Thursday, October 30, 2008

Systemically Important Non-Deposit accepting NBFCs allowed to raise funds by Perpetual Debt Instruments

Reserve Bank of India has amended, vide a circular/notification, the Directions relating to acceptance of deposits and Prudential Norms for Non-Deposit accepting NBFCs and has enabled raising of funds through Perpetual Debt Instruments by systemically important non-deposit accepting NBFCs. This would help them, inter alia, raise their Capital for capital adequacy purposes. It would help such an NBFC to increase the Tier I Capital upto 15% of its Tier I capital as per the previous financial year and balance to be taken as part of Tier II capital (both as per the formula given).

The approach, as the word "Perpetual" intended to indicate, is conservative and these would not be easily redeemable. The basic terms of such PDI are given in the Circular and are quite detailed.

Jayant Thakur, CA

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