Advisory Services
Audit
Consulting
ESG Advisory
RBI Registration
SEBI Registration
IRDA Registration
FEMA Advisory
Compliances
IBC Services
VCFO Services
Growing
Developing
ME-1
ME-2
EU-1
EU-2
SE
Others
Select Your Location
RBI has allowed an NBFC with assets size more than 500 Cr to be classified as QIB (Qualified Institutional Buyers), this step of RBI has been welcomed by most of the Early-stage Non Banking Financial Companies.
Table of Contents
NBFCs play a vital role from the perspective of macroeconomics and act as a core catalyst in the financial system of India. They are continuously growing as healthier alternatives to conventional banks, catering to the financial needs of various sectors.
However, to survive in the long run and to constantly grow, the NBFCs need to focus on their core strengths, while improving their weaknesses. Being dynamic and efficient is the need of the hour. Due to the diversity of types and operations, the regulatory framework by the Reserve Bank governing the workings of the NBFCs has been going through major changes. While the non-deposit accepting, non-systematically important NBFCs have been entertained with many privileges, the systematically important NBFCs are subject to various regulatory compliances.
Now, let us take a look at the meaning of systematically important NBFCs.
NBFC registration with RBI having an asset size is of INR 500 crores or more as per last audited balance sheet, are considered as systemically important NBFCs. In the view of the Reserve Bank of India, the reason for such classification is that the operations and activities of such NBFCs will affect the financial stability of the economy as a whole.
The prudential regulations, as well as the business regulations, are applicable to the systematically important NBFCs[1] and there is no prescribed leverage ratio.
In view of harmonizing the asset classification and provisioning norms with that of the conventional banking system, a default period of 90 days has been prescribed for the classification of a loan as a non-performing asset. In addition, the existing provision of standard assets has been increased from 0.25% to 0.40 % of the value of such assets to bring them on par with banks.
Increase of Tier I capital requirement for capital adequacy purposes
For the systematically important non-deposit accepting NBFCs, the requirement of minimum Tier-I capital has been increased to 10 % by March 2017.
Credit Concentration Norms
The norms have been harmonized by removing the dispensation given to asset finance companies (AFCs), As a result, the defined norms have been exceeded by 5 %. On the other hand, the dispensation implied upon the infrastructure finance companies and infrastructure debt funds have been kept as same as these loans are generally of high values.
Corporate Governance
In view of the recommendation of the Thorat Committee, which was set up to study the factors impacting the NBFC sector, corporate governance has been identified as an important part of the NBFC regulations.
In the earlier scenario, the constitution of the Audit Committee was mandatory for the following types of NBFCs:
However, the constitution of the Nomination Committee and the Risk Committee were only recommended, not mandatory.
As per the recent change in the Regulatory framework of NBFCs, the following committees are mandatory for non-deposit accepting systematically important NBFCs (NBFCs-ND-SI):
Moreover, it is mandatory for NBFCs-ND-SI to rotate the partners of the audit firms, appointed as their statutory auditors, in every three years. This was only suggested under the earlier framework.
The revised regulatory framework further laid down the compliance requirements in respect of Directors of NBFCs-ND-SI. These are:
The famous phrase “Duty comes with Responsibility” is appropriately applicable to the systematically important NBFCs. Through their larger size and operations, they tend to create a wider impact on the overall financial market.
Therefore, there is a continuous need to keep a watch on their performance and activities for a smoother existence. The RBI, on one hand, is encouraging the growth of such NBFCs while monitoring their actions.
Read our article:How are emerging technologies helping NBFC’s?
Experienced Finance and Legal Professional with 12+ Years of Experience in Legal, Finance, Fintech, Blockchain, and Revenue Management.
Black money has been the subject of heated political debate in India for a long time. Successiv...
The Apex Court pronounced a judgement in the case titled Tata Motors Vs The Brihan Mumbai Elect...
Since economies are moving towards digitalisation and making it feasible to conduct transaction...
The Alternative Investment Funds (AIFs) Pro-rata and Pari-Passu Rights Proposal Consultation Pa...
The Financial Action Task Force, i.e. FATF (the Force), is the global money laundering and terr...
Advance tax refers to the payment of the tax liability before the end of the relevant financia...
On 11.12.15, the Hon’ble Delhi High Court (HC) pronounced a landmark judgement in the case ti...
Money laundering can be defined as the process of illegal concealment of the origin of money ob...
Every assessee in India is obligated to file an income tax return and make the timely payment o...
In the recent past, India has seen burgeoning demand for internet and smartphones. The rapid ri...
Are you human?: 1 + 6 =
Easy Payment Options Available No Spam. No Sharing. 100% Confidentiality
NBFCs stands for Non-Banking Financial Corporations. Non-Banking Financial Corporation is a firm registered under t...
09 Mar, 2023
The term NBFC stands for Non-Banking Financial Company which is registered under the Companies Act 1956/2013. The m...
05 Aug, 2017
Red Herring Top 100 Asia enlists outstanding entrepreneurs and promising companies. It selects the award winners from approximately 2000 privately financed companies each year in the Asia. Since 1996, Red Herring has kept tabs on these up-and-comers. Red Herring editors were among the first to recognize that companies such as Google, Facebook, Kakao, Alibaba, Twitter, Rakuten, Salesforce.com, Xiaomi and YouTube would change the way we live and work.
Researchers have found out that organization using new technologies in their accounting and tax have better productivity as compared to those using the traditional methods. Complying with the recent technological trends in the accounting industry, Enterslice was formed to focus on the emerging start up companies and bring innovation in their traditional Chartered Accountants & Legal profession services, disrupt traditional Chartered Accountants practice mechanism & Lawyers.
Stay updated with all the latest legal updates. Just enter your email address and subscribe for free!
Chat on Whatsapp
Hey I'm Suman. Let's Talk!