Tata Capital says new norms will eat into NBFC-bottomlines

The Tata Group's finance subsidiary Tata Capital has expressed reservations about the Reserve Bank of India's proposed changes in the norms governing NBFCs, saying the move will negatively impact profits and raise lending rates. "Overall, in the short-run it will impact NBFCs'
profitability and our ability to lend," Tata Capital CFO Govind Sankaranarayanan told PTI.

He, however, added that the new norms are good in the long-term. The draft norms, based on the recommendations by the Usha Thorat (former RBI deputy governor) committee and released in December, seek to bring NBFCs at par with commercial banks.

Stating that banks operate with benefits like recovering money under the Sarfesi Act and having access to low-cost deposits, he said, "Only on the disadvantages side you are going to bring it (banks and NBFCs) at par, and thus it becomes difficult."

"Conceptually, one cannot object to the idea of an NBFC and a bank being similar. But the playing field needs to be uniformly levelled," Sankaranarayanan said. Among other recommendations, the RBI wants to cut the time period for classification of an NBFC's account into an NPA in 90 days from the present 180 days, higher capital adequacy and also a phased jump in the provisioning for standard assets to 0.40 percent from the present 0.25 percent.

"All these increase your cost, so if your cost jumps, you will have to pass them over to your customers... to some extent, lending costs will go up by a bit and to some extent you will not lend to some people," the Tata Capital official pointed out.

He further stated that the weaker than the best rated borrowers residing in small towns, availing money for commercial vehicles and farm equipments and small businesses - traditional businesses for NBFCs - will suffer in this case.

Sankaranarayanan said that even after the gloomy news on the economic front, Tata Capital will meet its targeted credit growth of up to 30 percent this fiscal as the company is on an expansion mode. Tata Capital's total assets had stood at around Rs 21,000 crore as of March 2012.

In a departure from usual practice, the company raised money through a preferential allotment of shares to private high networth individuals three months ago, Sankaranarayanan said, without divulging the exact amount raised.

"This is a longer-gestation money of seven years, infused into the holding company or the core investment company which will later flow into the individual subsidiaries for on-lending," he said.

The company has raised a net amount of up to Rs 3,000 crore during the fiscal and will have to raise another Rs 1,000 crore through debentures, commercial papers and bank borrowing as it gets into the busy last quarter, he said.

"The company is witnessing good growth in the retail segment and the size of the retail group will go up above the 33 percent of the book right now, Sankaranarayanan said, maintaining that the company is not consciously devoting energies on this and will not change its core theme of corporate lending.

Within retail, it is the housing loan segment which has done the best, he said. When asked about the absence of gold-loan business from its bouquet of products, he said the company is not contemplating getting into this segment at this juncture as it feels there are issues with the business model and also on the regulatory front.