Non-Banking Financial Company
Non – Banking Financial Company means only
the non-banking financial institution which is a loan company or an investment
company or an asset finance company or a mutual benefit financial company. NBFCs
are incorporated under the Companies Act, 1956. The following are the
categories of NBFCs:
§
Asset Finance Company
(AFC),
§
Investment Company
(IC),
§
Loan Company (LC),
§
Infrastructure
Finance Company (IFC),
§
Core Investment
Company (CIC),
§
Infrastructure Debt
Fund – Non Banking Financial Company (IDF – NBFC),
§
Non – Banking
Financial Company – Micro Finance Institution (NBFC – MFI)
NBFCs can be broadly classified into two
categories, viz.,
§
NBFCs accepting
public deposit (NBFCs-D) and
§
NBFCs not accepting/holding
public deposit (NBFCs-ND).
Residuary Non-Banking Companies (RNBCs)
are another category of NBFCs whose principal business is acceptance of
deposits and investing in approved securities. The given below chart describes
the categories of NBFCs which can accept public deposit and NBFCs which cannot
accept pubic deposits:
In the interest of depositors, RBI has
evolved a regulatory framework the salient features of which are outlined below
for the guidance of depositors. However, the investors must carefully evaluate
their investment decisions while investing in NBFCs, as the instructions below
are illustrative and not exhaustive,
§
An NBFC must be registered with
the Reserve Bank of India (RBI) and have specific authorization to accept
deposits from the public,
§
NBFC must display the
Certificate of Registration or a certified copy thereof at the Registered
office and other offices/branches,
§
Registration of an NBFC with
the RBI merely authorizes it to conduct the business of NBFC. RBI does not guarantee the repayment of
deposits accepted by NBFCs. NBFCs cannot use the name of the RBI in any manner
while conducting their business,
§
The NBFC whose application for
grant of Certificate of Registration (CoR) has been rejected or cancelled by
the RBI is neither authorized to accept fresh deposits nor renew existing
deposit. Such rejection or cancellation is also published in newspapers from
time to time. Besides, a list of NBFCs permitted to accept public deposits,
NBFCs whose applications for CoR has been rejected or whose CoR has been
cancelled by the RBI is available on the RBI's web site www.rbi.org.in,
§
NBFCs which accept deposits
should have minimum investment grade credit rating granted by an approved
credit rating agency for deposit collection, except certain Asset Finance (equipment
leasing and hire purchase finance) companies and Residuary Non-Banking
Companies (RNBCs),
§
NBFCs including RNBCs
cannot
ü Accept deposit for a period less than 12 months and more
than 60 months (84 months in case of RNBC),
ü Offer any gifts/incentives to solicit deposits from public.
§
If a deposit taking
NBFC fails to repay the deposit or the interest accrued thereon in accordance
with the terms and conditions of acceptance of such deposit, redressal of
grievance can be through the Regional Bench of the Company Law Board at
Chennai/Delhi/Kolkata/Mumbai,
§
Acceptance of deposits by
companies engaged in activities including plantation activities, commodities
trading, multilevel marketing, manufacturing activities, housing finance,
nidhis (mutual benefit financial companies), and potential nidhis (mutual
benefit company) and companies engaged in collective investment schemes do not
come under the purview/regulations of the RBI,
Non – Banking Financial Company – Micro
Finance Institution (NBFC – MFI)
Definition of NBFC – MFI
(Introduced w.e.f. 02/12/2011)
An NBFC-MFI is defined as a non-deposit
taking NBFC (other than a company licensed under Section 25 of the Indian
Companies Act, 1956) that fulfils the following conditions:
§
Minimum Net Owned Funds of Rs.5
crore. (For NBFC-MFIs registered in the North Eastern Region of the country,
the minimum NOF requirement shall stand at Rs. 2 crore),
§
Not less than 85% of its net
assets are in the nature of “qualifying assets.”
§
Further the income an NBFC-MFI
derives from the remaining 15 percent of assets shall be in accordance with the
regulations specified in that behalf.
An NBFC which
does not qualify as an NBFC-MFI shall not extend loans to micro finance sector
(Refer Appendix - 7), which in aggregate exceed 10% of its total assets.
Explanation:
1) “Net assets” are defined as total assets other
than cash and bank balances and money
market instruments.
2)
“Qualifying
asset” shall mean a loan which satisfies the following criteria:-
ü loan disbursed by an NBFC-MFI to a borrower
with a rural household annual income not exceeding Rs. 60,000 or urban and
semi-urban household income not exceeding Rs. 1,20,000;
ü loan amount does not exceed Rs. 35,000 in the
first cycle and Rs. 50,000 in subsequent cycles;
ü total indebtedness of the borrower does not
exceed Rs. 50,000;
ü tenure of the loan not to be less than 24
months for loan amount in excess of Rs. 15,000 with prepayment without penalty;
ü loan to be extended without collateral;
ü aggregate amount of loans, given for income
generation, is not less than 75 per cent of the total loans given by the MFIs;
ü loan is repayable on weekly, fortnightly or
monthly instalments at the choice of the borrower
3)
Definition
& meaning of Net Owned Fund – Refer Appendix – 3.
Regulatory
Framework - Prudential Norms
§ Capital requirement
ü All new NBFC-MFIs shall maintain a capital adequacy ratio consisting
of Tier I and Tier II Capital which shall not be less than 15 per cent of its
aggregate risk
weighted assets,
ü The total of Tier II Capital at any point of time, shall not exceed
100 per cent of Tier I Capital,
ü The risk weights for on-balance sheet assets and the credit
conversion factor for off-balance sheet items will be as provided in para 16 of
the Non-Banking Financial (Non-Deposit Accepting or Holding) Companies
Prudential Norms (Reserve bank) Directions 2007,
ü Among the existing NBFCs to be classified as
NBFC-MFIs, those with asset size less than Rs. 100 crore will be required to
comply with this norm w.e.f April 01, 2012. Those with asset size of Rs. 100
crore and above are already required to maintain minimum CRAR of 15%. The CRAR for those NBF-MFIs which have
more than 25% loan portfolio in the state of Andhra Pradesh will be at 12% for
the year 2011-12 only. Thereafter they have to maintain CRAR at 15%.
§
Asset classification & provisioning norms
With effect
from April 01, 2012 all NBFC-MFIs shall adopt the following norms(till then
they shall follow the asset classification and provisioning norms as given in
the Non-Banking Financial (Non-Deposit accepting or holding) Companies
Prudential Norms (Reserve Bank) Directions, 2007).
ü Standard asset means the asset in respect of which, no default in
repayment of principal or payment of interest is perceived and which does not
disclose any problem nor carry more than normal risk attached to the business;
( Asset classification norm)
ü Nonperforming asset means an asset for which, interest/principal
payment has remained overdue for a period of 90 days or more; (Asset
classification norm)
ü The aggregate loan provision to be maintained by NBFC-MFIs at any
point of time shall not be less than the higher of a) 1% of the outstanding
loan portfolio or b) 50% of the aggregate loan instalments which are overdue
for more than 90 days and less than 180 days and 100% of the aggregate loan
instalments which are overdue for 180 days or more; (Provisioning norms)
ü All other provisions of the Non-Banking Financial (Non-Deposit
accepting or holding) Companies Prudential Norms (Reserve Bank) Directions,
2007) will be applicable to NBFC-MFIs except as indicated therein.
Pricing
of credit
§ All NBFC-MFIs shall maintain an aggregate margin cap of not more
than 12%. The interest cost will be calculated on average fortnightly balances
of outstanding borrowings and interest income is to be calculated on average
fortnightly balances of outstanding loan portfolio of qualifying assets,
§ Interest on individual loans will not exceed 26% per annum and
calculated on a reducing balance basis,
§ Processing charges shall not be more than 1 % of gross loan amount.
Processing charges need not be included in the margin cap or the interest cap,
§
NBFC-MFIs shall recover only
the actual cost of insurance for group, or livestock, life, health for borrower
and spouse. Administrative charges where recovered, shall be as per IRDA
guidelines.
Infrastructure Debt Fund – Non Banking Financial Company
(IDF – NBFC)
The Finance Minister had
in his budget speech for the year 2011-2012 announced the setting up of
Infrastructure Debt Funds (IDFs), to facilitate the flow of long-term debt into
infrastructure projects. The IDF will be set up either as a trust or as a
company. A trust based IDF would normally be a Mutual Fund (MF) while a company
based IDF would normally be a NBFC. IDF- NBFC would raise resources through
issue of either Rupee or Dollar denominated bonds of minimum 5 year maturity.
The investors would be primarily domestic and off-shore institutional
investors, especially insurance and pension funds which would have long term
resources. IDF-MF would be regulated by SEBI while IDF-NBFC would be regulated
by the Reserve Bank.
Definition of IDF – NBFC
“Infrastructure Debt
Fund-Non-Banking Financial Company” or “IDF-NBFC” means a non-deposit taking
NBFC that has Net Owned Fund of Rs 300 crores or more and which invests only in
Public Private Partnerships (PPP) and post commencement operations date (COD) infrastructure
projects which have completed at least one year of satisfactory commercial
operation and becomes a party to a Tripartite Agreement.
Explanation: -
1)
“Tripartite Agreement” means an agreement between three parties,
namely, the Concessionaire, the Project Authority and IDF-NBFC that also binds
all the parties thereto to the terms and conditions of the other Agreements
referred to therein.
2)
“Concessionaire” means a party which has entered into an agreement
called ‘Concession Agreement’ with a Project Authority, for developing
infrastructure.
3)
“Project Authority” means an authority constituted by a statute for
the development of infrastructure in the country.
Credit rating
IDF-NBFC shall have at
the minimum, a credit rating grade of 'A' of CRISIL or equivalent rating issued
by other accredited rating agencies such as FITCH, CARE and ICRA.
Capital Adequacy
The IDF-NBFC shall have
at the minimum CRAR of 15 percent and Tier II Capital (Refer Appendix – 2) of
IDF–NBFC shall not exceed Tier I (Refer Appendix – 1).
For the purpose of
computing capital adequacy of the IDF-NBFC
§ bonds covering PPP and post commercial operations date (COD)
projects in existence over a year of commercial operation shall be assigned a
risk weight of 50 percent,
§ All other assets shall be risk weighted as per the extant
regulations as given in para 16 of the Non-Banking Financial (Non-Deposit
Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions,
2007.
Credit concentration norms
§ The maximum exposure that an IDF-NBFC can take on individual
projects will be at 50 percent of its total Capital Funds (Tier I plus Tier II
as defined in Para 2 (xx) and (xxi) for the Non-Banking Financial (Non-Deposit
Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions,
2007),
§ An additional exposure up to 10 per cent could be taken at the
discretion of the Board of the IDF-NBFC,
§ RBI may, upon receipt of an application from an IDF-NBFC and on
being satisfied that the financial position of the IDF-NBFC is satisfactory,
permit additional exposure up to 15 percent (over 60 percent) subject to such
conditions as it may deem fit to impose regarding additional prudential
safeguards.
Investment
IDF-NBFCs shall invest
only in PPP and post COD infrastructure projects which have completed at least
one year of satisfactory commercial operation and are a party to a Tripartite
Agreement with the Concessionaire and the Project Authority for ensuring a
compulsory buyout with termination payment.
Other prudential norms
All other prudential
norms as specified in Non-Banking Financial (Non-Deposit Accepting or Holding)
Companies Prudential Norms (Reserve Bank) Directions, 2007 including income
recognition, asset classification and provisioning norms will be applicable for
IDF-NBFCs.
Infrastructure Finance Company (IFC)
Definition
“Infrastructure Finance Company” means a
non-banking finance company which deploys at least 75% of its total assets in
infrastructure loans.
Requirements
for IFC
As per regulation 19A
of “Non-Banking Financial (Non-Deposit Accepting or Holding) Companies
Prudential Norms (Reserve Bank) Directions, 2007”, an IFC shall, -
§ not accept deposits from the public,
§ have net owned funds of Rs. 300 crore or above,
§ have obtained a minimum credit rating 'A' or equivalent of CRISIL,
FITCH, CARE, ICRA or equivalent rating by any other credit rating agency
accredited by RBI,
§ have a CRAR of 15 percent (with a minimum Tier I capital of 10
percent).
Credit concentration norms
As per regulation
20(12A) of the above directions an IFCs may exceed the concentration of credit
norms as provided in paragraph 18 of the aforesaid Directions as under
§ in lending to
ü any single borrower by ten per cent of its owned fund; and
ü any single group of borrowers by fifteen per cent of its owned fund;
§ in lending and investing (loans/investments taken together) by
ü five percent of its owned fund to a single party; and
ü ten percent of its owned fund to a single group of parties
Increase in
exposure limits for infrastructure related loan and investments
The
systematically important non-deposit taking non-banking financial companies may
exceed the concentration of credit/investment norms, as provided in paragraph
18 of the Non-Banking Financial (Non-Deposit Accepting or Holding) Companies
Prudential Norms (Reserve Bank) Directions, 2007, by 5 per cent for any single
party & by 10 per cent for a single group of parties, if the additional
exposure is on account of infrastructure loan and/or investment.
Core Investment
Company (CIC)
Directions – Core Investment Companies (Reserve Bank) Directions,
2011
The above directions shall apply
to every Core Investment Company, that is to say, a non-banking financial
company carrying on the business of acquisition of shares and securities and
which satisfies the following conditions as on the date of the last audited balance
sheet:-
§ it holds not less than 90% of its net assets in the form of
investment in equity shares, preference shares, bonds, debentures, debt or
loans in group companies;
§ its investments in the equity shares (including instruments
compulsorily convertible into equity shares within a period not exceeding 10
years from the date of issue) in group companies constitutes not less than 60%
of its net assets as mentioned in clause (i) above;
§ it does not trade in its investments in shares, bonds, debentures,
debt or loans in group companies except through block sale for the purpose of
dilution or disinvestment;
§ it does not carry on any other financial activity referred to in Section
45I(c) and 45I(f) of the Reserve Bank of India Act, 1934 except
ü
investment in
(i)
bank deposits,
(ii)
money market instruments,
including money market mutual funds
(iii)
government securities, and
(iv)
bonds or debentures issued by
group companies
ü granting of loans to group companies; and
ü issuing guarantees on behalf of group companies.
Explanation:
1) “net assets” means total assets excluding –
ü cash and bank balances;
ü investment in money market instruments and money market mutual
funds;
ü advance payments of taxes; and
ü deferred tax payment.
Meaning of Systematically important Core Investment Company
It means a Core
Investment Company fulfilling both the following conditions:
§ Having total assets of not less than Rs.100 crore, either
individually or in aggregate along with other Core Investment Companies in the
Group;
§ Raises or holds public funds
Explanation:
1)
“Companies
in the Group”, shall mean an arrangement
involving two or more entities related to each other through any of the
following relationships : Subsidiary – parent (defined in terms of AS 21),
Joint venture (defined in terms of AS 27), Associate ( defined in terms of AS
23), Promoter-promotee (as provided in the SEBI (Acquisition of Shares and
Takeover) Regulations, 1997) for listed companies, a related party (defined in
terms of AS 18), Common brand name, and investment in equity shares of 20% and
above.
2)
“Public
funds'; shall include funds raised
either directly or indirectly through public deposits, Commercial Papers,
debentures, inter-corporate deposits and bank finance but excludes funds raised
by issue of instruments compulsorily convertible into equity shares within a
period not exceeding 10 years from the date of issue.
3)
“Total asset” means the
total of all assets appearing on the assets side of the balance sheet.
Registration
Every Core Investment Company shall apply to the
Reserve Bank of India for grant of Certificate of Registration within a period
of three months from the date of becoming a CIC-ND-SI.
Capital
requirements
Adjusted Net Worth of a CIC-ND-SI shall at no point
of time be less than 30% of its aggregate risk weighted assets on balance sheet
and risk adjusted value of off-balance sheet items as on the date of the last
audited balance sheet as at the end of the financial year.
Submission
of Annual Statutory Auditors Certificate
Every CIC-ND-SI shall submit an annual certificate
from its statutory auditors regarding compliance with the requirements of these
directions within a period of one month from the date of finalisation of the
balance-sheet.
Leverage ratio
The outside liabilities (Refer Appendix – 10) of a
CIC-ND-SI shall at no point of time exceed 2.5 times its Adjusted Net Worth as
on the date of the last audited balance sheet as at the end of the financial
year.
Asset Finance
Company (AFC)/ Investment Company (IC)/ Loan Company (LC)
Definition
Asset Finance Company means any company which is a
financial institution carrying on as its principal business the financing of
physical assets supportive productive/economic activity, such as automobiles,
tractors, lathe machines, generator sets, earth moving and material handling
equipments , moving on own power and general purpose industrial machines.
Investment
Company
means any company which is a financial institution carrying on as its principal
business the acquisition of securities.
Loan company means any company which is a
financial institution carrying on as its principal business the providing of
finance whether by making loans or
advances or otherwise for any activity other than its own but does not include
an Asset Finance Company.
Minimum credit rating – Not applicable
No non-banking
financial company having a Net Owned Fund of Rs. 25 lakh and above shall accept
public deposits unless it has obtained minimum investment grade or other
specified credit rating for fixed deposits from any one of the approved credit
rating agencies at least once a
year with a copy of the rating is sent to the Reserve Bank of India along with
return on prudential norms, provided that this clause shall not apply to an
Asset Finance Company. The names of approved credit rating agencies and the
minimum credit rating shall be as follows:
Name of the Agency
|
Minimum Investment Grade rating
|
The Credit Rating Information Services of India Ltd. (CRISIL)
|
FA – (FA Minus)
|
ICRA Ltd.
|
MA – (MA Minus)
|
Credit Analysis & Research Ltd. (CARE)
|
CARE BBB(FD)
|
FITCH Ratings India Private Ltd.
|
TA – (ind)(FD)
|
Change in credit rating
In the event of
upgrading or downgrading of credit rating of any non-banking financial company
to any level from the level previously held by the non-banking financial
company, it shall within 15 days of its being so rated inform, in writing, of
such upgrading/downgrading to the RBI.
Prohibition from
accepting demand deposit
On and from 31st
January, 1998 no non-banking financial company shall accept or renew any public
deposit whether accepted before or after 31st January, 1998, which
is repayable on demand.
Period of public deposit
On and from 31st
January, 1998, no non-banking financial company shall accept or renew any
public deposit whether accepted before or after 31st January, 1998,
unless such deposit is repayable after a period of 12 months but not later than
60 months from the date of acceptance or renewal thereof.
Ceiling on quantum of deposits
No Asset Finance Company or
Loan Company or Investment Company shall, accept or renew public deposit except
as provided hereunder –
Sl. No.
|
NBFC
|
Compliance
|
Particulars
|
1.
|
AFC
|
§ Having NOF = 25 lakhs or
more;
§ Complying with all the
prudential norms with capital adequacy ratio of not less than 15% as per last
audited balance sheet
|
AFC may accept or renew public deposit, together with the amounts
outstanding in the books of the company as on the date of acceptance or
renewal of such deposit, not exceeding one and one half times of its NOF or
public deposit up to 10 Crore of rupees, whichever is lower.
|
2.
|
AFC
|
§ Having NOF = 25 lakhs or
more;
§ Complying with all the
prudential norms; and
§ Having minimum investment
grade credit rating.
|
AFC may accept or renew public deposit, together with the amounts
remaining outstanding in the books of the company as on the date of
acceptance or renewal of such deposit, not exceeding 4 times of its NOF.
|
3.
|
LC/IC
|
§ Having NOF of = 25 lakhs or
more;
§ Having minimum investment
grade credit rating; and
§ Complying with all the
prudential norms with capital adequacy ratio of not less than 15% as per last
audited balance sheet.
|
LC/IC may accept or renew public deposit, together with the amounts
remaining outstanding in the books of the company as on the date of
acceptance or renewal of such deposit, not exceeding one and one-half times
of its NOF.
|
Downgrading of credit rating
In the event of
downgrading of credit rating below the minimum specified investment grade as
provided for in paragraph 4(4), a non-banking financial company shall
regularize the excess deposit as provided hereunder:
Asset Finance Company
|
Loan Company/Investment
Company
|
An AFC shall -
|
A loan company
or an investment company shall, -
|
a)
With immediate effect, stop accepting public deposit, if it is
already holding public deposit to the extent permissible under the directions;
|
a) With immediate effect, stop
accepting public deposit;
|
b)
Report the position within 15 working days to the RBI; and
|
b) Report the position within 15 working
days to the RBI; and
|
c) Reduce, within 3 years
from the date of such downgrading of credit rating, the amount of excess
public deposits to nil or the appropriate extent permissible under the
directions, to which it is entitled to accept, by repayment as and when such
deposit falls due or otherwise.
|
c) Reduce, within 3 years
from the date of such downgrading of credit rating, the amount of excess
public deposits to nil by repayment as and when such deposit falls due or
otherwise.
|
Appendix
1.
“Tier I Capital” means
owned fund as reduced by investment in shares of other non-banking financial
companies and in shares, debentures, bonds, outstanding loans and advances
including hire purchase and lease finance made to and deposits with
subsidiaries and companies in the same group exceeding, in aggregate, ten per
cent of the owned fund; and perpetual debt instruments issued by a systematically
important non-deposit taking non-banking financial company in each year to the
extent it does not exceed 15 per cent of the aggregate Tier I Capital of such
company as on March 31 of the previous accounting year,
2.
“Tier II
capital” includes the following:
a)
preference shares other than those which are
compulsorily convertible into equity;
b)
revaluation reserves at discounted rate of fifty five percent;
c)
general provisions (including that for Standard Assets) and loss
reserves to the extent these are not attributable to actual diminution in value
or identifiable potential loss in any specific asset and are available to meet
unexpected losses, to the extent of one and one fourth percent of risk weighted
assets;
d)
hybrid debt capital instruments (Refer Appendix – 8);
e)
subordinated debt (Refer Appendix – 9); and
f)
perpetual debt instruments issued by a
systematically important non-deposit taking non-banking financial company which
is in excess of what qualifies for Tier I Capital
to the extent the aggregate does not exceed Tier
I capital.
3. `Net owned fund’ means net owned fund as
defined under section 45-IA of the Reserve Bank of India Act, 1934 (2 of 1934),
including the paid up preference shares which are compulsorily convertible into
equity ;
Sl. No.
|
Particulars
|
Amount Rs.
|
1.
|
Capital
Funds:
(i)
Paid up equity capital
|
311
|
(ii)
Paid-up preference shares which
are compulsorily convertible to Equity
|
312
|
(iii)
Free Reserves (please see
instruction No.1 given below)
|
313
|
2.
|
Total (311+312+313) = A
|
310
|
3.
|
(i)
Accumulated balance of loss
|
321
|
(ii)
Balance of deferred revenue
expenditure
|
322
|
(iii)
Other intangible assets (please
specify)
|
323
|
4.
|
Total (321+322+323) = B
|
320
|
5.
|
Owned fund (A-B) i.e. (310-320) =
C
|
330
|
6.
|
Book
value of investments in shares of:
(i)
Subsidiaries of the company
|
341
|
(ii)
Companies in the same group
|
342
|
(iii)
All other Non-Banking Financial
companies
|
343
|
7.
|
Book
value of investments in debentures & bonds of:
(i)
Subsidiaries of the company
|
344
|
(ii)
Companies in the same group
|
345
|
8.
|
Outstanding
loans and advances including bills purchased/ discounted, inter-corporate
deposits, hire purchase and lease finance, CPs with:
(i)
Subsidiaries of the Company
|
346
|
(ii)
Companies in the same group
|
347
|
9.
|
Total (341 to 347) = D
|
340
|
10.
|
(340
in excess of 10% of 330) = E
|
351
|
11.
|
Net owned fund (330 – 351) = (C -
E)
|
350
|
12.
|
Paid-up
preference Share Capital not compulsorily convertible, as per latest balance
sheet
|
361
|
13.
|
Paid-up
preference Share Capital not compulsorily convertible, as on the date of this
Return
|
362
|
14.
|
Total
liabilities as per the latest balance sheet preceding the date of Return
|
363
|
15.
|
Total
liability as on the date of this Return
|
364
|
Instructions:
§ “Free Reserves” mentioned
under item 1(iii) above shall include the balance in the Share Premium Account,
Capital and Debenture Redemption Reserves and any other Reserve shown or
published in the Balance Sheet and created through an allocation of Profits
(including credit balance of Profit & Loss Account) but not being :
(i)
a Reserve created for repayment of any
future liability or for depreciation of assets or for provision against
non-performing assets / bad debts; or
(ii)
a Reserve created by Revaluation of the
Assets of the Company.
§ Hire Purchase and Lease Finance
mean :
(i)
in the case of hire purchase asset, the
amount of future instalments receivable reduced by the balance of the unmatured
finance charges;
and
(ii)
in the case of lease assets, the
depreciated book value of the lease asset plus/minus the balance in the lease
adjustment account;
Amount due but not received should be added
in both the cases.
4. “Infrastructure Loan” means a credit
facility extended by non-banking financial companies to a borrower, by way of
term loan, project loan subscription to bonds/debentures/preference
shares/equity shares in a project company acquired as a part of the project
finance package such that such subscription amount to be “in the nature of
advance” or any other form of long term funded facility provided to a borrower
company engaged in:
§
Developing, or
§
Operating and maintaining,
or
§
Developing, operating and
maintaining
Any infrastructure
facility that is a project in any of the following sectors:
(a) a road, including toll road, a bridge or a rail system;
(b) a highway project including other activities being an integral
part of the highway project;
(c) a port, airport, inland waterway or inland port;
(d) a water supply project, irrigation project, water treatment
system, sanitation and sewerage system or solid waste management system;
(e) telecommunication
services whether basic or cellular, including radio paging, domestic satellite
service (i.e. a satellite owned and operated by an Indian company for providing
tele communication service), Telecom towers, network of trunking, broadband
network and internet services;
(f) An industrial park or special economic zone;
(g) Generation or generation and distribution of power;
(h) Transmission or distribution of power by laying a network of new
transmission or distribution lines;
(ha) laying down
and/or maintenance of gas, crude oil and petroleum pipelines;
(i) Construction relating to projects involving agro-processing and
supply of inputs to agriculture;
(j) Construction for preservation and storage of processed agro-products,
perishable goods such as fruits, vegetables and flowers including testing
facilities for quality;
(k) Omitted
(l) Any other infrastructure facility of similar nature.
5. On balance sheet items
In these Directions, degrees of credit risk expressed as
percentage weightages have been assigned to balance sheet assets. Hence, the
value of each asset / item requires to be multiplied by the relevant risk
weights to arrive at risk adjusted value of assets. The aggregate shall be
taken into account for reckoning the minimum capital ratio. The risk weighted
asset shall be calculated as the weighted aggregate of funded items as detailed
hereunder:
Weighted
risk assets - On-Balance Sheet items
|
Percentage
weight
|
I.
Cash and bank balances including
fixed deposits and certificates of deposits with banks
|
0
|
II.
Investments
|
|
a)
Approved
securities [Except at (c) below]
|
0
|
b)
Bonds
of public sector banks
|
20
|
c)
Fixed
deposits/certificates of deposits/ bonds of public financial institutions
|
100
|
d)
Shares
of all companies and debentures / bonds/commercial papers of all companies
and units of all mutual funds
|
100
|
III.
Current assets
|
|
a)
Stock
on hire (net book value)
|
100
|
b)
Intercorporate
loans/deposits
|
100
|
c)
Loans
and advances fully secured against deposits held
|
0
|
d)
Loans
to staff
|
0
|
e)
Other
secured loans and advances considered good
|
100
|
f)
Bills
purchased/discounted
|
100
|
g)
Others
(To be specified)
|
100
|
IV.
Fixed Assets (net of depreciation)
|
|
a)
Assets
leased out (net book value)
|
100
|
b)
Premises
|
100
|
c)
Furniture
& Fixtures
|
100
|
V.
Other assets
|
|
a)
Income
tax deducted at source (net of provision)
|
0
|
b)
Advance
tax paid (net of provision)
|
0
|
c)
Interest
due on Government securities
|
0
|
d)
Others
(to be specified)
|
100
|
Notes:
(a)
Netting may be done only in
respect of assets where provisions for depreciation or for bad and doubtful
debts have been made.
(b)
Assets which have been deducted
from owned fund to arrive at net owned fund shall have a weightage of `zero’.
(c)
While calculating the aggregate
of funded exposure of a borrower for the purpose of assignment of risk weight,
such non-banking financial companies may net off the amount of cash
margin/caution money/security deposits (against which right to set-off is
available) held as collateral against the advances out of the total outstanding
exposure of the borrower.
(d)
The counterparty credit risk,
arising out of exposure of CICs-ND-SI to CCIL on account of securities
financing transactions (CBLOs) will carry a risk weight of zero, as it is
presumed that the CCP’s exposures to their counterparties are fully
collateralised on a daily basis, thereby providing protection for the CCP’s
credit risk exposures. The deposits / collaterals kept by CICs-ND-SI with CCIL
will attract a risk weight of 20%.
6.
Off – balance sheet items
In these Directions, degrees of
credit risk exposure attached to off-balance sheet items have been expressed as
percentage of credit conversion factor. Hence, the face value of each item
requires to be first multiplied by the relevant conversion factor to arrive at
risk adjusted value of off-balance sheet item. The aggregate shall be taken
into account for reckoning the minimum capital ratio. This shall have to be
again multiplied by the risk weight of 100. The risk adjusted value of the
off-balance sheet items shall be calculated as per the credit conversion
factors of non-funded items as detailed hereunder : -
Nature of item
|
Credit conversion factor Percentage
|
i.
Financial
& other guarantees
|
100
|
ii.
Share/debenture
underwriting obligations
|
50
|
iii.
Partly-paid
shares/debentures
|
100
|
iv.
Bills
discounted/rediscounted
|
100
|
v.
Lease
contracts entered into but yet to be executed
|
100
|
7.
“Micro finance sector” is engaged in
providing credit and other financial services to the poor households and their
micro enterprises as an extended arm of the banking system; micro finance
sector lacks a formal statutory framework for its financial activities.
8.
“Hybrid debt” means capital instrument
which possess certain characteristics of equity as well as of debt.
9.
“Subordinated debt” means an instrument,
which is fully paid up, is unsecured and is subordinated to the claims of other
creditors and is free from restrictive clauses and is not redeemable at the
instance of the holder or without the consent of the supervisory authority of
the non-banking financial company. The book value of such instrument shall be
subjected to discounting as provided hereunder:
Remaining maturity of the instruments Rate of discount
a)
Up to 1 year 100
per cent
b)
More than 1 year but up to 2
years 80
per cent
c)
More than 2 years but up to 3
years 60 per
cent
d)
More than 3 years but up to 4
years 40 per
cent
e)
More than 4 years but up to 5
years 20 per cent
To the extent such discounted value does not exceed 50%
of Tier I capital.
10.
“Outside liabilities” means total
liabilities as appearing on the liabilities side of the balance sheet excluding
‘paid-up capital’ and ‘reserves and surplus’, instruments compulsorily
convertible in to equity shares within a period not exceeding 10 years from the
date of issue but including all forms of debt and obligations having the
characteristics of debt, whether created by issue of hybrid instruments or
otherwise, and value of guarantees issued, whether appearing on the balance
sheet or not.
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