The Company is a NBFC MFI category providing loans to women belonging to low income category. Clients of NBFC-MFIs often take loans from multiple lenders, leading to over-indebtedness. This increases the risk of defaults and Non-Performing Assets (NPAs), which in turn affects the institution’s financial health. The microfinance sector faces intense competition from various players, including small finance banks, commercial banks, and new fintech companies. This competition, along with the rise of gold loans as an alternative for small borrowers, can eat into the market share of NBFC-MFIs. Therefore, Board of Directors decided to convert NBFC MFI status into normal NBFC category. For entering into normal loan business, NBFC is classified as ICC – Investment and Credit Company (Loan Company / Asset Finance Company / Investment Company). Since we are in the decision of giving loans, NBFC will be classified as NBFC – ICC.
Converting an NBFC-MFI to an NBFC-ICC is not a direct, formal “conversion” process but rather a change in business model that requires meeting the specific regulatory requirements of the NBFC-ICC category. An existing NBFC-MFI would need to restructure its operations and financial position to align with the guidelines set by the Reserve Bank of India (RBI) for NBFC-ICCs. Our NBFC must first dissolve its MFI status by ceasing to focus on microfinance and apply to the Reserve Bank of India (RBI) to change its license to the NBFC-ICC category. This involves meeting the higher minimum net owned fund (NOF) requirement of ₹10 crore for NBFC-ICC.
An Investment and Credit Company (ICC) can engage in a variety of financial activities, including providing loans and advances, asset financing, and acquiring securities. This category was created by the RBI by merging several older NBFC categories (Asset Finance, Loan, and Investment Companies) to provide greater operational flexibility.
Points to be considered for NBFC ICC
- The NBFC already have capital to meet the ₹10 crore NOF requirement for an NBFC-ICC.
- The company must formally communicate its change in business model to the RBI and provide the necessary documentation to prove compliance with the NBFC-ICC regulations.
- The company must ensure at least 50% of income arises from asset finance once it is categorized as NBFC-ICC.
- NBFC-ICC can serve a wider client base, offer diversified financial products beyond micro-loans, and adapt to business opportunities across segments (including vehicle financing, consumer finance, securities, and business loans.
Advantages:
- NBFC-ICC loans can be secured or unsecured, whereas NBFC-MFI loans are always unsecured.
- NBFC-ICCs have diverse asset portfolios.
- NBFC-ICCs can cater to a diverse clientele, including individuals, small and medium enterprises (SMEs), and large corporations. They can offer a variety of credit products such as personal loans, business loans, vehicle loans, and loans against property.
- NBFC-ICC registration is broader and easier for diversified finance businesses
Disadvantages:
- ICCs are subject to a range of prudential norms, including capital adequacy requirements, asset-liability management guidelines, and a strict asset quality classification.
- NBFC-ICCs often have to borrow from banks / Financial Institutions. This can put pressure on their interest margins, as they may have to pay a higher rate for their borrowed funds compared to banks, which have access to a large pool of low-cost deposits. This can, in turn, lead to them charging higher interest rates on their loans to maintain profitability.
Regulatory Procedures:
- Board Approval – The Board of Directors of NBFC MFI has to conduct a Board Meeting and to approve the intention to convert NBFC MFI into NBFC ICC.
- Business Plan – A revised Business plan addressing the new lines of business, compliance policies and risk management must be prepared.
- Director – At least one director must possess relevant banking or NBFC experience.
- Make an application to RBI the following documents:
1. Board approval for conversion
2. Revised MOA / AOA reflecting new business objects.
3. Updated Business plan
4. Evidence of meeting NOF requirements to Rs 10 crores by March 2027.
- Post Conversion MFI activities may be carried on, but not as primary business, unless again registered as NBFC MFI.
- NBFC-ICC must follow RBI’s scale-based regulatory framework and NOF glide path.
- Statutory Reports by Auditors.
- Updated operational, prudential norms, and reporting as per the NBFC-ICC regulations must be followed.
- Capital adequacy requirement (CAR) is minimum 15%.
- To follow FPC
This process is governed by RBI Master Directions (updated October 2023) and relevant notifications on NBFC categories.
Unlike NBFC-MFIs, which need to maintain at least 75% of assets in microfinance loans, NBFC-ICCs are not bound by this restriction, allowing them to choose asset classes that best serve their growth and profitability goals.
Reporting and Returns:
- NBFC-ICCs follow standard NBFC reporting norms—annual, quarterly, and monthly statements on prudential norms and asset classification—without microfinance-specific returns.
NPA Classification :
- NBFC-ICCs, irrespective of their asset size, must adhere to the 90-day overdue norm for asset classification, aligning their NPA norms with commercial banks and other NBFC categories.
Other Norms:
- ICCs must comply with AML/CFT, KYC, and audit mandates.
- ICCs may be base layer / middle layer / upper layer based on assets size.
RBI Compliances in Pravaah portal:
- The Memorandum of Association (MoA) must clearly state the financial activities planned by the company consistent with NBFC-ICC objectives
- NOF – Rs 10 crores
- Prepare key documents such as :
1. Certificate of Incorporation
2. MOA and AOA
3. Board resolution approving NBFC ICC application
4. Net Owned funds Certificate from CA
5. Business plan for next 3 – 5 years highlighting financial activities & Projections
6. KYC of directors and management profiles
- Submit the application through RBI Pravaah portal along with all required documents
- RBI conducts a detailed scrutiny – verification of documents, company credentials, assessment of business plan and ability to comply with regulatory norms, background check on directors regarding their track record.
Can gold loan be given by NBFC ICC?
Yes, NBFC Investment and Credit Companies (NBFC-ICC) can give gold loans, subject to RBI regulations governing gold loans. Since a gold loan is a type of secured loan (with gold jewelry as collateral), it falls under the broad scope of “providing finance whether by making loans or advances” which is a core business activity of an NBFC-ICC RBI caps the LTV ratio for loans against gold jewellery at 75%. This means the loan amount cannot exceed 75% of the market value of the pledged gold. For smaller loans, higher LTV limits may apply (up to 85% for loans up to ₹2.5 lakh).
Loan Types
NBFC ICC will primarily engaged in providing loans and advances. (loan companies). The loan duration for an NBFC-ICC is determined by several factors. The loan tenure for loans given by NBFC Investment and Credit Companies (NBFC-ICC) varies depending on the type of loan and the lender’s policy. Generally, NBFCs including NBFC-ICC offer flexible loan durations aligned with borrower needs and regulatory guidelines.
- Type of Loan: The tenure is highly dependent on the nature of the credit facility.
- Personal Loans: Usually range from a minimum of 3 months to a maximum of 7 years (84 months). Longer tenures help reduce EMI burden for borrowers
- Vehicle Loans: These tend to have longer tenures, commonly 3 to 7 years, as they are secured by the asset being financed.
- Gold Loans: These are usually short-term, often with tenures ranging from 3 months to a year, though they can be renewed.
- Business Loans/Loans against Property (LAP): These can have significantly longer tenures, sometimes extending up to 10, 15, or even 20 years, depending on the amount and purpose of the loan.
Factors influencing Loan duration:
- Borrowers financial profile and repayment capacity
- Type & purpose of loan
- NBFC risk policies
- Sector specific limits or restrictions on gold loans.
Decision
Company can surrender its MFI licence to RBI by stating in brief that due to risks involved in MFI sectors, migration of borrowers and growing NPA, despite good Capital adequacy raio and great maintenance of Qualifying assets. In MFI business, unsecured loan only will be given. But in ICC, both secured & unsecured loans will be given. We can raise capital from its promoters and shareholders to strengthen its Net Owned Funds (NOF) and improve its borrowing capacity. Digital lending collection – NACH will be follow up. Our Company can obtain loan from banks and NBFCs with a slight variation in interest rates. Loan duration to borrowers may be from 5 months to 3 years depending on types of loan.
Author Bio
