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RBI tightens NBFC rules, brings NPA norms on par with banks

The Reserve Bank of India announced a revised framework for non-banking financial companies (NBFCs), raising the minimum net owned funds limit while capping deposit acceptance and aligning bad loan norms with banks, reports CNBC-TV18’s Latha Venkatesh.

The Reserve Bank of India announced a revised framework for non-banking financial companies (NBFCs), raising the minimum net owned funds limit while capping deposit acceptance and aligning bad loan norms with banks, reports CNBC-TV18’s Latha Venkatesh.

Among the important norms laid out in the framework: all NBFCs will have to take a certificate of registration for continuing business and they must have net-owned funds of at least Rs 1 crore by 2016 and Rs 2 crore by 2017.

Rules have also been changed for asset finance companies, who until now could easily take public deposits — they now have to obtain an investment-grade rating from a rating agency but this rule too is applicable from March 2016.

The most important ones, though, are the changes in the bad loan rules. As of now, NBFCs mark a loan as bad loan only if the interest is not paid for six months while for banks it is three months.

Now NBFCs have to mark a loan as bad loan if the interest has not been paid for 90 days or 3 months. This, however, kicks in only by March 2018. As of now the six months remain for this financial year (FY15), for the next financial year (FY16), a loan is bad if it is not paid for 5 months, and it turns bad if not paid within 4 months in FY17.

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