Now even non-deposit accepting NBFCs of asset size of Rs. 50 crores subject to reporting to RBI

Reserve Bank of India issued on 24^th September 2008 (see here) certain reporting requirements for certain non-deposit accepting non-banking financial companies (NBFCs). What is important though is that these will be applicable to such NBFCs of asset size Rs. 50 crores but less than Rs. 100 crores. Though such entities are not given the status of “Systemically Important” NBFCs, effectively, it is seen that the benchmark or asset size is lowered to Rs. 50 crores though this new category would be exposed to lesser requirements, at least for now.

Let us consider some background.

Normally, Reserve Bank of India governs only deposit-accepting non-banking financial companies (NBFCs). Non-depositing NBFCs have generally been left alone for most purposes after initial registration. However, it was realized over a period of time that such non-deposit accepting entities had become relatively large in terms of asset size and their acts, omissions and defaults could have wider repercussions on the financial markets generally. Thus the concept of “Systemically Important” non-deposit accepting NBFCs was introduced (also called ND-SI). They were mainly required to give some reports though some substantive requirements were also placed. What is important is that initially the minimum size of an NBFC to reach the “Systemically Important” status was Rs. 500 crores. Over a period of time this limit was gradually lowered and today it stands at Rs. 100 crores.

The latest circular cited above now creates yet another category – no term has apparently yet been given to it – where the asset size is between Rs. 50 crores and Rs. 100 crores. Thus, this requirement is to catch them early. Once the NBFC reaches the asset size of Rs. 100 crores, it achieves the status of “Systemically Important” and would be subject to more comprehensive requirements.

This new reporting requirement is quarterly and is with immediate effect, i.e., the first report is to be given for the quarter ended 30^th September 2008 though for this first period, the report may be given by the first week of December 2008 and thereafter within one month of the end of each quarter. These reports are to be filed electronically but the mechanics of this would be circulated by the Reserve Bank of India later on.

The sub-prime crisis is too fresh in the mind to be even discussed here and the supervision of the Reserve Bank of India of non-deposit taking NBFCs can be only viewed in this context as good conservative measures. The problem though is that complex regulatory requirements are created at times of crisis but continue indefinitely even after the crisis passes by.