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Introduction: The Reserve Bank of India (RBI) has implemented significant changes in the regulatory framework for Non-Banking Financial Companies (NBFCs). The Master Direction – Reserve Bank of India (Non-Banking Financial Company – Scale Based Regulation) Directions, 2023 categorizes NBFCs into four layers, impacting their operations and compliance requirements:

a) Base Layer -non-deposit taking NBFCs below the asset size of Rs 1000 crore

b) Middle Layer- all deposit taking NBFCs (NBFC-Ds), irrespective of asset size, non-deposit taking NBFCs with asset size above Rs 1000 Crore.

NBFC recent changes and new NBFC Return filing frequency and process

c) Upper Layer -those NBFCs which are specifically identified by the Reserve Bank

d) Top Layer -This layer can get populated if the Reserve Bank is of the opinion that there is a substantial increase in the potential systemic risk from specific NBFCs in the Upper Layer

After this master directions existing regulation which was applicable to NBFC which is as under:-

Are no longer applicable, and Master Direction – Reserve Bank of India (Non-Banking Financial Company – Scale Based Regulation) Directions, 2023 (the Directions) is in supersession of the Non-Banking Financial Company–Non-Systemically Important Non-Deposit taking (Reserve Bank) Directions, 2016 and Non-Banking Financial Company–Systemically Important Non- Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016

Some of the important changes are as under:-

1. NOF has been increased for NBFC from 2 crore to 10 cr in phase manner with some exceptions which is as under:-

NBFCs

Current NOF By March 31, 2025 By March 31, 2027
NBFC-ICC ₹2 crore ₹5 crore ₹10 crore
NBFC-MFI ₹5 crore (₹2 crore in NE Region) ₹7 crore (₹5 crore in NE Region) ₹10 crore
NBFC-Factors ₹5 crore ₹7 crore ₹10 crore

However, for NBFC-P2P, NBFC-AA, and NBFCs with no public funds and no customer interface, the NOF shall continue to be ₹2 crore. It is clarified that there is no change in the existing regulatory minimum NOF for NBFCs – IDF, IFC, MGCs, HFC, and SPD

2. Change in NPA classifications.- The extant NPA classification norm stands changed to the overdue period of more than 90 days for all categories of NBFCs in phase manner:-

NPA Norms Timeline
>150 days overdue By March 31, 2024
>120 days overdue By March 31, 2025
>90 days By March 31, 2026

3. Risk Management Committee – In order that the Board is able to focus on risk management, NBFCs shall constitute a Risk Management Committee (RMC) either at the Board or executive level. The RMC shall be responsible for evaluating the overall risks faced by the NBFC including liquidity risk and will report to the Board.

4. Multiple NBFCs in a Group – Classification in Middle Layer

NBFCs that are part of a common Group or are floated by a common set of promoters shall not be viewed on a standalone basis. The total assets of all the NBFCs in a Group shall be consolidated to determine the threshold for their classification in the Middle Layer.

5. Leverage Ratio-

The leverage ratio of NBFCs (except NBFC-MFIs, NBFCs-ML and above) shall not be more than seven at any point of time.

6. Standard asset provisioning (except NBFC-ML and above)

NBFC-BL shall make provision for standard assets at 0.25 percent of the outstanding, which shall not be reckoned for arriving at net NPAs. The provision towards standard assets need not be netted from gross advances but shall be shown separately as ‘Contingent Provisions against Standard Assets’ in the balance sheet

7. Disclosures – Disclosure requirements shall be expanded, inter alia, to include types of exposure, related party transactions, loans to Directors/ Senior Officers and customer complaints and others.

8. Loans to directors, senior officers and relatives of directors – NBFC-BL shall have a Board approved policy on grant of loans to directors, senior officers and relatives of directors and to entities where directors or their relatives have major shareholding.

9. Experience of the Board – Considering the need for professional experience in managing the affairs of NBFCs, at least one of the directors shall have relevant experience of having worked in a bank/ NBFC.

10. Policy on Demand/Call Loans

11. Investment Policy

12. Schedule to the balance sheet

NBFCs shall append to its balance sheet as prescribed under the Companies Act, 2013, the particulars in the schedule as set out in Annex VIII 

NBFC new return applicability and filing

RBI has recently introduced XBRL portal for filing all NBFC returns thereafter they have introduce CIMS portal for filing all applicable return of NBFC in trail basis. Now on 27.02.2024 issued Master Direction – Reserve Bank of India (Filing of Supervisory Returns) Directions – 2024 thereby introduce new returns which is as under:-

NBFCs having asset size between Rs. 2 Crore and below Rs. 100 crores

Sr No Return Name Periodicity
1 DNBS02 – Important Financial Parameters Quarterly(Earlier it was annual)
2 DNBS10-Statutory Auditor Certificate (SAC) Annual
3 DNBS13 – Overseas Investment Details Quarterly
4 Form A Certificate Annual

NBFCs having asset size between Rs. 100 crores and Rs. 500 crores

Sr No Return Name Periodicity
1 DNBS02 – Important Financial Parameters Quarterly (Earlier it was annual)
2 DNBS10-Statutory Auditor Certificate (SAC) Annual
3 DNBS13 – Overseas Investment Details Quarterly
4 Form A Certificate Annual
5 DNBS04A- Short Term Dynamic Liquidity (STDL) Quarterly
6 DNBS04B-Structural Liquidity & Interest Rate Sensitivity Monthly

NBFCs having asset size between Rs. 500 crores and Rs. 1000 crores
Sr No Return Name Periodicity
1 DNBS01-Important Financial Parameters Quarterly
2

DNBS03- Important Prudential Parameters

Quarterly
3

DNBS04A- Short Term Dynamic Liquidity (STDL)

Quarterly
4 DNBS04B-Structural Liquidity & Interest Rate Sensitivity Monthly
5

DNBS10-Statutory Auditor Certificate (SAC)

Annual
6

DNBS13 – Overseas Investment Details

Quarterly
7 Form A Certificate Annual
8 DNBS08 – CRILC-Main Monthly
9 DNBS09-CRILC Weekly Weekly

Conclusion: The RBI’s recent regulatory changes bring a comprehensive overhaul to the NBFC landscape, focusing on financial soundness, risk management, and transparency. NBFCs must adapt to the revised norms, including the increased NOF, NPA classifications, and the establishment of the Risk Management Committee. Additionally, the new reporting requirements through the XBRL and CIMS portals signify a shift towards more frequent and detailed supervision by the RBI. As the financial sector evolves, NBFCs need to proactively align their operations with these updated regulatory guidelines for sustained growth and stability.

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Article is written by CA Rahul Sureka, DISA, FCA, CS, LLB and can be reached at rahulsureka28@gmail.com or 9773450180.

Disclaimer: This article is for general guidance on matters of interest only and does not constitute any professional advice from me/us. One should not act upon the information contained in this article without obtaining specific professional advice. Further, no representation or warranty (expressed or implied) is given as to the accuracy or completeness of the information contained in this article.

(Republished with amendments)

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