INDIA INFOLINE FINANCE LIMITED - Securities and Exchange ...

India Infoline Finance Limited
exposure and other prudential norms. The RBI also regulates the credit flow by banks to NBFCs and
provides guidelines to commercial banks with respect to their investment and credit exposure norms for
lending to NBFCs. The RBI’s regulations of NBFCs could change in the future which may require us to
restructure our activities, incur additional cost or could otherwise adversely affect our business and our
financial performance.
Moreover, the RBI in its notification (No.RBI/2006 07/204/DNBS.PD/CC.No.86 / 03.02.089 /2006-07)
dated December 12, 2006 has amended the regulatory framework governing NBFCs to address concerns
arising from certain divergent regulatory requirements for banks and NBFCs. Under the amendment, the
RBI brought all deposit taking and systemically important NBFCs, which are defined as NBFCs having an
asset size of ` 1,000 million or more, such as us, under the provisions of the Non-Banking Financial
Companies Prudential Norms (Reserve Bank) Directions, 1998. We cannot assure you that this notification
and its applicability to us will not have a material and adverse affect on our future financial conditions and
results of operations.
The RBI has not provided for any restriction on interest rates that can be charged by non-deposit taking
NBFCs. Although the Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions
2007 may not be fully applicable to a non-deposit taking NBFC, there can be no assurance that the RBI
and/or the Government will not implement regulations or policies, including policies or regulations or legal
interpretations of existing regulations, relating to or affecting interest rates, taxation, inflation or exchange
controls, or otherwise take action, that could have an adverse affect on non-deposit taking NBFCs. In
addition, there can be no assurance that any changes in the laws and regulations relative to the Indian
financial services industry will not adversely impact our business.
4. Our ability to borrow from various banks may be restricted on account of guidelines issued by the RBI
imposing restrictions on banks in relation to their exposure to NBFCs.
The RBI in its notification (No. RBI/2006-07/205/DBOD.No. FSD.BC.46 / 24.01.028 /2006-07) dated
December 12, 2006 has amended the regulatory framework governing banks to address concerns arising
from divergent regulatory requirements for banks and NBFCs. This notification reduces the exposure (both
lending and investment, including off balance sheet exposures) of a bank to NBFCs like us. Accordingly,
banks exposure limits on any NBFC are reduced from the current 25% of the banks’ capital funds to 10% of
its capital funds. Furthermore, RBI has suggested that banks may consider fixing internal limits for their
aggregate exposure to all NBFCs combined. This notification limits a bank’s exposure to NBFCs which
consequently restricts our ability to borrow from banks and thereby increasing the cost of our borrowing.
This notification has adversely affected our business and any similar notifications released by the RBI in the
future, which has a similar impact on our business could affect our growth, margins and business
operations.
5. Our ability to lend against the collateral of gold jewellery has been restricted on account of guidelines
issued by RBI, which may have a negative impact on our business and results of operation.
RBI vide notification (DNBS.CC.PD.No.265/03.10.01/2011-12) dated March 21, 2012 has stipulated all
NBFCs to maintain a loan to value (LTV) ratio not exceeding 60 percent for loans granted against the
collateral of gold jewellery and further bars lending against bullion/primary gold and gold coins. This
notification will limit our ability to provide loan on the collateral of gold jewellery and thereby putting us at
a disadvantage viz-a-viz banks offering similar products and other unregulated money lenders. Further, the
notification also mandates NBFCs primarily engaged in lending against gold jewellery (such loans
comprising 50% or more of their financial assets) to maintain a minimum Tier 1 capital of 12% by April 1,
2014. Such restrictions imposed by RBI may erode our margins, curtail our future growth and business
operations.
6. We may not be able to realise the full value of our pledged gold jewellery, which exposes us to potential
loss.
We may not be able to realise the full value of our pledged gold jewellery, due to, among other things,
defects in the quality of gold. In the case of a default, we may auction the pledged gold. We cannot assure
you that we will be able to auction such pledged gold jewellery at prices sufficient to cover the amounts
under default. Moreover, there may be delays associated with the auction process. Any failure to recover the
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