RBI circular on NBFC deposits – aftermath of Margadarsi?
Recently we had carried a detailed story on the huge deposits collected by Margadarsi, a HUF owned by press baron Ramoji Rao and the RBI’s request to Ramoji to protect depositor’s interests. Now the RBI has issued a draft circular regarding deposits by NBFCs. The salient features:-
All systemically important non deposit taking NBFCs shall :
i) maintain a minimum capital adequacy ratio of 10%;
ii) comply with single and group exposure norms, which are similar to those applicable to deposit taking NBFCs;
Banks may assume exposure on a single NBFC (both deposit taking and non-deposit taking) up to 10% of their capital funds, and to all NBFCs up to 40% of their capital funds. These limits may be exceeded by 5% and 10% of capital funds, respectively, if the additional exposure is because of funds on-lent by the NBFCs to infrastructure sector.
NBFCs promoted by the parent / group of a foreign bank having presence in India, which is a subsidiary of the foreign bank’s parent / group or where the parent / group is having management control would be treated as part of that foreign bank’s operations in India and brought under the ambit of consolidated prudential regulations.
NBFCs which are subsidiaries of banks or where banks have a management control will also be allowed to offer discretionary portfolio management scheme to their clients, on a case by case basis.
Banks in India, including foreign banks operating in India, shall not hold more than 10 % of the paid up equity capital of a deposit taking NBFC. This restriction would, however, not apply to investment in housing finance companies.
NBFCs set up under the automatic route will be permitted to undertake only those 19 activities which are permitted under the automatic route. Diversification into any other activity would require the prior approval of FIPB. Similarly a company which has entered into an area permitted under the FDI policy (such as software) and seeks to diversify into NBFC sector subsequently would also have to ensure compliance with the minimum capitalisation norms and other regulations as applicable.
Taking into account the likelihood that some of the banks/NBFCs may not be in compliance with some of the elements of the revised regulatory framework it has been decided to provide for a transition period up to end March 2007. Accordingly, banks and NBFCs should comply with all elements of the revised framework with effect from April 1, 2007.
And Margadarsi says none of these restrictions are applicable to it as it is a HUF. Banks cannot collect funds, big corporations cannot collect funds, NBFCs cannot collect funds without restrictions, but an HUF, an individual can collect 2200 Crores and lose 110 Crores of it and still RBI requests the man to ensure that deposits are safe. There is something terribly illogical about all this. Is RBI helpless or have they also bungled?
RBI DBOD. No. FSD. 5046 / 24.01.028/ 2006-07. Dated: November 30, 2006