RBI paper suggests caps on NBFCs IPO, real estate financing, tighter regulations

A Reserve Bank of India (RBI) discussion paper on a new regulatory framework for non banking finance companies (NBFCs) has proposed a cap on lending by NBFCs to subscriptions in initial public offerings (IPOs) and in lending to real estate unless government approvals are obtained. The new norms which were put in the public domain for discussion on Friday, said the internal ceiling on sensitive sectors for NBFCs should separately disclose capital market and commercial real estate exposures. IPO financing by NBFCs, a large business for some of these companies has come under close scrutiny, as while there is a limit of Ra 10 lakh for banks financing IPOs, there is no such limit for NBFCs. “Taking in to account the unique business model of NBFCs, it is proposed to fix a ceiling of Rs 1 crore per individual for any NBFC. NBFCs are free to fix more conservative limits,” RBI said. It has also suggested a sub-limit within the commercial real estate exposure for financing land acquisition. Other proposals include to not allow NBFCs to provide loans to companies for buy-back of shares/securities and strict restrictions on granting loans and advances to directors, their relatives and to entities where directors or their relatives having shareholding of 10% or more.