RBI's new guidelines would help reduce volatility in the capital markets, arising from NBFCs offloading shares pledged by borrowers who have defaulted on loans
The Reserve Bank of India (RBI) on Thursday introduced a minimum set of guidelines on lending against shares, especially for non-banking finance companies (NBFCs). This will help reduce volatility in the capital markets, arising from NBFCs offloading shares pledged by borrowers who have defaulted on loans, the central bank said.
According to the guidelines which are only applicable to NBFCs with assets of Rs100 crore and above, NBFCs have to maintain a loan-to-value -LTV (of shares pledged) of 50% and accept only Group-1 securities as collateral, for loans valued at more than Rs5 lakh.
NBFCs also have to ensure that these do not in any way come in the way of meeting the requirements of genuine borrowers, RBI said.
The guidelines come into effect immediately.
All NBFCs with assets of Rs100 crore and above should report online to stock exchanges, any information on shares pledged to borrowers to avail of loans.
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