There is a need to bring government-owned Non-Banking Financial Companies (NBFCs), which are highly leveraged, under prudential regulations, says an RBI report.
"While a certain degree of forbearance might have been warranted in initial stages, there is a need to bring all deposit-taking and systemically important government-owned NBFCs under the prudential regulatory framework as applicable to other NBFCs," RBI said in its Financial Stability Report released on Monday.
Government-owned NBFCs, which account for a significant proportion of total assets and business of the NBFC sector, have been playing a useful role in financing certain critical infrastructure sectors, it said. These NBFCs hold 37% of assets of the entire NBFC sector but are presently exempt from RBI's regulatory prudential norms.
They are highly leveraged, with a leverage ratio of 6.4 (leverage of state government owned NBFCs at 8.8 and central government owned NBFCs at 6.2) as compared to 3.3 for the entire NBFC sector. Their aggregate outside liabilities are around Rs 3.8 trillion of which Rs 385 billion are in the form of bank borrowings.
The report said that as on March 2014, there were 12,029 NBFCs registered with RBI, of which 241 NBFCs were deposit-accepting (NBFCs-D) and 11,788 were non-deposit accepting (NBFCs-ND).
During 2013-14, the overall balance sheet of NBFCs-ND-SI expanded by 9.5%, while loans and advances increased by 11.2%. Total borrowings, which constituted more than two-third of their liabilities, increased by 9.8%. The financial performance of NBFCs-ND-SI improved during 2013-14 as their net profit to total income increased from 18.3% to 20.2%. As a result, return on assets rose to 2.3% as on March 2014, from two per cent a year ago.
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