Borrowing norms eased for NBFCs

The Reserve Bank of India (RBI) has withdrawn the leverage ratio norm for systematically important non-deposit taking non-banking finance companies (SI-ND-NBFC), while continuing with the capital adequacy ratio requirement in its second revised draft guidelines for the sector.

The revised guidelines defined SI-ND-NBFC as one with an asset size of Rs 100 crore and more as per their last audited balance sheet.

These non-deposit taking NBFCs shall maintain capital risk weighted asset ratio of 10 per cent, which is otherwise referred to as capital adequacy requirement.

Earlier, the draft had restricted their borrowing up to 10 times their net-owned funds, which has been revoked in the revised draft. The new guidelines will be made applicable with effect from April 1, 2007.

At present, there are 148 SI-ND-NBFCs with an asset size of Rs 1,72,000 crore, of which 80 per cent are investment companies as per the RBI data.

Bank finance to a single NBFC, as per the new draft, has been capped at 10 per cent of the bank's capital funds and this limit stands raised to 15 per cent in case the NBFC is onlending to infrastructure sector.

Further the aggregate exposure of a bank to all NBFCs should not exceed 40 per cent of the bank's capital funds. The bank exposure includes both lending and investment, including off-balance sheet exposures.

This is a partial modification to the earlier draft, as the base for computing the limit has been changed from net worth to total capital. Further, the draft also states that in case the bank receives additional capital infusion during the year, the capital base for computing these exposure limits will be enhanced, provided the higher capital base is certified by an external auditor.

No bank, including foreign banks, shall hold more than 10 per cent of the paid-up capital in a deposit-taking NBFC, which however does not apply to investment in housing finance companies.

The new draft continues with the single and group exposure norms for non-deposit NBFCs "" 15 per cent of owned funds to single borrower and 25 per cent of owned funds for single group of borrowers. Similarly, an ND-NBFC can invest in shares of a single company up to 15 per cent of owned funds and 25 per cent of owned funds in single group.

NBFCs promoted by parent/group of foreign banks having presence in India, which in turn is a subsidiary of a foreign bank's parent/group or where the parent/group is having management control, would be treated as part of that foreign bank's operation in India.

Therefore, it would be brought under the ambit of consolidated supervision, wherein the foreign bank will have to furnish a consolidated balance sheet, including the operation of the NBFC. In case the NBFC is kept out of the ambit, the bank will have to certify that it does not have management control on the NBFC.