Chahat Jain

Chahat Jain

Government owned companies always reveled in many exemptions from provisions of NBFC regulations. To bring government NBFCs on equal footing with non-government NBFCs (or private NBFCs), RBI vide notification no. DNBR (PD) CC.No.092/03.10.001/2017-18 dated May 31, 2018 withdraws certain exemption granted to government NBFCs with respect to compliance.

RBI in its circular has specified the timelines to meet the norms on capital adequacy, asset classification, maintenance of reserve fund and provisioning requirements, corporate governance framework and fair practice code.

 Non-government NBFCs have to maintain a minimum Capital to Risk Assets Ratio (CRAR) of 15 per cent, if Tier-1 capital is 10 per cent. By RBI’s notification, government NBFCs have to over the next four years raise their CRAR to this level, too, with Tier-1 capital at 10 per cent by March 31, 2022.

The government NBFCs will now have to comply with provisioning norms including treatment of income recognition, provisioning of non-performing assets and implementation of corporate governance frameworks in line with non- government NBFCs and the fair practice code by the end of this financial year.

Further, government NBFCs will have to maintain a minimum of 15 per cent of their outstanding deposits, in compliance with RBI’s existing statutory provisions. They may reach this minimum level by increasing the provisioning by five percentage points every year between financial year 2019 and financial year 2022 to comply with provision of section 45 IB of RBI Act, 1934.

It shall also be required to create a reserve fund and transfer therein a sum not less than 20 % of its net profit every year as disclosed in the profit and loss account and before any dividend is declared to comply with Section 45 IC of the RBI Act, 1934 from the end of this financial year.

Further, the government NBFCs shall be required to obtain minimum investment grade for acceptance of public deposits from the end of this financial year. A Government NBFC-D having investment grade credit rating can accept deposits only up to 1.5 times of its Net Operating Fund. Government NBFCs holding deposits in excess of the limit shall not access fresh deposits or renew existing ones till they conform to the limit, the existing deposits will be allowed to run off till maturity. All other directions of Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 2016 shall be applicable from Balance Sheet dated March 31, 2019.

NBFCs that were set up for catering to specific sectors may request RBI for exemptions, if any.


The RBI’s move for withdrawal of the exemptions for government NBFCs ensures that both type of NBFCs stand on equal footing in respect of compliance with NBFC rules. Among the entities affected are IFCI, Power Finance Corporation, India Infrastructure Finance Company, Indian Railway Finance Corporation, Indian Renewable Energy Development Agency and Housing & Urban Development Corporation. This will enhance fair competition between two types of ownership structures, subject to investors’ and the markets’ valuations.

(Author is associated with Mamta Binani and Associates and can be reached at [email protected] )

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June 2021