Finmin urges RBI to grant bank okay to strong NBFCs

NEW DELHI: Big non-banking financial companies (NBFCs) with a consistent track record of profitability and sound capital adequacy ratios may be allowed to convert themselves into banks.

The government has written a letter to the Reserve Bank of India, asking if NBFCs having low non-performing assets and a wide network could be given more flexibility, a finance ministry official told ET.

"We've requested them (the RBI) to look if the guidelines for granting bank licences can be moderated for performing NBFCs," the official said.

RBI has reservations about opening up the banking space and has put on hold plans to allow foreign banks to acquire controlling stake in private banks in the country.

The central bank is, however, not averse to allowing NBFCs to convert themselves into banks if they are able to merge with a bank.

The last NBFC to be given a banking licence was Kotak Mahindra in 2003. Big NBFCs like Reliance Capital, IFCI, Cholamandalam and Indiabulls are said to have evinced interest in turning themselves into banks.

"NBFCs which are involved in different portfolios like personal loan, mutual funds, real estate and asset financing will benefit the most," said FIDC co-chairman Raman Aggarwal. FIDC is a self-regulatory body for asset-financing NBFCs.

According to Mr Aggarwal, this will help them get funds from different sources and for different maturity periods. "Also, they'll be covered under the banking regulations, such as debt recovery tribunals," he added.

The current cost of funds for NBFCs is still in the range of 15% while that for banks is around 7% to 8%. Also, NBFCs are not covered under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFESI) Act, which allows banks to take over assets of defaulting borrowers and secure their loans.

The central bank has permitted systemically important non-deposit-taking NBFCs (NBFC-ND-SI) to raise perpetual debt instruments.

They've also been given relaxation in capital adequacy norms. RBI had asked all NBFCs to maintain a CRAR requirement of 12% by March 2010 and 15% by March 2011. Currently there are over 350 AFCs and 10 NBFC-ND-SI.