Mint Road likely to ease investment norms for residuary NBCs

The Reserve Bank of India (RBI) is likely to liberalise the discretionary investments limit for residuary non-banking companies (RNBCs) on a case-to-case basis.

This will bring reprieve to major RNBCs such as Peerless and Sahara, which have made a strong pitch to the RBI to restore the limit, industry sources said.

This will be a change from its earlier RBI stance wherein the regulator has asked RNBCs to put in 100 per cent of their liabilities in directed categories including gilts and approved securities.

Prior to the notification, RNBCs had the discretion of putting 20 per cent of their liabilities in any avenues which they felt safe after the approval of the board.

The limit will be relaxed as in many cases investments have been made where the maturity is much beyond 2006 "" the year by which these companies should comply with the new limits, the sources said.

Therefore, the RBI is likely to give select RNBCs the permission to continue with their investments till maturity. In these cases, the time limit for complying with the new norms will be extended beyond 2006, if need be, sources added.

The RBI in a recent guideline had decided to limit discretionary investment for RNBCs from 20 per cent to 10 per cent from April 1, 2005.

However, from April 2006 onwards, as per the guidelines, RNBCs would have to invest entire liabilities from the depositors in instruments specified by the RBI.

The directed category of RBI includes a minimum of 10 per cent of the aggregate amount of liabilities to depositors in fixed deposits / certificates of deposit of scheduled commercial banks; or in certificates of deposit of specified financial institution with a rating not less than AA+.

Similarly, not less than 70 per cent in securities of any state or central government. The other categories include debt-oriented mutual fund which is governed by the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996.

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Lowering the bar

• RBI to decide on a case-to-case basis
• Peerless and Sahara will be prime beneficiaries
• Earlier RBI had asked RNBCs to put in 100% of their liabilities in directed categories