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RBI modifies deposit acceptance norms for NBFCs

The Reserve Bank of India today announced modification in the deposit acceptance norms of non-banking financial companies and unincorporated bodies with immediate effect.

The RBI has also decided to implement the recommendations of a task force headed by Special Secretary (banking) C M Vasudev, appointed by the Central government. The panel examined issues related to the NBFCs and adequacy of the present legislative framework.

The panel further considered the matter in the context of support improvements in the procedures for dealing with the customer complaints. It also looked at involving the state governments in regulating the NBFCs and unincorporated bodies.

The recommendations of the task force have already been accepted by the central government and the RBI.

NBFCs having a net owned fund below Rs 2.5 million (with or without credit rating) cannot accept any deposits from the public.

If the NOF is more than Rs 2.5 million, but the NBFC lacks a credit rating, then in case of equipment leasing/hire-purchase finance companies, public deposits accepted should not exceed one-and-a-half times the NOF or public deposit up to Rs 100 million (whichever is less), provided the company has a capital adequacy ratio of 15 per cent or above. Loan and investment companies falling in this category cannot accept deposits.

If the NOF is over Rs 2.5 million and enjoys a minimum grade credit rating, then in case of equipment leasing/hire purchase finance companies, deposits accepted cannot be more than four times of NOF, provided the capital adequacy ratio of the company is ten per cent or more as on March 31, 1998 and shall have 12 per cent or more on March 31, 1999.

In case of loan and investment companies having an NOF of Rs 2.5 million and above, public deposits accepted should not exceed 1.5 times the NOF, provided the company has a capital adequacy ratio of 15 per cent or more.

The loan and investment companies including those having a capital risk assets ratio below 15 per cent, which are rated AAA and are having public deposits exceeding 1.5 times the NOF, may accept or renew public deposits upto the deposit level outstanding till December 18, or 1.5 times of the NOF, whichever is more. They should, however, reduce the excess public deposits to 1.5 times the NOF by December 31, 2001.

Those companies which have a credit rating of A+ or AA but do not have a capital adequacy ratio of 15 per cent may accept or renew public deposits half the NOF or equal to it. All those companies which are rated A/AA/AAA and are holding public deposits but whose CRAR is below 15 per cent should attain the minimum capital adequacy ratio of 15 per cent on or before March 31, 2000 as per their audited balance sheet.

The equipment leasing and hire purchase finance companies having minimum investment grade credit rating shall be entitled to receive public deposits up to four times their NOF subject to their having a capital adequacy ratio of not less than 10 and 12 per cent from March 31, 1998 and March 31, 1999 respectively.

The RBI intends to increase the CRAR for all NBFCs to 15 per cent over a period of time, stated the RBI.

Apart from the scheduled commercial banks, the NBFCs have been permitted to keep their liquid asset securities with Stock Holding Corporation of India Limited for compliance with the requirement of NBFC directions. This facility is expected to provide operational convenience to the NBFCs.

As part of prudential norms, the NBFCs have been advised that they should not invest, except for their own use, more than 10 per cent of their owned fund in land and building. The ceiling on investments in unquoted shares of other than their group or subsidiary companies has been fixed at 10 per cent of their owned fund for equipment leasing and hire purchase finance companies and 20 per cent of the owned fund for the loan and investment companies.

A time period of three years has been given to them to dispose of the excess of such assets including the assets acquired in satisfaction of their debt, in case the company surpasses the above ceiling.

The RBI had tightened deposit-acceptance norms for NBFCs in January 1998 providing for compulsory requirement of minimum investment-grade rating for accepting deposits and linkages of the quantum of deposits to the level of credit rating.

The RBI had also instituted a strict supervisory mechanism to monitor the compliance of the regulations and ensure that companies function on sound and healthy lines.

However, NBFCs, associations and trade bodies appealed that small and medium NBFCs engaged in equipment leasing and hire purchase finance activities should be exempted from the requirement of credit rating. They also demanded doing away with the linkage of deposit quantum with the credit rating to increase the availability of resources to large NBFCs, more particularly equipment leasing and hire purchase finance companies.

UNI

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