A committee set up by the Reserve Bank of India (RBI) on Monday recommended that the provisioning and asset classification norms of non-banking finance companies (NBFCs) be brought in line with these for commercial banks. Like banks, the liquidity ratio may be introduced for all registered NBFCs, the panel also suggested.
Headed by former RBI Deputy Governor Usha Thorat, it also prescribed that Tier-I capital of systemically important NBFCs should be at 12 per cent within three years of registration.
Currently, the total capital adequacy ratio, which includes Tier-I and Tier-II capital, for NBFCs is stipulated at 15 per cent.
These measures, if implemented, would require higher capital for NBFCs and might impact their bottom line, experts said.
| HIGHLIGHTS |
| * Risk weights for NBFC not sponsored by banks may be raised to 150 per cent for capital market exposure and 125 per cent for real estate exposure |
| * Provisioning norms similar to banks have to be brought in a phased manner |
| * Asset classification norms similar to banks should be brought in a phased manner |
“The provision requirement would be a bit stringent. It will require any assets overdue for more than 90 days to be treated as non-performing. Currently, only accounts overdue for more than 180 days are treated as NPAs, so the new norms will mean higher provisioning. Secondly, the Tier-I capital requirement at 12 per cent will impact the smaller players,” said R Sridhar, Managing Director Shriram Transport Finance Company.
However, he added higher capital adequacy requirement would not impact major NBFCs, as they normally keep Tier-I capital around 15 per cent. Shriram Transport Finance, the largest commercial vehicle financer in the country, has Tier-I capital at 18 per cent.
Life is going to be tougher for NBFCs catering to the securities market and real estate sector as the committee recommended a risk weight of 150 per cent and 125 per cent, respectively.
“The Margin funding business will get affected, as the higher risk weight will increase the impact on the cost of funds and margins. However, some of the majors are very proactive and will help the NBFCs in the long run,” IIFL Chairman Nirmal Jain told a television channel.
“Due to the higher provisioning norms, a substantial amount of money would be unproductive and it will impact the cash flow reserves, thereby impacting the margins,” said Hemant Kenoria, chairman and managing director, Srei Infrastructure and Finance Ltd.
The provisioning norms and the risk weight for housing finance companies would remain unchanged as of now. The regulatory norms for these companies are already more aligned with the commercial banks.
The measures are intended to reduce the regulatory arbitrage between banks and NBFCs. “Regulatory supervision for the housing finance companies (HFCs) are much more aligned with the banks, as they both cater to the same asset class when it comes to home loans. However, we have kept a higher capital adequacy requirement for HFCs at 12 per cent, since unlike banks, they do not have any diversification,” said National Housing Bank Chairman and Managing Director R V Verma.
The panel also suggested NBFCs not accessing public funds may be exempted from registration, provided their assets were below Rs 1,000 crore.
While the minimum capital requirement has been suggested to be retained at the present level of Rs 2 crore till the Reserve Bank of India Act is amended, the panel suggested RBI insist on a minimum asset size of Rs 50 crore for registering any new NBFC. “Existing NBFCs below this limit may deregister or be asked to seek a fresh certificate of registration at the end of two years,” it said.
