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RBI announces scale-based regulatory framework for non-banking finance companies - (22 Oct 2021)

Banking

RBI announces scale-based regulatory framework for Non-Banking Finance companies (NBFCs). The contribution of NBFCs towards supporting economic activity and their role as a supplemental channel of credit intermediation alongside banks is well recognised. Over the period of time, the sector has undergone considerable evolution in terms of size, complexity, and inter-connectedness within the financial sector. There is a need to align the regulatory framework for NBFCs keeping in view their changing risk profile.

As the SBR framework encompasses different facets of regulation of NBFCs covering capital requirements, governance standards, prudential regulation, etc., RBI first issues an integrated regulatory framework for NBFCs under SBR providing a holistic view of the SBR structure, set of fresh regulations and respective timelines. There shall be a ceiling of ₹1 crore per borrower for financing subscription to Initial Public Offer (IPO). NBFCs can fix more conservative limits. The extant NPA classification norm stands changed to the overdue period of more than 90 days for all categories of NBFCs. In view of the need for professional experience in managing the affairs of NBFCs, at least one of the directors shall have relevant experience of having worked in a bank/ NBFC.

The guidelines shall be effective from October 01, 2022. The instructions relating to ceiling on IPO funding shall come into effect from April 01, 2022. Regulatory structure for NBFCs shall comprise of four layers based on their size, activity, and perceived riskiness. NBFCs in the lowest layer shall be known as NBFC - Base Layer (NBFC-BL). NBFCs in middle layer and upper layer shall be known as NBFC - Middle Layer (NBFC-ML) and NBFC - Upper Layer (NBFC-UL) respectively. The Top Layer is ideally expected to be empty and will be known as NBFC - Top Layer (NBFC-TL).

Tags : REGULATORY FRAMEWORK   NBFCS  

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