RBI/2008-09/116
DNBS (PD). CC. No. 125/03.05.002 / 2008-2009
August 1, 2008
All non-deposit taking NBFCs with asset size of Rs 100 crore and above
(All NBFC-ND-SI)
Guidelines for NBFC-ND-SI as regards capital
adequacy, liquidity and disclosure norms
Please refer to paragraph 216 of Annual Statement on Monetary Policy
for the Year 2008-09 in terms of which capital adequacy, liquidity and
disclosure norms were to be reviewed in respect of systemically important
non-deposit taking NBFCs(NBFCs-ND-SI).
2. To protect the interests of the depositors, deposit taking NBFCs (NBFC-D)
were subject to prudential regulation on various aspects of their
functioning. However, non-deposit taking NBFCs (NBFCs-ND) were subject to
minimal regulation. In the light of the evolution and integration of the
financial sector, it was felt that all systemically relevant entities
offering financial services ought to be brought under a suitable
regulatory framework to contain systemic risk. Therefore, as a first step,
it was advised vide DNBS.PD/ CC. No. 86/ 03.02.089 /2006-07 dated December
12, 2006 that all NBFCs ND with an asset size of Rs. 100 crore and more
as per the last audited balance sheet would be considered as systemically
important NBFC ND (NBFC-ND-SI) and specific regulatory
framework involving prescription of capital adequacy and exposure norms
was put in place from April 01, 2007 for such NBFCs-ND-SI.
3. On a review of the experience with the regulatory framework since
April 2007, it is felt desirable to enhance the capital adequacy
requirement and put in place guidelines for liquidity management and
reporting, as also norms for disclosures. Accordingly, the Bank had placed
on its web-site on June 2, 2008, the draft guidelines for NBFCs-ND-SI as
regards the above aspects for receiving the comments of the public. After
considering the comments received from public/NBFCs/Associations/banks,
the guidelines have been modified suitably.
Capital adequacy
4. NBFCs ND SI were advised to maintain a minimum Capital to Risk-
Assets Ratio (CRAR) of 10% with effect from April 01, 2007. However, in
view of recent international developments, the risks associated with
highly leveraged borrowings and reliance on short term funds by some NBFCs
to fund long gestation assets, concerns have arisen regarding the enhanced
systemic risk associated with the activities of these entities. Keeping in
view the importance of providing adequate capital charge for the same in
order to enhance the cushion for any shocks, it has been decided to
increase the minimum capital to risk assets ratio (CRAR) for NBFCs-ND-SI
from the present prescription of 10%. They are advised to achieve 12% CRAR
by March 31, 2009 and further 15% CRAR by March 31, 2010.
Disclosure in the Balance Sheet
5. In the light of the concerns as expressed above, the disclosure norms
in respect of NBFCs-ND-SI have been reviewed and it has been decided that
such Systemically Important NBFCs-ND shall make additional disclosures in
their Balance Sheet from the year ending March 31, 2009 relating to:
i. Capital to Risk Assets Ratio (CRAR)
ii. Exposure to real estate sector, both direct and indirect; and
iii. Maturity pattern of assets and liabilities
The format of disclosure of this additional information is furnished in
Annex-I.
Asset Liability Management (ALM) Reporting
6. To address concerns regarding Asset Liability mismatches and interest
rate risk exposures, an ALM System was introduced for the Non-Banking
Financial Companies (NBFCs) as part of their overall system for effective
risk management in their various portfolios vide Company Circular DNBS
(PD).CC.No.15 /02.01 / 2000-2001 dated June 27, 2001. While it was stated
therein that the guidelines would be applicable to all NBFCs irrespective
of whether they are accepting / holding public deposits or not, to begin
with, NBFCs meeting the criteria of asset base of Rs.100 crore (whether
accepting / holding public deposits or not) or holding public deposits of
Rs. 20 crore or more (irrespective of their asset size) as per their
audited balance sheet as of March 31, 2001 were required to put in place
the ALM System. The companies were advised that the guidelines should be
fully operationalised by the year ending March 31, 2002. A system of half
yearly reporting was also put in place for NBFCs holding public deposits.
7. In view of the possibilities of leveraged investments, and asset
liability mismatches resulting from use of short term sources to fund NBFC
activities, it has now been decided to introduce a system of reporting for
NBFCs-ND-SI in the format as prescribed in the Annex. The return will
comprise of:
(i) Statement of short term dynamic liquidity in format ALM -
Annexure II [NBS-ALM1],
(ii) Statement of structural liquidity in format ALM -
Annex III [NBS-ALM2] and
(iii) Statement of Interest Rate Sensitivity in format ALM -
Annexure IV [NBS-ALM3].
8. To enable the above class of NBFCs to fine tune their existing MIS
to meet the requirement of the reporting dispensation, such compilation
would commence with effect from the period ending September 30, 2008. The
periodicity of the Statement of short term dynamic liquidity [NBS-ALM1]
shall be monthly and that of Statement of structural liquidity [NBS-ALM2]
half-yearly. It shall be submitted within 10 days of the close of the
month to which it relates and half yearly statement within 20 days of the
close of the half year to which it relates to the Regional Office of the
Department in whose jurisdiction the NBFC is registered. However, to
enable the NBFCs to fine tune the system, the first return for the period
ended September 2008 would be submitted by the 1st week of January 2009.
The compilation frequency of Statement of Interest Rate Sensitivity
[NBS-ALM3] would be half yearly. As a first step, the same shall be put up
to the Board of Directors of the NBFC at half yearly intervals. The
statement shall be filed with the Bank later from the date to be
announced.
9. A copy of Notification No. DNBS. 200 / CGM(PK)-2008 dated August 1,
2008 amending Notification No. DNBS. 193 DG(VL)-2007 dated February 22 ,
2007 with respect to disclosure in balance sheet and requirement as to
capital adequacy is enclosed.
Yours faithfully
(P Krishnamurthy)
Chief General Manager In-Charge
RESERVE BANK OF INDIA
DEPARTMENT OF NON-BANKING SUPERVISION
CENTRAL OFFICE
CENTRE I, WORLD TRADE CENTRE,
CUFFE PARADE, COLABA,
MUMBAI 400 005.
Notification No. DNBS. 200 / CGM(PK)-2008 dated August 1, 2008
The Reserve Bank of India, having considered it necessary in public
interest and being satisfied that, for the purpose of enabling the Bank to
regulate the credit system to the advantage of the country, it is
necessary to amend the Non-Banking Financial (Non- Deposit Accepting or
Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007
contained in Notification No. DNBS. 193/DG(VL)-2007 dated February 22,
2007 in exercise of the powers conferred by sections 45J, 45JA, 45K and
45L of the Reserve Bank of India Act, 1934 (2 of 1934) and of all the
powers enabling it in this behalf, hereby directs that the said directions
shall be amended with immediate effect as follows, namely -
1. In paragraph 10, after clause (4) following clause shall be
inserted:
"(5) Every systemically important non-deposit taking non-banking financial
company shall disclose the following particulars in its Balance Sheet
(i) Capital to Risk Assets Ratio (CRAR)
(ii) Exposure to real estate sector, both direct and indirect; and
(iii) Maturity pattern of assets and liabilities."
2. In paragraph 16(1), the following sentence shall be added at the end
of the paragraph:
such ratio shall not be less than 12% by March 31, 2009 and 15% by March
31, 2010.
(P. Krishnamurthy)
Chief General Manager In-Charge
Appendix - I
Maturity Profile - Liquidity
Heads of Accounts
Time-bucket category
A. Outflows
| 1&2. Capital funds |
|
| a) Equity capital,
Non-redeemable or perpetual preference capital, Reserves, Funds and
Surplus |
In the 'over 5 years'
time-bucket. |
| b) Preference capital -
redeemable/non-perpetual |
As per the residual
maturity of the shares. |
| 3. Grants, donations and
benefactions |
The 'over 5 years'
time-bucket. However, if such gifts, grants, etc. are tied to
specific end-use, then these may be slotted in the time- bucket as
per purpose/end-use specified. |
| 4. Bonds and debentures
|
|
| a) Plain vanilla
bonds/debentures |
As per the residual
maturity of the instruments |
| b) Bonds/debentures with
embedded call/put options (including zero-coupon/deep discount
bonds) |
As per the residual
period for the earliest exercise date for the embedded option. |
| 5. Inter Corporate
Deposits: |
These, being
institutional/wholesale deposits, should be slotted as per their
residual maturity |
| 6. Borrowings |
|
| a) Short Term borrowings |
As per the residual
maturity |
| b) Long Term Borrowings |
-do- |
| 7. Current liabilities
and provisions: |
|
| a) Sundry creditors |
As per the due date or
likely timing of cash outflows. A behavioral analysis could also be
made to assess the trend of outflows and the amounts slotted
accordingly. |
| b) Expenses payable
(other than interest) |
As per the likely time of
cash outflow. |
| c) Advance income
received, receipts from borrowers pending adjustment |
In the 'over 5 years'
time-bucket as these do not involve any cash outflow. |
| d) Interest payable on
bonds/deposits |
In respective time
buckets as per the due date of payment. |
| e) Provisions for NPAs |
The amount of provision
may be netted out from the gross amount of the NPA portfolio and the
net amount of NPA portfolio be shown as an item under inflows in
stipulated time-buckets. |
| f) Provision for
Investments portfolio |
The amount may be netted
from the gross value of investments portfolio and the net
investments be shown as inflow in the prescribed time-slots. In case
provisions are not held security-wise, the provision may be shown on
"over 5 years" time bucket. |
| g) Other provisions |
To be bucketed as per the
purpose/nature of the underlying transaction. |
| B. Inflows |
|
| 1. Cash |
In 1 to 14 day
time-bucket. |
| 2. Remittance in transit |
---do--- |
| 3. Balances with banks
(in India only) |
|
| a) Current account |
The stipulated minimum
balance be shown in 1-3 years bucket and the remaining may be shown
under 1 to 14 day time-bucket. time bucket. |
| b) Deposit accounts/short
term deposits |
As per residual maturity. |
| 4. Investments (net of
provisions) |
|
| a) Approved Trustee
securities, government securities, bonds, debentures and other
instruments |
Respective maturity
bucket. Investment classified as non-performing should be shown
under 3-5 year bucket (sub-standard) or over 5 years bucket
(doubtful). |
| b) Unlisted securities
(e.g. shares, etc.) |
In the 'over 5 year' time
bucket |
| c) Unlisted securities
having a fixed term maturity |
As per residual maturity |
| d) Venture capital units |
In the 'over 5 year' time
bucket |
| e) Equity shares,
convertible preference shares, non-redeemable/perpetual preference
shares, shares of subsidiaries/joint ventures and units in open
ended mutual funds and other investments. |
(i) Shares which are part
of current investments may be shown in appropriate time bucket below
one year.
(ii) Shares classified as "long term" investments may be kept in
"over 5 years time" bucket.
(iii) However, the shares of the assisted units/companies acquired
as part of the initial financing package, may be slotted in the
relative time bucket keeping in view the pace of project
implementation/time-overrun, etc., and the resultant likely
timeframe for divesting such shares. |
| 5. Advances (performing) |
|
| a) Bill of Exchange and
promissory notes discounted and rediscounted |
As per the residual
usance of the underlying bills. |
| b) Term loans (rupee
loans only) |
The cash inflows on
account of the interest and principal of the loan may be slotted in
respective time buckets as per the timing of the cash flows as
stipulated in the original/revised repayment schedule. |
| c) Corporate loans/short
term loans |
As per the residual
maturity |
6. Non-performing loans
(May be shown net of the provisions, interest suspense held ) |
|
| a) Sub-standard |
|
| i) All overdues and
instalments of principal falling due during the next three years |
In the 3 to 5 year
time-bucket. |
| ii) Entire principal
amount due beyond the next three years |
In the over 5 years
time-bucket |
| b) Doubtful and loss |
|
| i) All instalments of
principal falling due during the next five years as also all
overdues |
In the over 5 year
time-bucket |
| ii) Entire principal
amount due beyond the next five years |
In the over 5 year
time-bucket |
| 7. Assets on lease |
Cash flows from the lease
transaction may be slotted in respective time buckets as per the
timing of the cash flow. |
| 9. Fixed assets
(excluding leased assets) |
In the 'over 5 year'
time-bucket. Interim cash flow may be shown under respective
maturity buckets. |
| 10. Other assets |
|
| (a) Intangible assets and
items not representing cash inflows. |
In the 'over 5 year'
time-bucket. |
| (b)Other items (such as
accrued income, other receivables, staff loans, etc.) |
In respective maturity
buckets as per the timing of the cash flows. |
| C. Contingent
liabilities |
|
| (a) Letters of
credit/guarantees (outflow through devolvement) |
Based on the past trend
analysis of the devolvement vis-ΰ-vis the outstanding amount of
guarantees (net of margins held), the likely devolvement should be
estimated and this amount could be distributed in various time
buckets on judgmental basis. The assets created out of devolvement
may be shown under respective maturity buckets on the basis of
probable recovery dates. |
| (b) Loan commitments
pending disbursal (outflow) |
NBFC should undertake a
study of the behavioural and seasonal pattern of potential
availments in the accounts and the amounts so arrived may be shown
under relevant maturity buckets up to 12 months. |
| (c) Lines of credit
committed to/by other Institutions (outflow/inflow) |
As per usance of bills to
be received under the lines of credit. |
Note:
a) Any event-specific cash flows (e.g. outflow due to wage settlement
arrears, capital expenses, income tax refunds, etc.) should be shown in a
time bucket corresponding to timing of such cash flows and should be
reported against Outflows Others.
b) All overdue liabilities be shown in the 1 to 30/31 days time bucket.
c) Overdue receivables on account of interest and instalments of standard
loans / hire purchase assets / leased rentals should be slotted as below:
| 1. |
Overdue for less than one
month. |
In the 3 to 6 month
bucket. |
| 2. |
Interest overdue for more
than one month but less than seven months (i.e. before the relative
amount becomes NPA) |
In the 6 to 12 month
bucket. |
| 3. |
Principal instalments
overdue for 7 months but less than one year |
In 1 to 3 year bucket. |
D. Financing of gaps:
1 to 30/31 days time-bucket should not exceed the prudential limit of
15 % of outflows of each time-bucket and the cumulative gap upto the one
year period should not exceed 15% of the cumulative cash outflows upto one
year period. In case these limits are exceeded, the measures proposed for
bringing the gaps within the limit, should be shown by a footnote in the
relative statement.
