Jurisdiction - India
India – Banking & Finance Updates.

9 Februrary, 2015


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


The RBI has, by way of circular dated November 10, 2014, revised certain aspects of the regulatory framework governing non-banking financial companies (‘NBFCs’), some of which are:


i. All NBFCs, existing as well as new, are now required to maintain a minimum Net Owned Fund (‘NOF’) of INR 200 lakh (Approx. USD 327,868).


ii. An asset finance company (‘AFC’) having a minimum NOF of INR 25 lakh or more, complying with all prudential norms and maintaining capital adequacy ratio of at least 15% as per the latest audited balance sheet and having a minimum investment grade credit rating is allowed to accept or renew public deposits (together with the amounts remaining outstanding in the books of the company as on the date of acceptance or renewal of such deposit) only to the extent of 1.5 times the NOF, as opposed to four times.1


iii. Systemic threshold for non-deposit accepting NBFCs revised to INR 500 crore (Approx. USD 8.2m). Therefore, systemically important non-deposit accepting NBFCs (‘NBFC-ND-SI’) will now be those non-deposit accepting NBFCs with asset size of INR 500 crore (Approx. USD 8.2m) and above. Such NBFC-ND-SIs are subject to extensive prudential regulation.


iv. NBFCs other than NBFC-ND SIs will be subject to limited regulation. Such NBFCs will not be subjected to any regulation either prudential or in relation to conduct of business regulations such as regulations relating to Fair Practices Code, Know Your Customer, etc. if they have not accessed any public funds and do not have a customer interface. NBFCs having customer interface will be subjected only to conduct of business regulations (and not prudential regulations 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.


v. All NBFCs that are a part of a corporate group or are floated by a common set of promoters will henceforth not be viewed on a standalone basis but instead, total assets of NBFCs in a group, including deposit taking NBFCs, will be aggregated to determine if the consolidation falls within asset sizes prescribed for non-deposit accepting NBFCs.


vi. Prudential norms for NBFCs have been revised, including classification of non-performing assets, sub-standard assets, doubtful assets and provisioning for standard assets.


vii. Credit concentration norms for AFCs have been made consistent with norms for other NBFCs. 

viii. Additional requirements have been introduced for ascertaining ‘fit and proper’ criteria in NBFC-ND-SI and deposit accepting NBFCs.


RBI had suspended the issuance of NBFC licenses and has indicated that following the aforesaid amendment to the regulatory framework, it will resume the issuance of fresh licenses to NBFCs.


The aforesaid changes were made based on recommendations made by the report of the Committee on Comprehensive Financial Services for Small Businesses and Low Income Households.


End Notes:


1 With effect from November 10, 2014




For further information, please contact:


Zia Mody, AZB & Partners
[email protected]


Abhijit Joshi, AZB & Partners 
[email protected]

Shuva Mandal, AZB & Partners 

[email protected]


Samir Gandhi, AZB & Partners
[email protected]

Percy Billimoria, AZB & Partners 

[email protected]


Aditya Bhat, AZB & Partners 
[email protected]


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