New Norms Against NBFCs

As per the new guidelines issued by RBI on lending against shares by NBFCs, the non-banking financial company cannot lend against shares and have to maintain a loan to value ratio of 50%. This is primarily to avoid off-loading of the shares by the default borrowers. Also the NBFCs can accept only Group 1 securities, as collateral for loans of value more than Rs 5 lakh as amended by SEBI.

In addition to this, all NBFCs with asset size worth Rs 100 crore and above shall notify the stock exchanges online, informing them on the shares pledged in their favor by borrowers for availing loans.

“Irrespective of the manner and purpose for which money is lent against shares, default by borrowers can and has in the past led to off-loading of shares in the market by the NBFCs thereby creating avoidable volatility in the market.” as mentioned in RBI circular.

The RBI in the circular also added that certain other associated areas of concern relate to absence of adequate prior information to the stock exchanges on the shares held as pledge by NBFCs, probable overheating of the market, over-exposure by NBFCs to certain stocks and over leveraging of borrowers.