The panel is in favor of tighten provisioning norms of those NBFCs that have exposures to the capital market or commercial real estate business. For computing the capital to risk weighted assets ratio (CRAR) of the NBFCs, the panel has proposed to increase its core capital.
The amount of capital that banks are required to set aside against the loans that the banks have given out are called CRAR.
As bank credit has increased to NBFC, there are concerns in several quarter that the risks may be transferred from the lightly regulated NBFC sector to the banking sector.
For this reason the panel recommends to increase the Tier I capital for CRAR purpose, fixed at 12% instead of current 7.5%. And the NBFCs should achieve this norm in three years time-frame.
Also the panel is of the view that more money should be set aside for capital market or commercial real estate lending. For this reason it has proposed to raise the risk weights for NBFCs to 150% for capital market exposures and 125% for commercial real estate exposures from current 100%.
These limits are suggested for NBFCs that are not sponsored by banks or if do not have any bank as part of the group. The panel opines that for bank-sponsored NBFCs, the risk weights for capital market and real estate should be the same as that specified for banks. Moreover, if there is an NBFC within a banking group then the board approved limits for bank"s exposure to real estate should be accepted for the group.
Currently, NBFCs enjoy much lenience compared to banks, example Non-Performing (NPAs) are classified for NBFCs at 180 days where as NPAs for banks 90 days.
The panel was of the view that whenever central banks changed risk weights and provisioning norms for banks to address systemic risk, they should equally be applicable to similar assets of NBFCs.
It has recommended that any change in shareholding of 25%, or more, will have to be approved by RBI besides a suitable tax deduction on provisions - a privilege which is only enjoyed by commercial banks so far.
This is still under a recommendation stage. The central bank has placed the recommendation for further suggestions in public. Once the response from the parties is received then RBI will issue the final guidelines.