Non-banking finance companies will have to follow the asset classification and provisioning norms applicable to banks from April 1, 2015, according to the Reserve Bank of India.

Once the prudential regulatory framework for NBFCs and banks are aligned, the crucial advantage that the former used to enjoy when it comes to asset classification and provisioning norms will no longer be available.

At present, the period for classifying loans as bad in the case of NBFCs is higher at 180/360 days compared with 90 days for banks.

The asset classification and provisioning norms for NBFCs will be implemented in phases: a 120-day norm shall be applied from April 1, 2014 to March 31, 2015 and a 90-day norm thereafter.

A one-time adjustment of the repayment schedule which shall not amount to restructuring will, however, be permitted, the Reserve Bank of India said in its Review of NBFC Regulatory Framework.

The RBI also proposes to raise the provisioning for standard assets from 0.25 per cent to 0.4 per cent of the outstanding loans with effect from March 31, 2014 for all NBFCs.

Norms for raising deposits

It has also tightened the norm for raising deposits. The limit for acceptance of deposits for rated Asset Finance Companies (AFCs) has been reduced from 4 times to 2.5 times their net owned funds.

All existing deposit taking NBFCs, including AFCs, should be credit rated and that unrated NBFCs, including AFCs, should not be permitted to accept deposits.

The central bank said that Tier l capital (core capital) will be raised to 12 per cent for all captive NBFCs (over 90 per cent of total assets are on financing parent company’s products/services).

Further, for NBFCs that are into lending to/investment in sensitive sectors namely, capital market, commodities and real estate, to the extent of 75 per cent or more of their total assets the Tier l capital will be raised to 12 per cent.

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