Non-banking finance companies (NBFCs) that do not accept deposits could get some more time to meet higher capital adequacy ratio requirements with the Reserve Bank of India (RBI) considering a proposal to relax the provisions.
The roadmap prepared by the RBI required NBFCs who do not take deposits to achieve a capital-to-risk-assets (CRAR) ratio of 12 per cent by April 2009, as against 10 per cent at present. In fact, the CRAR was proposed to be enhanced further to 15 per cent from April 2010.
Last week, the finance companies met RBI officials and sought an additional year to move to the higher CRAR requirements on the grounds that they are unable to raise funds to meet the revised capital adequacy ratio.
“In this environment, there are many NBFCs who fear that they would fall short of the prescribed 12 per cent level during the current financial year as capital-raising has become tough after the global credit crisis intensified,” said the head of a non-deposit taking company.
Besides, the company representatives told the regulator that, with the financial crisis deepening, the business environment could get tougher next year and make fund-raising even more difficult.
In June last year, RBI had announced the roadmap for higher CRAR for non-deposit taking NBFCs and the 12 per cent level was mandated with immediate effect. In August, as fund-raising became tougher, RBI deferred the plan.
NBFC executives also said that they have demanded a separate window from RBI to enable them to undertake commercial vehicle finance. At present, a special refinance window has been opened through which systemically important non-deposit taking finance companies can raise funds against commercial paper and non-convertible debentures to correct their asset-liability mismatch.
There have been few players who have accessed the window for short-term funds as the interest rate is 12.5 per cent and the money cannot be used for expanding their business.
RBI has already taken a series of measures to help the non-deposit taking NBFCs to tide over the economic downturn. In October, these NBFCs were allowed to increase their capital funds by issuing perpetual debt instruments (PDIs), which would be eligible for inclusion in Tier-I capital to the extent of 15 per cent of total Tier-I capital.
Besides, they were temporarily permitted to raise short-term foreign currency borrowings, subject to meeting certain conditions. Further, RBI had reduced the standard asset provisioning requirements for these companies from 2 per cent to 0.4 per cent.
