NORMS FOR NBFCS SETTING UP SHOP ABROAD

NON-BANKING Financial Companies (NBFCs), planning to establish overseas presence, will have to comply with a new set of norms prescribed by the Reserve Bank of India in its draft guidelines issued on January 24, 2008. NBFCs seeking an NOC from RBI for setting up a subsidiary, joint venture, investments or representative body have to comply with the norms specified in the draft guidelines. The guidelines are – maintaining capital risk adequate ratio at 15% in the case of deposit taking NBFCs and for non-deposit taking NBFCs, the ratio is set at 10%. Another crucial condition is to limit the Non-Performing Assets (NPAs) to 5%. Besides, NBFCs should have a three year record of registering profit if it has to apply for setting up an overseas presence. Lastly, NBFCs must have a net owned fund to be eligible to apply for an NOC. If any NBFC is seeking an NOC from RBI for investing in its overseas arm, RBI will give the nod on the condition that the overseas presence is not used as a shell company that does not have any significant operations there. Besides, RBI needs to be satisfied that the overseas company would not be used for mobilizing resources for creating assets for its Indian operations. RBI also seeks to limit the Indian NBFC’s liabilities to the equities commitment to the overseas arm. Further to it, the Indian company is also not allowed to extend any credit or guarantee to its overseas arm, directly or indirectly.