{"id":82720,"date":"2023-12-21T13:50:15","date_gmt":"2023-12-21T08:20:15","guid":{"rendered":"https:\/\/enterslice.com\/learning\/?p=82720"},"modified":"2024-03-30T13:57:18","modified_gmt":"2024-03-30T08:27:18","slug":"compliances-for-upper-layer","status":"publish","type":"post","link":"https:\/\/enterslice.com\/learning\/compliances-for-upper-layer\/","title":{"rendered":"Compliances for Upper Layer"},"content":{"rendered":"

The Upper Layer shall comprise the NBFCs<\/a><\/strong>, which the Reserve Bank identifies explicitly as necessary to increase the compliance requirement based on a set of parameters and scoring methodology.<\/p>\n\n\n\n

Components of the parametric analysis for Upper Layer:-<\/p>\n\n\n\n

Parameter<\/h2>\n\n\n\n
 <\/td>Parameter<\/strong><\/strong><\/td>Sub-Parameters<\/strong><\/strong><\/td>Sub-<\/strong><\/strong>   Para Weights<\/strong><\/strong><\/td>Paramet<\/strong>er <\/strong>er Weights<\/strong><\/strong><\/td><\/tr>
Quantitative Parameter (70%)<\/td>1. Size &<\/strong> Leverage<\/strong><\/td>Total exposure (on- and off-balance sheet) & Leverage (total debt to total equity)<\/td>20 + 15<\/td>35<\/td><\/tr>
2. Inter- connectedness<\/strong><\/td>(i) Intra-financial system assets<\/em> Lending to financial institutions (including undrawn committed lines (UCL) ;Holding of securities issued by other financial institutions.Net mark-to-market<\/a> reverse repurchase agreements with other financial institutions.Net mark-to-market OTC derivatives with financial institutions.<\/td>10<\/td>25<\/td><\/tr>
(ii) Intra-financial system liabilities<\/em> Borrowings from financial institutions (including undrawn committed lines)All marketable securities issued by the finance company to financial institutions;Net mark-to-market repurchase agreements with other financial institutions;<\/td>10<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n
 <\/td>Parameter<\/strong><\/strong><\/td>Sub-Parameters<\/strong><\/strong><\/td>Sub- Para<\/strong><\/strong> Weights<\/strong><\/strong><\/td>Paramet<\/strong>er <\/strong>er Weights<\/strong><\/strong><\/td><\/tr>
 <\/td> <\/td>Net mark-to-market OTC derivatives with financial institutions<\/td> <\/td> <\/td><\/tr>
(iii) Securities outstanding with non-financial<\/em> institutions (issued by the NBFC<\/a>)<\/em><\/td>5<\/td><\/tr>
3. Complexity<\/strong><\/strong><\/td>(i) Notional Amount of Over-the-Counter (OTC) Derivatives<\/em><\/em> OTC derivatives are apparent through a central counterpartyOTC derivatives settled bilaterally<\/td>5<\/td>10<\/td><\/tr>
(ii) Trading and Available-for-Sale Securities<\/em><\/em><\/td>5<\/td><\/tr>
Qualitative Parameter \/ Supervisory inputs (30%)<\/td>4. Nature and type of liabilities<\/strong><\/td>The amount and type of liabilities, including the degree of reliance on short-term fundingLiquid asset ratios indicate a nonbank financial company’s ability to repay its short-term debt.The ratio of unencumbered and highly liquid assets to the net cash outflows a non-banking financial company could encounter in a short-term stress scenario.Callable debt is a fraction of total debt, which provides one measure of a nonbank financial company’s ability to manage its funding position in response to changes in interest rates.Asset-backed funding versus other funding to determine a nonbank financial company’s susceptibility to distress in particular credit markets.Asset-liability duration and gap analysis are intended to indicate how well a nonbank financial company matches the re-pricing and maturity of the nonbank financial company’s assets and liabilities.A study on the borrowings split by type, i.e. Secured debt securities, subordinated debt securities, preferred shares\/CCPS, CPs; unsecured debt, securitisation, and any other<\/td>10<\/td>                                                                      30<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n
 <\/td>Parameter<\/strong><\/strong><\/td>Sub-Parameters<\/strong><\/strong><\/td>Sub- Para<\/strong><\/strong> Weights<\/strong><\/strong><\/td>Paramet<\/strong>er <\/strong>er Weights<\/strong><\/strong><\/td><\/tr>
 <\/td>5. Group Structure<\/strong><\/strong><\/td>Total Number of entitiesTotal Number of layersTotal Intra group exposure<\/td>10<\/td> <\/td><\/tr>
6. Segment<\/strong> penetration<\/strong><\/td>The importance of the NBFC as a source of credit to a specific segment or area<\/td>10<\/td><\/tr>
 <\/td> <\/td>Total Score<\/strong><\/td>100<\/strong><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

Regarding asset size, the top ten NBFCs shall permanently reside in the upper layer, irrespective of any other factor.<\/p>\n\n\n\n

Government-owned NBFCs should be in the Base Layer\/  Middle Layer, as the case may be. They shall not be placed in the Upper Layer until further notice.<\/p>\n\n\n\n

Capital Requirements for Non-Banking Finance Company – Upper Layer (NBFC-UL)<\/h2>\n\n\n\n

NBFC-Upper Layer shall maintain standard Equity Tier-1 Capital for at least 9 Percent of Risk-Weighted Assets.<\/p>\n\n\n\n

Common Equity Tier 1 (CET1) ratio =Common Equity Tier 1 Capital<\/p>\n\n\n\n

Total Risk-Weighted Assets<\/p>\n\n\n\n

Common Equity Tier 1 capital shall comprise of:<\/strong>–<\/p>\n\n\n\n