IIFL Institutional Equities, a part of the IIFL Group, one of the leading players in the Indian financial services space in a recent report on Banking and Finance said that the uncertainties with NBFCs had come to an end and guidelines on new bank licenses were a positive development.
The RBI placed its recommendations of the working committee on “Issues and Concerns in the NBFC Sector” for public comments.
Negative implications of the proposed changes included tighter prudential norms affecting asset quality and provisions, and reduced regulatory arbitrage in capital markets and real estate commercial lending. Positive implications included a less onerous liquidity ratio requirement and extension of provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act to NBFCs.
“This would allow NBFCs to recover NPLs without court intervention. We retain a constructive view on NBFCs under coverage, as positive implications of the new regulations outweigh the negative implications,” the report said.
The RBI also released draft guidelines for the issue of new bank licenses.
Barring entities that have significant real estate and capital market linkages, the guidelines are broad enough to accommodate large number of applicants, the report said.
The proposed guidelines permit large industrial groups to apply for license provided they meet additional qualifying criteria, IIFL said.
The report states that the process for issuance of license, which includes review at multiple levels before a final nod from the RBI suggests a protracted timetable for the same.
The report was published by IIFL’s Institutional Equities Research desk.