The Reserve Bank of India (RBI) has deferred the implementation of CRAR (capital-to-risk-assets ratio) requirements for systemically important non-deposit taking non-banking financial companies (NBFCs-ND-SI) by a year.
“Taking into account the difficulty in raising equity capital in the current economic environment, it has been decided to defer the implementation of CRAR of 12 per cent to March 31, 2010 and of 15 per cent to March 31, 2011,” RBI said in its annual policy document.
The decision comes after NBFC chiefs met the regulator last month regarding the possible extension of the 12 per cent CRAR norm by a year. They argued that, with the deepening financial crisis, business environment in the next financial year could be tougher. So, in that case, it would be difficult to meet the requisite guidelines.
In June last year, RBI had hiked the CRAR requirements of non-deposit taking NBFCs with a minimum asset size of Rs 100 crore from 10 per cent to 12 per cent with immediate effect. The circular also stated that that these companies would be required to maintain a capital adequacy of 15 per cent from April 1, 2009.
However, with the global financial crisis deepening in September 2008, RBI – in its mid-term review of October 2008 – decided to defer the CRAR norms.
Consequently, NBFCs were required to maintain 12 per cent CRAR by March 31, 2009 and increase that to 15 per cent by March 31, 2010.
Similarly, RBI today also directed NBFCs to put in place “Fair Practices Code” with the approval of their boards, which would cover recovery of loans, particularly with regards to the repossession of vehicles in the event of non-payment of interest and/or principal amount of loans given by NBFCs.
“NBFCs must have a built-in re-possession clause in the contract/loan agreement with the borrower which must be legally enforceable. To ensure transparency, the terms and conditions of the contract/loan agreement should contain detailed provisions in this regard,” the report said.
The central bank has also extended the time period required by securitisation companies (SCs)/ reconstruction companies (RCs) to realise financial assets by two years.
“Requests for extending the time frame in this regard are being examined and, as an interim measure, it has been decided to give an extension of two more years for realisation of the assets in respect of security receipts (SRs) issued by SCs/RCs which have completed five years,” the report said.
