The Reserve Bank of India (RBI) revoked its suspension of licences for non-banking finance companies (NBFCs) and has come up with new regulations that would clear anomalies and align them closer to bank rules. But the industry says that it is still getting an unfair treatment vis-à-vis banks.
While big companies will face higher capital norms and tighter provisions for bad loans, those which do not take funds from public get more autonomy to operate.Business houses operating many finance companies will be treated as one to ensure that they are on par with others in being defined as systemically important.
Non-banking finance companies mostly operate in niche areas such as lending against gold, funding second-hand truck purchases and consumer loans. Although their activities are akin to banks, they are mostly restricted from taking deposits. Banks have access to funds at a cheaper rate than NBFCs.
Companies with an asset size of Rs.500 crore and above, and all the deposit taking NBFCs will have to raise minimum tier-1 capital to 8.5% by the end of March 2016 and 10% by the end of March 2017.
The RBI has tightened the asset classification norms for these two sets of NBFCs to bring them at par with banks. This will be done in a phased manner up to March 31, 2018.
An asset is classified as non-performing if it has remained overdue for 90 days in banks. But currently, NBFCs enjoy a lighter rule with their assets turning NPAs when it has remained overdue for a period of six months or more for loans; and overdue for twelve months or more in case of lease rental and hire purchase installments. The demand for longer tenor loans may fall.
In most cases, NBFCs' ability to leverage capital raising will be curtailed. Small NBFCs will find it difficult to raise equity.NBFCs will have to depend on banks for funds.“
The RBI has also revised the threshold to Rs.500 crore from Rs.100 crore for defining systemic significance for NBFCs given the overall growth of the sector over the years.
New companies will have to bring Rs.2 crore to the table to get a licence ` and the old ones with smaller capital will get two-and-a-half years for raise up to this level.
While big companies will face higher capital norms and tighter provisions for bad loans, those which do not take funds from public get more autonomy to operate.Business houses operating many finance companies will be treated as one to ensure that they are on par with others in being defined as systemically important.
Non-banking finance companies mostly operate in niche areas such as lending against gold, funding second-hand truck purchases and consumer loans. Although their activities are akin to banks, they are mostly restricted from taking deposits. Banks have access to funds at a cheaper rate than NBFCs.
Companies with an asset size of Rs.500 crore and above, and all the deposit taking NBFCs will have to raise minimum tier-1 capital to 8.5% by the end of March 2016 and 10% by the end of March 2017.
The RBI has tightened the asset classification norms for these two sets of NBFCs to bring them at par with banks. This will be done in a phased manner up to March 31, 2018.
An asset is classified as non-performing if it has remained overdue for 90 days in banks. But currently, NBFCs enjoy a lighter rule with their assets turning NPAs when it has remained overdue for a period of six months or more for loans; and overdue for twelve months or more in case of lease rental and hire purchase installments. The demand for longer tenor loans may fall.
In most cases, NBFCs' ability to leverage capital raising will be curtailed. Small NBFCs will find it difficult to raise equity.NBFCs will have to depend on banks for funds.“
The RBI has also revised the threshold to Rs.500 crore from Rs.100 crore for defining systemic significance for NBFCs given the overall growth of the sector over the years.
New companies will have to bring Rs.2 crore to the table to get a licence ` and the old ones with smaller capital will get two-and-a-half years for raise up to this level.
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