposit taking systemically important NBFCs with assets of ~ 100 crore and above NBFC CATEGORIES Non- deposit taking NBFCs with asset size of ~ 500 crore and above and all deposit- taking NBFCs to maintain minimum Tier- I capital of 10% by the end of March 2017; 8.5% by the end of March 2016 All deposit- taking NBFCs and non- deposit taking NBFCs with asset size of ~ 100 crore to have minimum Tier- I capital of 7.5% TIER- 1 CAPITAL Those for non– deposit taking systemically important NBFCs and deposit- taking NBFCs made in line with those for banks ( 90 days) Asset classified as NPAwhen it remains overdue for six months or more for loans, overdue for 12 months or more in case of lease rental and hire purchase instalments ASSET CLASSIFICATION NORMS Provision for standard assets for non– deposit taking systemically important NBFCs and deposit- taking NBFCs increased to 0.40% |0.30% by the end of March 2016 |0.35% by the end of March 2017 |0.40% by the end of March 2018 Provision for standard assets at 0.25% of the outstanding Source: Reserve Bank of India PROVISION FOR STANDARD ASSETS
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