The Reserve Bank of India tightens the lending and disclosure guidelines for NBFC’s by imposing some restrictions on lending to their upper management, directors, senior executives and the corporates or firms they are interested in. Also RBI issued guidelines regarding disclosure in its financial statements about the core and sensitive areas that are not covered in the general norms i.e. lending to real estate sector – residential and commercial projects, lending against shares and securitised mortgage.
Following are the guidelines issued on 19th April, 2022:
Disclosures in Financial Statements- Notes to Accounts of NBFCs (Scale Based Regulation)
RBI vide Circular Number RBI/2022-2023/26 DOR.ACC.REC.No.20/21.04.018/2022-23 dated 19.04.2022 mandated all the NBFC’s to disclose in its financial statements about the sensitive areas where the NBFC’s have invested. The additional disclosures shall be:
1. Direct exposure in respect to real estate lending (residential and commercial mortgages, Investments in Mortgage-Backed Securities {MBS} and other securitized exposures)
2. Indirect Exposure in respect to Fund based and non-fund-based exposures on National Housing Bank and Housing Finance Companies.
3. Exposure to capital market – (Direct/ Indirect Investment in Securities Market/ Advances against securities/ financing to AIF/Stock Brokeres etc.)
4. Sectoral exposure – (Agriculture and Allied Activities, Industry specific, Services, . Personal Loans etc.)
5. Intra-group exposures – NBFCs shall make the following disclosures for the current year with comparatives for the previous year:
i) Total amount of intra-group exposures
ii) Total amount of top 20 intra-group exposures
iii) Percentage of intra-group exposures to total exposure of the NBFC on borrowers/customers
6. Unhedged foreign currency exposure – NBFCs shall disclose details of its unhedged foreign currency exposures. Further, it shall also disclose their policies to manage currency induced risk
7. NBFC’s shall also make the Related Party Disclosures, Disclosure of complaints (In detail).
8. Disclosure regarding Corporate governance, Disclosure regarding Breach of Covenants, Disclosure regarding divergence in Asset Classification and Provisioning (Applicable for annual financial statements of NBFC-ML and NBFC-UL).
2. Loans and Advances – Regulatory Restrictions – NBFCs
RBI vide circular number RBI/2022-23/29 DOR.CRE.REC.No.25/03.10.001/2022-23 dated 19th April, 2022 has imposed some restrictions and issued some guidelines in respect of NBFCs placed in different layers.
Guidelines applicable to NBFC – Middle Layer (ML) and NBFC – Upper Layer (UL) – Regulatory Restrictions on Loans and Advances
1. Loans and advances to Directors – Unless sanctioned by the Board of Directors/ Committee of Directors, NBFCs shall not grant loans and advances aggregating Rupees five crores and above to –
- Their directors (including the Chairman/ Managing Director) or relatives of directors.
- Any firm in which any of their directors or their relatives is interested as a partner, manager, employee or guarantor.
- Any company in which any of their directors, or their relatives is interested as a major shareholder, director, manager, employee or guarantor.
2. Loans and advances to Senior Officers of the NBFC – NBFCs shall abide by the following when granting loans and advances to their senior officers:
- Loans and advances sanctioned to senior officers of the NBFC shall be reported to the Board.
- No senior officer or any Committee comprising, inter alia, a senior officer as member, shall, while exercising powers of sanction of any credit facility, sanction any credit facility to a relative of that senior officer. Such a facility shall be sanctioned by the next higher sanctioning authority under the delegation of powers
3. Loans and advances to Real Estate Sector – While appraising loan proposals involving real estate, NBFCs shall ensure that the borrowers have obtained prior permission from government/ local government/ other statutory authorities for the project, wherever required. To ensure that the loan approval process is not hampered on account of this, while the proposals may be sanctioned in normal course, the disbursements shall be made only after the borrower has obtained requisite clearances from the government / other statutory authorities.
Guidelines applicable to NBFC – Base Layer (BL) – Loans to Directors, Senior Officers and relatives of Directors
NBFCs 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. The Board approved policy shall include a threshold beyond which loans to abovementioned persons shall be reported to the Board. Further, NBFCs shall disclose in their Annual Financial Statement, aggregate amount of such sanctioned loans and advances.
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