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India – Revised Regulatory Framework For Non Banking Financial Companies (NBFCs).

13 November, 2014

 

Legal News & Analysis – Asia Pacific – India – Banking & Finance

 

The Reserve Bank of India (RBI) has revised the regulatory framework for NBFCs. The revisions include the following:

 

  • All NBFCs are required to attain a minimum net owned fund (NOF) of INR 20m by the end of March 2017, as per the milestones given below:
    • INR 10m by the end of March 2016; and
    • INR 20m by the end of March 2017.

 

  • Enhanced prudential regulations will be made applicable to NBFCs wherever public funds are accepted and conduct of business regulations will be made applicable wherever customer interface is involved. NBFCs-ND with an asset size of less than INR 50m will be as under:
    • They will not be subjected to any regulation either prudential or conduct of business regulations viz., Fair Practices Code (FPC), KYC, etc., if they have not accessed any public funds and do not have a customer interface.  
    • Those having customer interface will be subjected only to conduct of business regulations including FPC, KYC etc., if they are not accessing public funds.
    • Those accepting public funds will be subjected to limited prudential regulations but not conduct of business regulations if they have no customer interface. 
    • Where both public funds are accepted and customer interface exist, such companies will be subjected both to limited prudential regulations and conduct of business regulations.

 

  • The threshold for defining systemic significance for non-deposit taking NBFCs (NBFCND) has been revised. Systemically important non-deposit taking NBFCs (NBFCNDSI) will henceforth be those NBFCs-ND which have asset size of INR 50m and above as per the last audited balance sheet.

 

  • NBFCs-ND will now be categorized into two broad categories viz.,
    • NBFCs-ND (those with assets of less than INR 50m) and
    • NBFCs-ND-SI (those with assets of INR 50m and above).

 

  • All NBFCs-ND with assets of INR 50m and above, irrespective of whether they have accessed public funds or not, will need to comply with prudential regulations as applicable to NBFCs-ND-SI. They will also comply with conduct of business regulations if customer interface exists.

 

  • Consequent to the redefining of ‘systemic significance’, NBFCs-ND with asset size of less than INR 50m, are exempted from the requirement of maintaining CRAR and complying with credit concentration norms.

 

  • Asset classification norms for NBFCs-ND-SI and NBFCs-D are being brought in line with that of banks, in a phased manner, as given below:
    •  Lease rental and hire-purchase assets will become non-performing assets (NPA) if they become overdue for 9 months (currently 12 months) for the financial year ending March 31, 2016; and if overdue for 6 months for the financial year ending March 31, 2017; and if overdue for 3 months for the financial year ending March 31, 2018 and thereafter.
    •  Assets other than lease rental and hire-purchase assets will become NPA if they become overdue for 5 months for the financial year ending March 31, 2016; and if overdue for 4 months for the financial year ending March 31, 2017; and if overdue for 3 months for the financial year ending March 31, 2018 and thereafter.

 

For more information, please see the RBI Notification.

 

LexCounsel

 

For further information, please contact:

 

Alfred Adebare, Lex Counsel Law Offices
aadebare@lexcounsel.in

 

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