What changed
RBI clarified that DTL cannot be counted as Tier I or Tier II capital for CRAR purposes. DTA must be treated as an intangible asset and deducted from Tier I capital. These norms apply from the accounting year ending March 31, 2009.
What it means for you
NBFCs will see a reduction in their regulatory capital base due to DTA deduction and DTL exclusion, potentially lowering CRAR. Lenders must adjust capital planning and may need to seek transition relief from RBI if they fall short of minimum requirements.
What you must do
- Deduct DTA from Tier I capital in CRAR computation from FY ending March 2009.
- Exclude DTL from both Tier I and Tier II capital for capital adequacy purposes.
- Review CRAR compliance; if norms cause shortfall, approach RBI Regional Office within 30 days for transition period.
- Update internal accounting and reporting systems to reflect these regulatory treatments.
Who it affects
All Non-Banking Financial Companies (NBFCs), Residuary Non-Banking Companies (RNBCs)
Why is DTA deducted from Tier I capital?
RBI treats DTA as an intangible asset because it represents future tax benefits, not current cash or tangible capital, so it is deducted from Tier I capital to ensure capital quality.
What if my NBFC's CRAR falls below the minimum after this change?
RBI allows a transition period for NBFCs unable to comply. You must approach your Regional Office within 30 days of the circular's issue for suitable dispensation.