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Higher CAR – RBI Draft Guidelines for NBFC’s ; WILL Impact MFI’s

Higher capital adequacy ratio (CAR) mooted by RBI in it draft guidelines for non-banking financial companies (NBFC), including microfinance institutions (MFI), will put the organisations under pressure to boost their capital requirements by half to 15% by April 2009. MFIs in the country are highly leveraged since they are dependent on borrowings. They could find it difficult to bring in additional capital to meet the norms.

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%.


Mobile Banking Transaction in India – Operative Guidelines (First Draft – June08)

Click the following link to download the draft guidelines:- 84978-rbi-mobile-payment-operative-guidelines 

 An estimated 750 million households worldwide don’t have a bank account. In Mexico, cash transactions constitute 79% of payments. In India, 91%. In China, 82%. Even in the U.S., 80 million people are in the category of the under-banked.

The potential for mobile micropayment has attracted other entrepreneurs as well.

Infact The Reserve Bank of India’s panel on Thursday recommended that banks when they offer mobile payments service must ensure that customers having mobile phones of any network operator should be in a position to request for service.

Restriction, if any, to the customers of particular mobile operator may be only during the pilot phase, the RBI stated in a draft operating guidelines for mobile payments in India.

Long-term goal

 The RBI panel recommended that banks should get the mobile payments scheme approved by their respective boards or local board (for foreign banks) before offering it to their customers.

The board approval must document the extent of operational and fraud risk assumed by the bank and the bank’s processes and policies designed to mitigate such risk.

Banks which have already started offering mobile payment service may review the position and comply to these guidelines within three months from the issuance of these guidelines, it stated.

The long-term goal of mobile payment framework in India, the RBI said, would be to enable funds transfer from an account in one bank to any other account in the same or any other bank on a real time basis irrespective of mobile network a customer has subscribed to.

This would require inter-operability between mobile payments service providers and banks and development of a host of message formats.

Banks may keep this objective while developing solution or entering into arrangements with mobile payments solution providers.


 To meet the long-term objective of a nation-wide mobile payment framework, a robust clearing and settlement infrastructure operating on a 24×7 basis would be necessary. Pending creation of such an infrastructure on a national basis, banks may enter in to multilateral arrangement and create mobile switches or inter-bank payment gateways with expressed permission from the RBI.

The RBI said that its guidelines on ‘Know Your Customer (KYC)’ and ‘Anti Money Laundering (AML)’ as prescribed by the RBI from time to time would be applicable to customers opting for mobile-based banking service. The RBI said that the services should be restricted to only to bank accounts and credit card accounts in India which are KYC and AML compliant and only Indian rupee-based services should be provided.


 Banks should offer mobile-based banking service only to their own customers and banks should have a system of registration before commencing mobile-based payment service to a customer. Prior registration of the customers would be necessary irrespective of the type of service requested.

For the standard level service, one time registration should be done through a signed document.