NBFC equity exposure norm being reviewed by RBI

The Reserve Bank of India (RBI) is reviewing the norm for equity market exposure for non-banking finance companies (NBFCs).

At present there are no limits to NBFCs' exposure to the equity markets. This includes positions maintained in the market on their own behalf as well as lending to investors for participating in the equity issues or to trade in the market.

Sources said the review may not result in any significant changes in the existing present norms.

The review comes in the wake of complaints received from market participants on aggressive lending by some NBFCs to participants in initial public offerings (IPO).

The bone of contention is that owing to lack of limits on equity funding, some NBFCs are deeply involved in this business.

Their aggressive artificially raises the subscription levels of a particular issue and thus distorts the sentiment picture where the issue is concerned.

Banks, on the other hand, can offer equity loans only to the extent of 5 per cent of their net demand and time liabilities.

For IPO funding, it has been clarified by the RBI that a bank can lend up to Rs 10 lakh without collateral and up to Rs 20 lakh if the lending is backed by collateral.