The Reserve Bank of India is suggesting an overhaul of regulations governing the country’s large and wide-ranging non-bank lending segment. The largest 25-30 non-banking finance companies will be subjected to bank-like regulation and capital requirements.
The ‘top layer’ will is currently empty is recommended as a category which will include any non-bank lenders seen to pose a risk. This would be akin to the ‘prompt corrective action’ category used for banks.
“Ideally, this top layer of the pyramid will remain empty unless supervisors take a view on specific NBFCs. In other words, if certain NBFCs lying in the upper layer are seen to pose extreme risks as per supervisory judgement, they can be put to significantly higher and bespoke regulatory/ supervisory requirements,” the discussion paper said.
‘Mid Layer’ To See Tighter Governance
NBFCs-ML will comprise of those that currently fall in the ‘systemically important’ category along with deposit-taking non-bank lenders. Housing Finance Companies, Infrastructure Finance Companies, Infrastructure Debt Funds, Core Investment Companies and Standalone Primary Dealers will also fall into this category.
- No changes proposed in the capital-to-risk-assets ratio (CRAR) of 15% with minimum Tier-I ratio of 10%.
- Lending and investment can be merged into a single exposure limit of 25% for single borrower and 40% for group of borrowers anchored to the NBFC’s Tier 1 capital.
- This category will also be subject to tighter corporate governance norms.
Certain regulatory restrictions on lending will be introduced for mid layer and upper layer NBFCs. For instance, these NBFCs cannot provide loans to companies for buy-back of shares/securities. IPO financing by NBFCs will be subject to a ceiling of Rs 1 crore per individual for any NBFC. Further, a sub-limit within the commercial real estate exposure ceiling should be fixed internally for financing land acquisition.
‘Base Layer’ To See Higher Net-Owned-Funds Requirement
This layer will include the large number of small NBFCs in the country and will subject to the least regulation since they have limited impact on systemic stability. This will also prevent a stifling of innovation from within the NBFC sector.
The proposals for this set of NBFCs includes:
- Entry-level “net owned funds” requirement to be raised to Rs 20 crore from Rs 2 crore; existing entities to be given time of five years to comply.
- NPA classification norm of 180 days will be harmonized to 90 days.
- Disclosure requirements will be widened by including disclosures on types of exposure, related party transactions, customer complaints.
The RBI has sought comments on the discussion paper within a month.
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