RBI Policy 2012 - 2013

The RBI unveiled its Monetary Policy Statement 2012 - 2013 on April 17, 2012. A few relevant proposals from the NBFC perspective are:

1. The Reserve Bank had constituted a Working Group (chaired by Mrs. Usha Thorat) to examine a range of emerging issues pertaining to the regulation of the NBFC sector in view of their growing importance and inter-connectedness with other segments of the financial system, which would have a bearing on financial stability. The report was placed on the Reserve Bank’s website in August 2011 for feedback from the public. The Policy Statement states that the RBI proposes to issue the draft guidelines on the regulatory framework for NBFCs by end-June 2012.

2. Core investment companies (CICs) have, as their primary activity, investment in equity shares of group entities for the sake of holding stake in these companies. As a holding company, a CIC may also need to invest in both financial and non-financial entities overseas. Accordingly, the RBI proposes to place the draft guidelines on overseas investment by CICs on the RBI website for public comments by end-April 2012.

3. The rapid expansion of NBFCs lending against gold has led to their increased dependence on public funds, including bank finance. To supplement the prudential measures already implemented for such NBFCs, the RBI has proposed that:

(a) banks should reduce their regulatory exposure ceiling in a single NBFC, having gold loans to the extent of 50 per cent or more of its total financial assets, from the existing 10 per cent to 7.5 per cent of bank’s capital funds. However, exposure ceiling may go up by 5 per cent, i.e., up to 12.5 per cent of bank’s capital funds if the additional exposure is on account of funds on-lent by NBFCs to the infrastructure sector; and

(b) banks should have an internal sub-limit on their aggregate exposure to all such NBFCs, having gold loans to the extent of 50 per cent or more of their total financial assets, taken together.

The RBI proposes to issue detailed guidelines in this regard separately. 

4. The RBI has also constituted a Working Group (chaired by Mr. K U B Rao) to study various aspects/ issues emerging from NBFCs lending against gold.