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Deposit-taking non-banking finance companies, including those in the business of auto loans, gold loans and infrastructure finance, will have to maintain higher capital to risk-weighted assets ratio (CRAR) of 15 per cent with effect from end-March 2012. Currently, they have to maintain a CRAR of 12 per cent.
The Reserve Bank of India, in a notification said the move is in public interest and is aimed at enabling it to regulate the credit system to the advantage of the country.
After end-March 2012, every Rs 100 loan given by NBFCs will have to be backed by a capital of Rs 15 (currently Rs 12). The new prescription will act as a speed-breaker on NBFCs' ability to grow their loan book. CRAR acts as a cushion against potential losses. This protects the NBFCs' depositors or other lenders.
The impact of this notification is that deposit-taking NBFCs with less than the prescribed level of CRAR will either have to bring in more capital or reduce assets in order to meet the prescribed norm.
Exposure
NBFCs, according to Mr D.R. Dogra, Managing Director, , CARE Ratings, take exposure to several sectors wherein the chances of assets turning sour are high. Given the risky calls taken by these entities, the RBI has increased the CRAR requirement to protect depositors' interest, he added.
“The increase in CRAR of deposit-taking NBFCs is unwarranted. Due to the CRAR hike, NBFCs will end up lending less. Instead of increasing the CRAR, the RBI should have changed the risk-weights so that NBFCs operating in auto loans and infrastructure finance segments carry less risk-weight on their loans while those in the share market and real estate segments carry higher risk-weight,” said Mr Mahesh Thakkar, Director-General, Finance Industry Development Council.
Category A
There were 310 deposit-taking category ‘A' NBFCs as of end-April 2010, according to RBI data. Chandigarh (78 NBFCs), New Delhi (56), Kanpur (43), Chennai (42) and Jammu (22) are the top five centres in India in terms of the number of NBFCs.
Some of the top deposit-taking NBFCs, according to the RBI's list, are: Mahindra & Mahindra Financial Services Ltd, Bajaj Auto Finance Ltd, Shriram City Union Finance Ltd, Shriram Transport Finance Co Ltd, Sundaram Finance Ltd, Escorts Finance Ltd, Manappuram General Finance & Leasing Ltd, and Muthoot Capital Services Ltd.
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