The draft guidelines have increased CAR of systemically-important non-deposit-taking NBFCs from 10% to 12% immediately, and to 15% by April 1, 2009. This would limit the way the NBFCs leverage their capital. Some experts say that with a 15% CAR, MFIs can leverage only up to five times. 

The regulator’s concern was triggered because NBFCs raised short-term resources to fund their asset books.

So far, only deposit-taking NBFCs were subject to prudential regulations on income recognition, asset classification and provisioning capital adequacy, among others, while non-deposit-taking NBFCs were subject to minimal regulation. Most of the systemically-important NBFCs are those promoted by banks. There are 173 systemically-important non-deposit-taking NBFCs.

According to RBI, “In view of recent international developments, the risk associated with highly-leveraged borrowings and the reliance on short-term funds by some NBFCs, there have been concerns regarding the enhanced systemic risk associated with the activities of the entities.”

Non-deposit-taking NBFCs with an asset size of over Rs 100 crore would be considered NBFC-ND-SI, and a new regulatory framework involving prescription of capital adequacy and exposure norms for such NBFC-ND-SI was put in place from April 1, 2007. The companies were advised to maintain a minimum capital-to-risk weighted assets (CRAR) ratio of 10%.