RBI on 22.10.2021 issued Revised Regulatory Framework for NBFC vide RBI/2021-22/112 DOR.CRE.REC.No. 60/03.10.001/2021-22 dated 22.10.2021 wherein following important changes has been prescribed highlights of which are as under:-

Highlights

1. Cap on IPO funding by NBFC: – starting from 1.4.2022 RBI put ceiling limit of Rs. 1 crore perborrower for IPO Subscriptions.

2. Frame work for Scale based regulation for NBFC starting from 1.10.2022

NBFC revised framework issued by RBI

Base Layer –non-deposit taking NBFCs below the asset size of ₹1000 crore

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

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

-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

3. 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

3. 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

4. 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.

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

6. 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.

7. 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.

8. SCALE BASED REGULATORY FRAMEWORK

a) References to NBFC-ND, NBFC-ND-SI & NBFC-D – From October 01, 2022, all references to NBFC-ND shall mean NBFC-BL and all references to NBFC-D and NBFC-ND-SI shall mean NBFC-ML or NBFC-UL, as the case may be. .[It is clarified that existing NBFC-ND-SIs having asset size of ₹500 crore and above but below ₹1000 crore (except those necessarily featuring in Middle Layer) will be known as NBFC-BL.]

b) Progressive application of regulations – Regulatory revisions applicable to lower layers of NBFCs will automatically be applicable to NBFCs residing in higher layers, unless stated otherwise.

c) Regulatory guidelines for NBFCs in Base Layer – NBFCs in the Base Layer (NBFC-BL) shall be subject to regulations as currently applicable to NBFC-ND, except for the changes mentioned below at paras 3.1 and 3.2. NBFC-P2P, NBFC-AA, and NOFHC shall be subject to extant regulations governing them3.

d) 4 Regulatory guidelines for NBFCs in Middle Layer – NBFCs in the Middle Layer (NBFC-ML) shall continue to follow regulations as currently applicable for NBFC-ND-SIs, NBFC-Ds, CICs, SPDs and HFCs, as the case may be, except for the changes mentioned below at paras 3.1 and 3.2

e) 5 Regulatory guidelines for NBFCs in Upper Layer – NBFCs lying in the Upper Layer (NBFC-UL) shall be subject to regulations applicable to NBFC-ML in addition to the changes mentioned below at paras 3.1 and 3.2.

9. Regulation of NBFCs not availing public funds and not having customer interface – NBFCs not availing public funds and not having customer interface bear a different risk profile and hence deserve a differential regulatory treatment. It has been decided that Reserve Bank will come out with separate regulations for such NBFCs in due course. Till such time, the extant regulations will continue to apply.

10. Regulatory changes under SBR applicable to NBFC-ML and NBFC-UL are as under:-

  • Internal Capital Adequacy Assessment Process (ICAAP)
  • Common Equity Tier 1
  • Leverage
  • Differential standard asset provisioning
  • Concentration of credit/ investment
  • Sensitive Sector Exposure (SSE)
  • Regulatory restrictions on loans
  • Large Exposure Framework
  • Internal Exposure Limits
  • Key Managerial Personnel
  • Independent Director
  • Disclosures
  • Chief Compliance Officer
  • Compensation guidelines
  • Other Governance matters –
  • Core Banking Solution
  • Qualification of Board Members
  • Listing & Disclosures
  • Removal of Independent Directors
  • Regulatory guidelines for NBFCs under Top Layer.

*****

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.

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