New Nbfc Norms Mooted

The Federation of Indian Chambers of Commerce and Industry (Ficci) has urged the Reserve Bank of India (RBI) to exempt non-banking finance corporations (NBFCs) that do not accept public deposits from the purview of stringent stipulations relating to net owned fund (NOF), credit rating and prudential norms under Chapter 3B of the RBI Act 1934.

In a communication addressed to the RBI governor, the chamber said a high-powered group was constituted by Nabard to look into the country's micro finance. Among other recommendations, the working group pointed out that NBFCs that were not accepting public deposits should be out of the purview of Chapter 3B of the RBI Act.

 

In a statement, the chamber said according to an RBI Amendment Ordinance (dated January 9, 1997), NBFCs should have NOFs of not less that Rs 25 lakh. "The ordinance also stipulated that the NBFCs are required to attain the prescribed NOFs of Rs 25 lakh within three years or such further period as the RBI may extend, but such time limit should not exceed six years in the aggregate," the statement said.

The apex bank has defined NOF in the RBI Act so as to exclude 90 per cent of the investment made in group companies. "This does appear as an appropriate policy as it prohibits NBFCs to invest in their group companies," Ficci says.

"When an NBFC is free to invest in its own company, why is it forced to invest in non-group companies," the chamber questions.

Ficci further states a recent RBI announcement that for new companies, the NOF requirement will be Rs 2 crore or more. In this case, within the existing definition of NOF, a group would require Rs 20 crore instead of Rs 2.5 crore to promote a finance company to have the desired NOFs.

The chamber said it was in favour of a regulatory framework for NBFCs to protect the interest of small and large depositors. "But this requirement should not go to an extent that it stifles the growth of this vital sector," it has said.

Therefore, Ficci has suggested that NBFCs that invest mainly in their group companies should have the freedom to invest according to their judgement, provided such companies do no accept any deposit from the public.