The Hindu Business Line : Capital adequacy norms for NBFCs hiked to 12%

Tightening controls
Non-deposit taking NBFCs with asset size of Rs 100 crore and above have to maintain CRAR of 12 % against the current 10%.
The capital adequacy ratio will be increased to 15 per cent from April 1, 2009.
RBI will look into individual representations by NBFCs and approve reasonable transition plans.

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Mumbai, June 2 Concerned over their highly leveraged borrowings and reliance on short-term funds, the Reserve Bank of India has tightened the capital adequacy and disclosure norms for non banking finance companies.

According to draft guidelines issued on Monday, non-deposit taking NBFCs with asset size of Rs 100 crore and above will have to maintain capital to risk weighted assets ratio (CRAR) of 12 per cent against the current 10 per cent. The capital adequacy ratio will be increased to 15 per cent from April 1, 2009, RBI said.

RBI said that in view of recent international developments, the risk associated with highly leveraged borrowings and the reliance on short-term funds by some NBFCs, concerns have risen regarding the enhanced systemic risk associated with the activities of these entities.

In case of difficulties in meeting CRAR requirements, RBI will look into individual representations by NBFCs and approve reasonable transition plans.

Reporting norms

In view of the possibilities of leveraged investments and asset liability mismatch resulting from use of short term sources to fund NBFC activities, RBI has extended the system of half yearly reporting to systemically important non-deposit taking NBFCs as well — until now this was only applicable only to deposit taking NBFCs.

Such reporting would commence with effect from the period beginning September 30, 2008 and the reporting frequency would continue to be half yearly for the year ended March 31, 2009, RBI said.

Additional disclosures

Systemically important NBFCs will also have to make additional disclosures in their balance sheets from the year ending March 31, 2009.

These disclosures relate to CRAR, derivatives transactions entered during the year, risk exposure to derivatives — both qualitative disclosure (risk management policies and systems in place) and quantitative disclosure (notional principal amount, credit exposure, marked to market positions) — exposure to real sector (both direct and indirect) and maturity pattern of assets and liabilities.

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