RBI finalising risk-weighted exposure norms for NBFCs
08 February 2019
The Reserve Bank of India (RBI) has decided to fix risk-weighted exposure norms for all non-banking finance companies (NBFCs), excluding core investment companies (CICs), with a view to facilitating flow of credit to well-rated NBFCs.
Such NBFCs would be risk-weighted as per the ratings assigned by the accredited rating agencies, in a manner similar to that for corporates, RBI stated in its monetary policy release.
Exposures to CICs will, however, continue to be risk-weighted at 100 per cent. RBI proposes to issue guidelines in this regard by the end of February 2019.
Various categories of NBFCs have evolved over time pertaining to specific sector/asset classes. Regulations put in place for each NBFC category have also been somewhat different. At present, there are twelve such categories. The Committee on Comprehensive Financial Services for Small Businesses and Low Income Households chaired by Nachiket Mor and an internal committee headed by G Padmanabhan, which submitted their reports in January 2014 and April 2014, respectively, had recommended harmonisation of the various categories of NBFCs.
The RBI is committed to such harmonisation and to move towards activity-based regulation replacing the current entity-based regulation for the NBFC sector. As a first step in this direction, deposit acceptance regulations were harmonised in November 2014. Further, with the recent rationalisation and liberalisation of ECB norms, differential rules applicable to various categories of NBFCs stand harmonised.
It has now been decided to harmonise major categories of NBFCs engaged in credit intermediation, viz, asset finance companies (AFC), loan companies, and investment companies, into a single category. The proposed merger of existing categories would reduce to a large extent the complexities arising from multiple categories and also provide the NBFCs greater flexibility in their operations. It will cover 99 per cent of the NBFCs by number. Guidelines in this regard will be issued by the end of February 2019.