RBI's PTC ruling to impact NBFCs' capital adequacy

The capital adequacy and net interest margins (NIMs) of non-banking finance companies (NBFCs) could be under pressure following the Reserve Bank of India issuing fresh guidelines on securitisation, according to the latest report of Standard Chartered Bank.

The RBI on Tuesday disallowed credit enhancements in transactions where banks buy loans from NBFCs. The regulator has proposed that banks follow the pass-through certificate (PTC) route instead. Currently, most priority sector portfolio sales by NBFCs to banks are done through the credit enhancement route. "For NBFCs, if the buyouts happen through PTCs rather than assignments, capital requirements will rise.

For Shriram, tier-I capital adequacy will fall from 18% to 14.3%," said the Stanchart report. "This will have some mark-to-market implications for banks and will also impact their loan growth as PTCs are treated as investments while portfolios bought out by loan assignments are treated as loans," added the report. Unlike a credit enhancement transaction, there is an underlying asset to fall back upon in a PTC transaction. (Economic Times)