Industry says the move will hit them in view of tight liquidity conditions.
The Reserve Bank of India (RBI) on day raised the minimum capital adequacy ratio (CAR) for deposit-taking non-banking financial companies (NBFCs) from 12 per cent to 15 per cent, effective from March 31, 2012. It expects that tightening of prudential norms will provide a cushion to these NBFCs in times of stress.
So, for every Rs 100 advance, NBFCs should have Rs 15 as core capital. Capital adequacy ratio is a measure of core capital expressed as a percentage of assets weighted credit exposures. Non-deposit taking NBFCs are already required to maintain a CAR of 15 per cent.
“It has been decided to align the minimum capital ratio of all deposit-taking as well as systematically important non-deposit taking NBFCs to 15 per cent. Accordingly, all deposit-taking NBFCs shall maintain a minimum capital ratio consisting of Tier-I and Tier-II capital, which shall not be less than 15 per cent of the aggregate risk weighted assets on balance sheet and risk adjusted value of off-balance sheet items effective from March 31, 2012,” the apex bank said in a release.
Shriram Transport Finance Company Managing Director R Sridhar said the move was aimed at aligning the prudential norms for both deposit-taking and non-deposit taking NBFCs. “We are adequately capitalised as our CAR stood at around 23 per cent on December 31, 2010,” he said.
According to RBI, NBFCs, the largest component of non-banking financial institutions, can be distinguished from banks with respect to the degree and nature of regulatory and supervisory controls.
For instance, NBFCs are not subject to cash reserve requirement like banks. They are, however, mandated to maintain 15 per cent of their public deposit liabilities in government and other approved securities as statutory liquidity ratio.
These institutions do not have deposit insurance coverage and refinance facilities from the central bank. They also do not have cheque issuing facilities and are not part of the payment and settlement system.
Meanwhile, Finance Industry Development Council (FIDC), an association of finance companies, said the decision to raise the minimum capital had come as a shock keeping in view the prevailing liquidity crunch.
The RBI regulations were far more stringent for deposit-taking NBFCs, and as such, this justification seemed to be imprudent, it said. It had given a jolt to the otherwise compliant NBFC sector, which had not reported any defaults for quite some time, mainly due to the stringent regulations and monitoring by RBI, said Raman Aggarwal, co-chairman of FIDC.
A majority of deposit-taking NBFCs are classified by RBI as asset financing NBFCs. They have been demanding a reduction in risk weightage assigned to commercial vehicle lending from 100 to 50, since they fall in the lower level of the risk spectrum, FIDC says.