The author has posted comments on this articleTNN | Dec 13, 2012, 05.45AM IST
MUMBAI: Stocks of finance companies rose in intra-day trade on Wednesday on news that BJP had reached an agreement with the government on passing the Banking Regulation Amendment bill.
Stocks of companies that were keen on banking licence, including Reliance Capital and Larsen & Toubro Finance Holdings, closed more than 4% higher. Others such as M&M Finance and Shriram Transport Finance were up in intra-day trade but closed almost flat. Although the government has been nudging RBI to issue a few bank licences to corporate houses, the central bank has been holding back on the grounds that the centre should first enact amendments to the Banking Regulation Act giving more powers to the central bank.
Among other things the amendments will give RBI the power to supersede bank boards. It will also allow the central bank to inspect books of conglomerates that have a bank in their group. Once the amendments are in force any potentially large investor in a bank will need to take RBI permission before buying shares.
While Banking Regulation Bill raises hopes for NBFCs, there are also new regulatory challenges. RBI has issued new prudential norms based on recommendations of a committee headed by Usha Thorat. The new norms require NBFCs to have a tier-one capital adequacy ratio (CAR) of 12% by April 2014. At present, the tier-I requirement is 7.5% for NBFCs except those in infrastructure where it is 10% and for those lending against gold where it is already 12%.
Non-banking finance companies are also required to adhere to the same norms as banks for classifying an advance as a bad loan. At present , if a borrower does not repay a loan for 180 to 360 days the advance has to be classified as a bad loan compared to 90 days for banks. “It has been decided that the asset classification and provisioning norms should, in a phased manner, be made similar to that of banks for all registered NBFCs irrespective of size. The same will be implemented in phases, viz; a 120-day norm shall be applied from April 01, 2014 to March 31, 2015 and a 90-day norm thereafter. A one-time adjustment of the repayment schedule which shall not amount to restructuring will, however, be permitted,” RBI said.
