ENHANCED REGULATORY FRAMEWORK FOR NBFC’S IN INDIA
With
a view to sync regulatory framework with the considerable developed NBFC’s and
to mitigate the risk faced by the NBFC’s, RBI has issued a circular on 10th
November, 2014 to make changes in the regulatory framework of the NBFC’s.
The
changes contained in the circular are focuses on regulating activities which
are systemically important for NBFC’s.
As a exercise of gap analysis of NBFC regulations,
we have tried to summaries the highlights of the revised regulatory framework,
which are as follows:-
1. To support the financial sector
and technology adoption and due to rising difficulties of services offered by
NBFCs, it shall be compulsory for NBFCs to achieve a minimum NOF of Rs. 2 crore
by end of March, 2017, as per the target given:- a) Rs. 1 crore by 31st
March, 2016; b) Rs. 2 crore by 31st March, 2017.
2. NBFC have been divided in
following categories:
a)
NBFC-
D
b)
NBFC-
ND – Assets Less than Rs. 500 crore
c)
NBFC-
ND-SI – Assets of Rs. 500 crore and above
3. NBFCs having NOF below Rs. 2
crore shall submit a certificate of statutory auditor that they will achieve
the revised target by the end of financial years as given above.
4. Bank will start the procedure for
cancellation of certificate of registration of NBFCs which are not able to
achieve the prescribed level within the given time period.
5. Existing Unrated Asset Finance
Companies to get Investment grade by March, 2016 else they cannot renew existing
or accept fresh deposits thereafter. In the meanwhile these Unrated AFCs can
only renew their existing deposits on maturity.
6. The limit for acceptance of
deposit has been reduced from 4 times to 1.5 times of Net Owned Fund for rated
AFCs.
7. The threshold which defines the
importance of NBFCs-ND has been increased to Rs. 500 crore and above from Rs. 100 crore as per the latest audited
balance sheet. NBFCs – ND will now categorize into two categories:- a) NBFCs
–ND whose assets are less than Rs. 500 crore and b) NBFCs –ND whose assets are
of Rs. 500 crore and above
8. To determine whether NBFCs falls
under category of NBFCs-ND, cumulate total assets of NBFCs in a group including
NBFCs taking deposit and due to this rationale, statutory auditor will be
require to certify the asset size of all the NBFCs in the group.
9. Improved prudential regulation
shall be applicable to NBFCs – ND with an asset of less than Rs. 500 crore
which are as follows:- a) NBFCs which have not access to public funds and in
which customers do not interfere, will not be subject to any regulation. b)
NBFCs in which only customers interfere will subject only to conduct of
business regulations c) NBFCs which accepts only public deposit will subject to
limited prudential regulation d) NBFCs which accept public deposit and in which
customers interfere are subject to both the regulations given above e) Registration under section 45 IA is
compulsory for every NBFCs
NBFCs – ND with assets of Rs. 500
crore and above shall comply with prudential regulation as applicable to NBFCs
–ND SI.
10. Exemption granted from
maintaining CRAR and complying with Credit Concentration Norms to NBFCs- ND
with assets of Less than Rs. 500 crore.
11. Maintain Minimum Tier 1 capital
of 10% by all NBFCs – ND with assets of Rs. 500 crore and above and all NBFCs –
D.
12. The asset classification norms
for NBFCs –ND-SI and NBFCs – D are sync with that of banks upto 31st
March, 2018 in a phased manner.
13. The condition for standard assets
for NBFCs-ND-SI and for all NBFCs-D, is raised to 0.40% in a phased manner
ending 31/03/2018.
14. The credit concentration norms
for AFCs are now being sync with other NBFCs. Excluding already sanctioned
loans it will be applicable to all new loans with immediate effect
15. Modifications in Corporate
Governance Guidelines: - NBFCs – D with deposit of Rs. 20 crore and above and
NBFCs – ND with asset size of Rs. 50 crore and above shall constitute Audit
Committee.
16. The constitution of the three
Board Committees and instructions with regard to rotation of partners are
applicable to all NBFCs-ND-SI and NBFCs-D. Audit Committee of
NBFCs-ND-SI, as also all NBFCs-D must ensure that an Information Systems Audit
of the internal systems and processes is conducted at least once in two years
to assess operational risks.
17. Few additional requirements have
been laid for directors, which shall be applicable to all NBFCs-ND-SI and all
NBFCs-D, w.e.f. March 31, 2015.These
include there is a fit and proper criteria at the time of appointment of
Directors and on a continuing basis. Declaration and Undertaking shall be
obtained from Directors and directors shall sign a Deed of Covenant. NBFCs
shall furnish to the Reserve Bank a quarterly statement on change of Directors
certified by the auditors and a certificate from the Managing Director that fit
and proper criteria in selection of directors have been followed and theses
statement shall reach to Reserve Bank within 15 days of the close of quarter.
18. All
NBFCs-ND-SI and all
NBFCs-D shall additionally disclose the following in their Annual Financial
Statements, with effect from March 31, 2015: a) Registration/ licence/
authorisation obtained from other financial sector regulators; b) Ratings
assigned by credit rating agencies and migration of ratings during the
year; c) Penalties, if any, levied by
any regulator etc
19. NBFCs-ND, with assets less than
Rs. 500 crore, including investment companies, shall required to submit a
simplified Annual Return.
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