NBFCs face tighter deposit norms

In a move aimed at tightening the norms for deposit-taking non-banking finance companies (NBFC), the Reserve Bank of India has asked them to increase their minimum net-owned funds to Rs 2 crore.

Net-owned funds include the equity, reserves and other funds.

"Finance companies with net-owned funds below Rs 2 crore may freeze their deposits at the level currently held by them," the central bank said in a release.

 

According to the directive, asset finance companies (AFC) with minimum investment grade credit rating and a capital adequacy ratio of 12 per cent will have to bring down public deposits to a level that is 1.5 times their net-owned fund.

All other NBFCs, such as investment companies and loan firms, have been asked to bring down their public deposits to a level equal to their net- owned fund by March 31, 2009, RBI said in the statement this evening.

The companies, which are presently eligible to accept public deposits up to a certain level but have not reached the prescribed ceiling, will be permitted to accept public deposits up to the revised limits, it added.

Explaining its move, RBI said that NBFCs accepting deposits should be adequately capitalised and need uniform minimum net-owned fund norms.

The regulator said that finance companies that fail to meet the fresh requirements within the stipulated time period may seek "an appropriate dispensation". The regulator intends to consider the requests on a case-to-case basis.

The minimum net-owned fund requirement was raised to Rs 2 crore with effect from April 21, 1999. NBFCs are required to create a reserve fund and transfer at least 20 per cent per cent of their net profit every year.

"Retail deposits in lieu of servicing costs has become more expensive for NBFCs and, hence, many of them are seeking wholesale money. So, a reduction in the deposit limit will not pose any major difficulty," said V Ravi, chief finance officer of Mahindtra & Mahindra Financial Services.

According to RBI data, at the end of March 2007, there were 401 deposit-taking NBFCs with a combined asset base of Rs 71,171 crore with public deposits estimated at Rs 24,665 crore. The net-owned funds with these companies were estimated at Rs 8,601 crore.

The data also included the mop-up of non-banking finance companies like Sahara India Financial Corporation, Peerless Finance and Disari Credit Company, which together had an asset base of Rs 23,172 crore and a deposit base of Rs 22,622 crore.