RBI Issues Revised Framework for Scale-based Regulation of NBFCs; Restricts IPO Financing to Rs1 Crore
Moneylife Digital Team 22 October 2021
The Reserve Bank of India (RBI) on Friday issued revised regulatory framework for scale-based regulation (SBR) for non-banking finance companies (NBFCs). The revised ceiling on initial public offering (IPO) funding will come into effect from 1st April, while its guidelines would come into force from 1 October 2022.
In a notification, RBI says, "As the SBR framework encompasses different facets of regulation of NBFCs covering capital requirements, governance standards, and prudential regulation, it has been decided to first issue an integrated regulatory framework for NBFCs under SBR providing a holistic view of the SBR structure, and introduce set of fresh regulations and respective timelines. The detailed guidelines as delineated will be issued subsequently."
For financing subscription to an IPO, a ceiling of Rs1 crore per borrower has been fixed. 
Talking about sensitive sector exposure (SSE), RBI says, "Exposure to capital market (direct and indirect) and commercial real estate should be reckoned as sensitive exposure for NBFCs. NBFCs should fix board-approved internal limits for SSE separately for capital market and commercial real estate exposures. Dynamic vulnerability assessments of various sectors and their likely impact on business, as evaluated periodically, should help NBFCs determine such internal exposure limits."
Further NBFCs would be subjected to regulatory restrictions while granting loans and advances to directors, their relatives and to entities where directors or their relatives have major shareholding. "Granting loans and advances to senior officers of the NBFC and while appraising loan proposals involving real estate, NBFCs should ensure that the borrowers have obtained prior permission from the government or local governments and other statutory authorities for the project, wherever required," RBI says. 
Further to ensure that the loan approval process is not hampered on account of this, the central bank says, while the proposals could be sanctioned in the normal course, the disbursements should be made only after the borrower has obtained requisite clearances from the government authorities. RBI will issue a detailed circular on this in due course.  
Under the SBR, the central bank also decided to increase to Rs10 crore regulatory minimum net owned fund (NOF) for NBFC investment and credit companies (NBFC-ICC), NBFC microfinance institution (NBFC-MFI) and NBFC-Factors in a phased manner. 
However, RBI says, for NBFC-peer-to-peer (P2P_lending platform (NBFC-P2P), NBFC-account aggregator (NBFC-AA), and NBFCs with no public funds and no customer interface, the NOF will continue to be Rs2 crore. The central bank clarified that there is no change in the existing regulatory minimum NOF for NBFC-infrastructure debt fund (NBFC-IDF), infrastructure finance companies (NBFC-IFCs), mortgage guarantee companies (MGCs), housing finance companies (HFC) and stand-alone primary dealers (SPD).
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