Key Points in the Revised Regulatory Framework for NBFC notified on November 10, 2014

1.   Requirement of Minimum NOF of Rs. 200 lakh .

It shall be mandatory for all NBFCs to attain a minimum NOF of Rs. 200 lakh by the end of March 2017, as per the milestones given below:

• Rs. 100 lakh by the end of March 2016

• Rs. 200 lakh by the end of March 2017

Note: NBFCs failing to achieve the prescribed ceiling within the stipulated time period shall not be eligible to hold the CoR as NBFCs. The Bank will initiate the process for cancellation of CoR against such NBFCs.

2.      Systemic Significance (SI)

NBFC-ND-SI : Threshold limit of Asset Size enhanced from the current Rs. 100 crore to Rs. 500 crore

The threshold for defining systemic significance for NBFCs-ND has been revised in the light of the overall increase in the growth of the NBFC sector. NBFCs-ND-SI will henceforth be those NBFCs-ND which have asset size of Rs. 500 crore and above as per the last audited balance sheet.

NBFCs that are part of a corporate group or are floated by a common set of promoters will not be viewed on a standalone basis. The total assets of NBFCs in a group including deposit taking NBFCs, if any, will be aggregated to determine if such consolidation falls within the asset sizes as above.

The definition of the word “group” will be the same as per Accounting Standards. “Companies in the Group”, shall mean an arrangement involving two or more entities related to each other through any of the following relationships:

• Subsidiary – parent (defined in terms of AS 21),

• Joint venture (defined in terms of AS 27),

• Associate (defined in terms of AS 23),

• Promoter - promote [as provided in the SEBI (Acquisition of Shares and Takeover) Regulations, 1997],

• For listed companies, a related party (defined in terms of AS 18), common brand name, and investment in equity shares of 20% and above.

3.      Prudential Norms: (Applicability)

A.      For NBFC-ND, which is not an ‘SI’(Asset size < Rs. 500 Cr.)

Three categories based on Public Fund (PF) and Customer Interface (CI)

In case of PF : Prudential Regulations

In case of CI : conduct of business regulations viz., Fair Practices Code (FPC), KYC, etc.

a)      For companies having no ‘PF’ and no ‘CI’:  Neither Prudential nor conduct of business regulations

b)      For companies having  ‘PF’ but no ‘CI’:  Prudential regulations are applicable but not the conduct of business regulations

c)      For companies having  ‘CI’ but no ‘PF’:  conduct of business regulations are applicable but not the Prudential regulations.

Note:  

i.        All NBFC-ND are exempted from the requirement of maintaining CRAR and complying with Credit Concentration Norms.

ii.      A leverage ratio of 7 is being introduced for all such NBFCs-ND to link their asset growth with the capital they hold. For this purpose, leverage ratio is defined as Total Outside Liabilities / Owned Funds

B.      For NBFC-ND-SI (Asset size > Rs. 500 Cr.) and NBFC-D

·         All prudential norms are applicable

·         conduct of business regulations applicable if there is Customer Interface ‘CI’

·         Minimum Tier -1 capital of 10%, which is enhanced from current 7.5%

The compliance to the revised Tier 1 capital will be phased in as follows:

• 8.5% by end of March 2016.

• 10% by end of March 2017.

4.      Change in norms w.r.t. Asset Classification (NPA etc.) to be brought in the line of Banks.

5.      Corporate Governance and disclosure Norms for NBFCs