RBI relaxes NBFC norms in revised draft

Regulations to bring 148 non-deposit taking NBFCs into ambit

The Reserve Bank of India RBI, in its revised draft guidelines on financial regulations of systematically important non-banking finance companies and banks8217; relationship with them, has stipulated that banks can have exposure to a single NBFC both deposit-taking and non-deposit taking up to 10 per cent of their capital funds.

For exposure to a group of NBFCs, the limit has been set at 40 per cent of their capital funds. In a slight relaxation, RBI has said these limits may be exceeded by 5 per cent and 10 per cent of capital funds respectively, if the additional exposure is on account of funds on-lent by the NBFCs to the infrastructure sector.

While withdrawing the provision of leverage for determining the deposit-taking limits for NBFCs, RBI has also withdrawn the linkage of banks8217; exposure to NBFCs with their net worth. Instead, exposure will now be decided on the basis of capital funds. Infusion of capital funds after the published balance sheet date will also be taken into account for calculating banks8217; exposure to all NBFCs. Addressing a press conference to unveil the second set of draft norms, Anand Sinha, executive director, RBI said Thursday that the central bank, in view of the importance of the issues, has preferred to release a second set of draft guidelines and the final norms will be announced on December 7.

The revised norms detail the important areas of functioning of 148 non-deposit taking NBFCs with individual asset size of Rs 100 crore with total assets of Rs 1,70,000 crore. Also, NBFCs promoted by the parent/group of a foreign bank having presence in India which is a subsidiary of the foreign bank8217;s parent/group or where the parent/group has management control would be treated as part of that foreign bank8217;s operations in India and brought under the ambit of consolidated prudential regulations.

8220;Where a foreign bank is holding between 10 per cent to 50 per cent both included of the issued and paid up equity of an NBFC,it will be required to demonstrate that it does not have management control in case the NBFC is to be kept outside the ambit of consolidated prudential regulation, said the central bank.

Sinha indicated that RBI will look into the applications of various banks for NBFC licenses after the final guideline is through.