NBFCs in demand

Shares of 11 non-banking financial companies rose by 0.46% to 5.71% at 11:17 IST on BSE after the central bank announced a revised regulatory framework for non-banking financial companies on Monday, 10 November 2014.

Shriram Transport Finance Company (up 5.71%), Magma Fincorp (up 3.31%), IDFC (up 2.35%), L&T Finance Holdings (up 1.71%), LIC Housing Finance (up 1.32%), Reliance Capital (up 1.07%), Muthoot Capital Services (up 0.80%), Manappuram Finance (up 0.72%), Mahindra & Mahindra Financial Services (up 0.70%), Bajaj Finserv (up 0.55%) and Bajaj Finance (up 0.46%), edged higher.

The S&P BSE Sensex was up 41.51 points, or 0.15% at 27,916.24.

In a bid to bring non-banking financial company (NBFC) norms in line with those of banks, the Reserve Bank of India (RBI) on Monday, 10 November 2014, unleashed tighter rules for NBFCs.

According to the new guidelines, NBFCs will require higher minimum capital, have less time to declare bad loans, and a board-approved fit and proper criteria for director appointments.

Shares of NBFCs rose as the rules contain no unexpected changes, contrary to investors' fears, media reports suggest.

NBFCs have been asked to increase their net-owned funds, the core capital ratio of all NBFCs has been harmonized, the time frame for classification of non-performing assets (NPAs) has been brought on par with banks and provisions for standard assets has also been increased.

NBFCs in operation before April 1999 have been asked to increase their minimum net owned funds (NOF) to Rs 1 crore by March 2016 and further to Rs 2 crore by March 2017 from Rs 25 lakh currently or risk cancellation of their permits. Significant changes include a decision to streamline the core capital adequacy ratio for all non-deposit taking NBFCs with an asset size of Rs 500 crore.

NBFCs have been given time till March 2017 to comply with the norms. The criteria for directors NBFCs has also been on par with banks.

The new NBFC framework is aimed at addressing risks and regulatory gaps and arbitrage both within the sector as well as other financial institutions and harmonize regulations to facilitate a smoother compliance culture among NBFCs, RBI said.

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