Top NBFCs seek a glide path for switch to banking avatar – The Economic Times

Clipped from: https://economictimes.indiatimes.com/markets/stocks/news/top-nbfcs-seek-a-glide-path-for-switch-to-banking-avatar/articleshow/80916439.cms

Synopsis–Non-bank have also argued that NBFCs in the upper level be given greater flexibility on issues like deposit acceptance, raising of funds through the ECB route and setting up of overseas subsidiaries.

Mumbai: Non-bank finance companies (NBFC) have suggested that the central bank lay down a transition path for top-tier shadow lenders wishing to convert into high-street banks as they are largely prepared for such a conversion.

In a five-page letter addressed to the chief general manager in charge of regulations at Mint Road, non-bank lenders have also suggested allowing a 3-4 year transitory period before bringing down NPA recognition norms to 90 days from the present 180 days.

“The Reserve Bank of India may kindly articulate a road map for NBFC-UL (Upper Layer) to convert themselves into banks,” reads the letter sent by Finance Industry Development Council (FIDC), an NBFC grouping.

“The level of governance expected of such NBFCs being at an enhanced level is expected to be nearly ready for such a transition, should they opt to do so.”

Non-bank have also argued that NBFCs in the upper level be given greater flexibility on issues like deposit acceptance, raising of funds through the ECB route and setting up of overseas subsidiaries.

The RBI last month proposed a four-layered structure for regulating non-banking finance companies aimed at tighter capital, stricter lending and governance norms to prevent defaults such as those at Infrastructure Leasing & Financial Services (IL&FS) and Dewan Housing Finance Corp. Ltd (DHFL).

Top NBFCs Seek a Glide Path for Switch to Banking Avatar

“The direction of the proposed RBI guidelines for NBFCs seems to hint toward a guided path for the Upper Layer NBFCs to be bank-licence ready,” said Nachiket Naik, head of corporate lending at Arka Fincap. “Equalisation of governance and provisioning norms for these NBFCs with banks is an important step in the direction.”

The discussion paper on the revised regulatory framework for NBFCs outlined a “base layer, middle layer, upper layer and a possible top layer” and indicated its intentions to reduce regulatory arbitrage with banks.

The NBFC grouping has also requested halving risk weights (50% from 100%) for lesser credit risk sectors like commercial vehicles, construction equipment and gold loans among others. NBFCs also want risk weights in the three- and two-wheeler segments to be brought down to 75%.

Under the present dispensation, all the assets financed by NBFCs, carry risk weights of 100% or 150%.

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