The Reserve Bank of India has asked small non banking financial companies (NBFCs) to curtail their public deposits. In a notification put out on Monday, the RBI has tightened the rules governing access to such public deposits.  It said that NBFCs with a net owned fund (NoF) of between Rs 25 lakh and Rs 2 crore, must limit their public deposits to the level of their net owned funds as against the current ceiling of 1.5 times the net owned funds. 

Further, for those companies (with NoF of between Rs 25 lakh and Rs 2 crore) that had a capital adequacy ratio of 12% and who enjoyed credit rating, the current ceiling of 4 times the NoF was being revised to 1.5 times the NoF.

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As per RBI statistics, there were 243 companies in 2007 that would probably be affected by this regulation. Their net owned funds were of the order of Rs 171 crore while the public deposits that they held were about Rs 96 crore. This category of companies constitutes a big chunk in the total category of NBFCs taking deposits that number about 359. In terms of amount of deposits involved, this category of NBFCs is a very small category. Total public deposits of all NBFCs with access to such deposits were of the order of Rs 2042 crore in 2007.

These regulations are part of the RBI’s move to ensure that NBFCs who accept deposits are adequately capitalised and have some minimum net owned funds.

Mr T.T.Srinivasaraghav an, Managing Director, Sundaram Finance, said that this regulation had adopted a fair approach to the issue of dealing with risks involved in smaller companies accepting deposits. He said the regulation met the aspirations of those small companies as it would now take the pressure off them when they were scrambling for capital to reach the minimum NoF limits. It would also force them to live within their means, by limiting their access to public deposits.

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