RBI tightens prudential norms for NBFCs

Justifying the move, RBI said that with liberalisation in Indian financial markets over the last few years and growing integration of domestic markets with external markets and greater use of derivatives products, asset liability management of for NBFCs have become complex and large, “requiring strategic management.”

Mumbai: The Reserve Bank of India (RBI) on Monday tightened the prudential norms for the non-banking financial companies (NBFCs) under which they will have to account for risks towards off-balance sheet items while computing capital adequacy requirement, reports PTI.

These off-balance sheet items, against which NBFCs will have to make provisions, will include interest rate contracts, foreign exchange contracts, credit default swaps and other market related contracts permitted by RBI.

“Off-balance sheet exposures of NBFCs have increased with the increased participation in... currency options and futures and interest rate futures... It is therefore necessary that NBFCs move over to modern techniques of risk measurement to strengthen their capital framework” RBI said in a notification.

The decision is expected to improve solvency of the NBFCs though it might put additional financial burden on them.

NBFCs will have to assign adequate weights to both on and off-balance sheets items while maintaining the mandatory CRAR (Capital to Risk Asset Ratio).

RBI said that henceforth the NBFCs “will need to calculate the total risk weighted off-balance sheet credit exposure as the sum of the risk-weighted amount of the market related and non-market related off-balance sheet items.” 

Giving justification for its move, the RBI said that with liberalisation in Indian financial markets over the last few years and growing integration of domestic markets with external markets and greater use of derivatives products, asset liability management of for NBFCs have become complex and large, “requiring strategic management.” 

The new norms, the RBI said, will be effective from 1 April 2012, for off-balance sheet items already contracted. For the new contracts, it said, the norms will apply with immediate effect.

The risk weight to each off-balance sheet items which will include interest rate contracts, foreign exchange contracts, credit default swaps and other permissible contracts will be assigned according to a pre-specified formula.

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Brokers asked not to offer incentives to debt instrument investors

SEBI’s move to disallow brokers from passing on part of their commission to investors in debt instruments will protect the interests of investors in securities and promote the development of the securities market

Mumbai: Market regulator Securities and Exchange Board of India (SEBI) on Monday asked brokers not to pass on part of their commission to investors in debt instruments as such offers result in unfair advantage to some, reports PTI.

The regulator said it has gathered from market participants that in public issues of debt securities, some brokers/ distributors are passing on part of their brokerage/ commission to the final investors for subscription to such public issue of debt.

“As a result, while on one hand it is giving an unfair advantage/bargaining power to a certain set of investors and distributors, on the other hand it is adding to the cost of issuance for the company,” SEBI said in a circular.

In order to curb such practices, SEBI said “it is advised that in respect of public issues of debt securities, no person connected with the issue shall offer any incentive, whether direct or indirect... to any person for making an application for allotment of specified securities”.

SEBI said the circular has been issued to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market.

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COMMENTS

dfdf

5 years ago

can sebi explain - how investor's interest is protected by such a move?

SEBI to probe firms who have not conducted AGMs

“If they (corporates) are not sending annual reports and not conducting AGMs, these are clear cut violations. I will ask my team to investigate all cases where AGMs have not been called and Annual Reports have not been sent,” SEBI chairman UK Sinha said

Chennai: Sending a strong signal to listed companies to conduct annual general meetings (AGMs) and send annual reports regularly to its shareholders, market regulator Securities and Exchange Board of India (SEBI) on Monday said it would investigate the details of those companies which have not done so, reports PTI.

“If they are not sending annual reports and not conducting AGMs, these are clear cut violations. Since this question has been raised, I will ask my team to investigate all cases where AGMs have not been called and Annual Reports have not been sent,” SEBI chairman UK Sinha said.

SEBI has allowed companies to send the annual reports via electronic mode if shareholders have consented to it, he said addressing a seminar, on “Securities Market and the Common man” organised by National Stock Exchange here.

To a query about companies being involved in manipulating share prices, Mr Sinha said the market regulator was already investigating such cases. “...If there are any violations, it will be very seriously dealt with and very quickly”.

Later talking to reporters, Mr Sinha said SEBI was advising mutual fund industry to launch less number of newer schemes.

“SEBI is encouraging mutual funds to float less number of newer schemes. If there are schemes which are similar investments schemes, SEBI is encouraging them to merge them.

We are working towards it...” he said.

Besides, SEBI was working towards reducing the number of days in initial public offer (IPO) process which currently takes 12 days for a company. “SEBI has set up a committee to review the entire IPO processes in shortening the time period between the issue closure and listing... It is too premature for me to talk about it, but the current period of 12 days and how to reduce it is part of the (committee’s) mandate”, he said.

SEBI would look into the question of uploading e-document of annual reports of those companies in the website of stock exchanges similar to company results.

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