MUMBAI, Jan 2: The Reserve Bank of India (RBI) has finally imposed stringent measures on Non-Banking Finance Companies (NBFCs) by curbing their access to public deposits and tightening prudential norms in a bid to control fly-by-night finance companies.The central bank has fixed a ceiling on the quantum of deposits mobilised, and capped the maximum interest rate at 16 per cent in order to restrain finance companies from offering undue incentives to mobilise excessive deposits. The RBI has also raised the Capital Adequacy Ratio and liquid asset requirement for NBFCs, and relaxed the provisioning norms for lease and hire purchase assets.
NBFCs having net owned fund of less than Rs 25 lakh will now not be entitled to accept public deposits, the ceiling on the amount of public deposit for other NBFCs has been linked to its level of credit rating as given by approved credit rating agencies. ``NBFCs having a credit rating lower than `A' can not accept public deposit. Those NBFCs which have accepted deposit in
excess of the prescribed limits have been allowed time up to December 31, 1998 to regularise their position,'' said an RBI statement.
The Reserve Bank has fixed a uniform brokerage rate of two per cent for deposits up to five years to restrain the NBFCs from mobilising excessive deposits which they can not service. It also tightened the prudential norms by raising the Capital Adequacy Ratio by four percentage points -- from eight per cent to 12 per cent in two stages and making the liquid asset requirement a uniform 15 per cent by April 1999. NBFCs have also been barred from granting loans against the security of their own shares.
The Reserve Bank, however, relaxed the income recognition, asset classification and provisioning norms for lease and hire purchase assets.
These assets will now be treated as NPAs if the instalments are not paid for 12 months instead of the earlier stipulation of six months.
For the purpose of new regulation, the RBI has divided NBFCs into three categories those which
accept public deposits, those do not accept public desposits and are engaged in loan, investment, hire purchase and leasing business and finally those who do not accept deposits and have acquired shares in group companies to the tune of not less than 90 per cent of the total assets and are not trading in these securities.
The disclosure requirements have been strengthened and responsibilities have been cast on the board of directors and auditors of the companies to ensure that the operations of NBFCs conform to deposit regulations and prudential norms prescribed by RBI.
NBFCs not accepting public deposits will be supervised in a limited manner, the RBI said. The central bank also redefined the term `public deposit' which will henceforth include money raised by way of secured bonds and debentures, bank finance, inter-corporate deposits and deposits from directors, foreign citizens and shareholders of private limited companies.
While NBFCs engaged in equipment leasing and hire purchase with ``AAA'' rating
(highest safety) can raise three times their net owned funds as deposits , double A (AA) rated companies can raise two times their NOF and single A (A) rated companies can raise only one time the NOF. Loans and investment companies with triple A, double A and single A can raise two times, one time and 0.5 times their NOF respectively. All NBFCs are also subjected to maximum interest rate ceiling of 16 per cent per annum.
``NBFCs which are presently offering interest rates in excess of the prescribed ceiling are required to roll back their interest rate to bring it within the ceiling with immediate effect,'' RBI said. The deadline for rolling back the excess public deposits has been fixed at December 31, 1998.
The central bank has also cautioned investors, saying that ``whatever be the rigours of regulation, the regulations themselves cannot provide a fail safe system of ensuring repayment of deposit. Depositors should be circumspect and satisfy themselves about the financial soundness and health of the
companies before placing their deposits keeping in mind that they are investing their own money at their own riska and responsibility.''
The RBI defended the new regulatory measures a fallout of the multi-crore CRB scam in which thousands of gullible investors lost heavily -- as a policy to ``protect the interest of depositors and provide more effective supervision over NBFCs".
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
