Nbfcs Classified Into Three Categories

The Reserve Bank of India (RBI) has classified non banking finance companies (NBFCs) into three categories on the basis of their business activities. It has outlined separate guidelines for each division.

The apex bank has also barred NBFCs with ratings below 'A' from raising deposits from the public.

The categories include those which accept deposits, those not accepting deposits and engaged in fund-based activities, and NBFCs run by manufacturing companies for loan and investment purpose.

The measures announced by the RBI are aimed at safeguarding depositor interest and will come into immediate effect. The directives says that, for the purpose of new regulations, NBFCs have been divided into three board categories which include -

NBFCs accepting deposits,

NBFCs not accepting public deposits and engaged in loan, investment, hire purchase finance and equipment leasing actives and

NBFCs not accepting public deposit and have acquired shares/securities in their own group/holding/subsidiary companies of not less than 90 per cent of their total assets and are not trading in these shares. The third category of NBFCs will have to specifically mention the names of their holding/group/subsidiary companies whose shares/securities they hold or propose to invest during the ensuring year.

RBI has stated that NBFCs that desire to raise deposits will have to be rated 'A' or above. NBFCs rated 'A-' or below are not allowed to raise deposits and will automatically fall into the category of those not accepting deposits.

Regulations for NBFCs not accepting public deposits will be limited as they are exempted from all rules relating to acceptance of public deposits, requirements of capital adequacy and also credit/concentrations norms.

Those accepting public deposits will have to exclusively adhere to a capital adequacy ratio of 10 per cent by March 31 and 12 per cent by March 1999. They will also need to adhere to credit/concentration whereby investment in a single company or in a single group of companies should not exceed 15 to 25 per cent respectively of a NBFC's net owned funds. Further, composite limits of credit and investment by an NBFC in a single entity and in a group of companies have been prescribed at 25 per cent and 40 per cent, respectively, of the NBFC's net owned funds.

NBFCs seeking exemption from these regulations will require a resolution from the board of directors to the effect that they will not accept any public deposits.

The auditors too are required to mention companies that have not accepted public deposit and have complied with the specified norms.