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Mumbai: In a move that will bring regulation of non-banking financial companies (NBFC) close to banks, reserve Bank of India ,reserve Bank of India) has said that he will ban it NBFC Those whose capital position and bad debts worsen beyond certain levels. The move could slow the growth of the industry as large non-bank lenders, whose non-performing assets ,NPA) are close above the 6% threshold, be cautious.
RBI announced on Tuesday prompt corrective action (PCA) framework for NBFCs as it had introduced for banks almost two decades ago. The restrictions include capital expenditure apart from dividends, issuance of guarantees and taking on new liabilities, branch expansion and cost and significant IT costs.
“NBFCs are growing in size and are substantially linked with other sectors of the financial system. PCA framework For NBFCs on or after March 2022, depending on the financial position of the NBFC, with effect from October 1, 2022.
PCA will be applicable to all deposit taking NBFCs (except Government owned companies). This would also include non-deposit taking companies if they fall in the middle, upper or top layer segmented by RBI for regulation. However, it will exclude NBFCs that do not intend to use public funds, government companies, primary dealers and housing finance companies. This would include investment and credit companies, core investment companies, infrastructure debt funds, infrastructure finance companies and microfinance institutions.
“The limits around total capital adequacy and Tier-1 capital are liberal for classification of NBFCs in the PCA category. However, if the asset quality does not improve, some entities may breach the net NPA norm of more than 6%.” AM Karthik, VP and Sector Head of Financial Sector Ratings ICRA, “Among the large NBFCs (asset size more than Rs 25,000 crore), around three entities are violating the net NPA norm as of September 2021. However, all these entities have an established paternity,” he said.
Those who do not meet the prescribed limits at present will have to improve their NPA ratio either by improving provisions or by effecting write-offs. “NBFCs have good provisioning ex-profits to absorb the same, without adversely affecting their capital profile. However, due to regulatory changes, we expect sectoral growth to be impacted in the near term as entities tighten their credit norms and the operational focus may shift towards collections,” said Kartik.
Under the framework, the RBI can ask promoters to bring in a new management or board, remove senior officers or directors, and appoint another director. “The objective of the PCA framework is to enable appropriate timely supervisory intervention and require the supervised entities to initiate and implement remedial measures in a timely manner so as to restore their financial health,” RBI said.
Mumbai: In a move that will bring regulation of non-banking financial companies (NBFC) close to banks, reserve Bank of India ,reserve Bank of India) has said that he will ban it NBFC Those whose capital position and bad debts worsen beyond certain levels. The move could slow the growth of the industry as large non-bank lenders, whose non-performing assets ,NPA) are close above the 6% threshold, be cautious.
RBI announced on Tuesday prompt corrective action (PCA) framework for NBFCs as it had introduced for banks almost two decades ago. The restrictions include capital expenditure apart from dividends, issuance of guarantees and taking on new liabilities, branch expansion and cost and significant IT costs.
“NBFCs are growing in size and are substantially linked with other sectors of the financial system. PCA framework For NBFCs on or after March 2022, depending on the financial position of the NBFC, with effect from October 1, 2022.
PCA will be applicable to all deposit taking NBFCs (except Government owned companies). This would also include non-deposit taking companies if they fall in the middle, upper or top layer segmented by RBI for regulation. However, it will exclude NBFCs that do not intend to use public funds, government companies, primary dealers and housing finance companies. This would include investment and credit companies, core investment companies, infrastructure debt funds, infrastructure finance companies and microfinance institutions.
“The limits around total capital adequacy and Tier-1 capital are liberal for classification of NBFCs in the PCA category. However, if the asset quality does not improve, some entities may breach the net NPA norm of more than 6%.” AM Karthik, VP and Sector Head of Financial Sector Ratings ICRA, “Among the large NBFCs (asset size more than Rs 25,000 crore), around three entities are violating the net NPA norm as of September 2021. However, all these entities have an established paternity,” he said.
Those who do not meet the prescribed limits at present will have to improve their NPA ratio either by improving provisions or by effecting write-offs. “NBFCs have good provisioning ex-profits to absorb the same, without adversely affecting their capital profile. However, due to regulatory changes, we expect sectoral growth to be impacted in the near term as entities tighten their credit norms and the operational focus may shift towards collections,” said Kartik.
Under the framework, the RBI can ask promoters to bring in a new management or board, remove senior officers or directors, and appoint another director. “The objective of the PCA framework is to enable appropriate timely supervisory intervention and require the supervised entities to initiate and implement remedial measures in a timely manner so as to restore their financial health,” RBI said.
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