2.4.4. Usha Thorat Committee

The Reserve Bank of India (RBI) released the Usha Thorat committee report on non-banking finance companies or NBFCs. Some key recommendations of the committee are:

Tier I capital of NBFCs to be at 12% So far, NBFCs capital adequacy requirement is at 15% wherein there is no stringent stipulation of tier I or tier II capital. If the recommendation is accepted, every NBFC has to have a minimum tier I capital or equity capital of 12%.

Liquidity ratio to be introduced for 30 days. RBI has recommended maintaining a liquidity ratio of for 30 days. This means an NBFC has to set aside cash balance equivalent to its debt payments due every month. The measure is perceived to be important to check asset liablity mismatch of NBFCs.

NBFCs may be given benefits under SARFAESI Act Under Securitisation and Reconstruction of Financial Assets And Enforcement of Security Interest or SARFAESI Act, an NBFC would not move to the court to auction underlying assets to recover loan dues. It will just publish a newspaper notice before such auction.

NBFCs may be subject to regulations similar to banks while lending to stock brokers and merchant banks and similar to stock brokers, as specified by the Securities and Exchange Board of India (SEBI), while undertaking margin financing.

NBFCs with assets of Rs. 1000 crores and above should be inspected comprehensively on an annual basis with an annual stress test carried out to ascertain their vulnerability.