The Hindu Business Line : `New RBI norms fall below expectations'

The NBFC industry, particularly the segment engaged in asset financing such as lending to commercial vehicles, cars and two-wheelers, feels that the new regulations announced by the Reserve Bank of India do not fully reflect their concerns. They say that the RBI has not yet made a suitable distinction between those engaged in asset financing and other activities.

Mr T.T. Srinivasaraghavan, Managing Director, Sundaram Finance, said, "The thrust of these guidelines seems to be to address the issue of end-use of funds and to curb speculative or undesirable activities (lending to stock markets, real estate) on the part of some companies who are not taking deposits.

These concerns do not attach to us, since asset financing companies, are by definition, lending for buying assets and should be exempt from the ambit of these regulations. We are anticipating the detailed operational guidelines for asset financing companies."

Mr Srinivas Acharya, Deputy Managing Director, Sundaram Finance and Chairman Equipment Leasing Association, said, "The new regulations would cramp the resource raising capacity of NBFCs by telling banks that they cannot lend more than 10 per cent of their capital funds to a single NBFC.

This leads to an anomalous situation where a bank is allowed to lend up to 15 per cent of its net owned funds to any single borrower but has to limit it to 10 per cent for an NBFC."

He said that the regulations as they currently stand would allow a non-rated company to get more bank finance than a well-rated NBFC.

He, however, welcomed the relaxation from 5 per cent of net worth to 10 per cent of capital funds. This, he said, would allow for a larger quantum of funds since capital funds would include both tier-I and tier-II capital.

Mr Ramesh Iyer, Managing Director, Mahindra Finance, said, "The RBI is trying to classify NBFCs into different groups to help it monitor their activities more easily.

We are waiting for RBI to start a dialogue with banks to support NBFCs more actively since we are also playing a part in the growth that the economy is seeing. I think there is a possibility of more instruments such as securitisation being allowed to come back. The RBI should also think of allowing us to access the ECB market. "

He said that the new regulations could see lending by foreign banks to the NBFC sector coming down.

Mr.Krishnan Sitaraman,Head - Financial Sector Ratings,CRISIL said," The regulations are a step in the right direction. Although they are stringent, they have been re-aligned more realistically, as compared to the draft announced earlier this month.".

He said it would seem that NBFCs would face a slight resource crunch since banks would not be able to lend as much to them as they could earlier.

However, he said most banks had an internal norm which limited their actual funding of NBFCs to much below what was currently allowed.

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