Reserve Bank of India to Observe th...
RBI is looking at “how Non-Banking Financial companies and Housing Finance Companies set thei...
The proposal to ease share buyback norms for NBFC is expected to be presented at the regulator’s board meet. The regulator of Capital market i.e. SEBI is likely to ease its norms for buy-back of shares by Listed Companies.
The main reason behind the proposal is the liquidity crisis hitting the Non-Banking Financial Companies, Housing Finance Companies, SEBI might ease the share buy-back norms for these.
Once the proposal approves, the below-mentioned points are required to be implemented-
Note: In case of listed companies – The share buy-back procedure is regulated under
I. Securities and Exchange Board of India (Buy-Back of Securities) Regulations, 2018.
II. Companies Act, 2013.
However, the debt-equity ratio for the government companies carrying Non-banking financial and housing finance activities is 6:1.
Exception–There are Companies for which a higher ratio has been notified under the Companies Act, based on both standalone and consolidated basis.
Buybacks would still be allowed if the debt to equity ratio does not exceed 2:1, in case of standalone basis, but exceeds this threshold on a consolidated basis, i.e. if the consolidated ratio is up to 2:1 after excluding the subsidiaries that are NBFCs and housing finance companies regulated by RBI or National Housing Bank.
However, in any case, the standalone debt to equity ratio of all such excluded subsidiaries should not exceed 5:1.
However, the regulator felt it difficult to enforce the proposed rating requirement as it would be difficult to prescribe and enforce the same due to practical implementation challenges such as dynamic changes in ratings, tenure of ratings and difference in ratings of short-term and long-term instruments.
As a result, SEBI has decided not to exclude the regulated subsidiaries with AAA ratings for computing the debt-equity ratio on a consolidated basis
Taking into consideration the loopholes of NBFCs and HFCs, SEBI has proposed to bring the stringent regulations for liquid mutual funds and to ease share buyback norms for NBFC.