The Reserve Bank of India (RBI) has introduced a new scale-based regulatory framework for non-banking financial companies (NBFCs), discarding the previous 'systemically important' classification. The new regulation, which is stricter, categorizes NBFCs based on their asset size. Vidushi Gupta from Khaitan & Co. explained that under this new framework, credit concentration norms apply only to middle-layer and upper-layer NBFCs.
The mid-layer consists of NBFCs with assets over Rs 1,000 crore. The upper layer includes only the top 10 NBFCs. The top 15 NBFCs, which include Tata Sons, HDB Financial Service (a subsidiary of HDFC Bank), and Bajaj Housing Finance, are required to list on stock exchanges. According to InvestingPro data, HDB Financial Service has a market cap of 138.8 billion USD and a P/E ratio of 16.99. This information, along with other real-time metrics, can be found on the InvestingPro platform.
In addition to introducing this new framework, the RBI has also resumed the circulation of Rs 2,000 denomination notes. RBI Governor Shaktikanta Das announced that Rs 10,000 crore worth of these notes are still in circulation and will be reintegrated into the banking system. These notes were initially introduced in 2016 with the intention to phase them out eventually.
The RBI has also taken regulatory action against several financial institutions for breaches in compliance. ICICI Bank was fined Rs 12.19 crore for violating rules related to loans, advances, and fraud reporting. Kotak Mahindra Bank received a Rs 3.95 crore fine for breaches in risk management, outsourcing of financial services, recovery agents, customer service, and loans and advances.
L&T Finance Limited was penalized with a ₹2.50 crore monetary fine following a statutory inspection. The inspection revealed deficiencies in compliance with specific provisions of the Non-Banking Financial Company – Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016. These deficiencies, primarily regarding retail borrowers, included failure to disclose information about risk gradation, changes in penal interest rates, and loan terms and conditions.
As per InvestingPro Tips, HDB Financial Service has been experiencing accelerating revenue growth and consistently increasing earnings per share. However, it also suffers from weak gross profit margins and has been quickly burning through cash. For more insights, readers can check out the complete list of InvestingPro Tips at InvestingPro. The penalty underscores the importance of transparency and fairness in financial institutions' dealings with customers.
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