Reserve Bank Of India (RBI) Unveils Four-Layered Regulatory Framework For Non-Banking Financial Companies NBFCs

RBI's new framework can have a four-tier construction

The Reserve Bank of India on Friday launched a last set of tighter, bank-like rules for the non-bank finance sector to make sure higher monitoring and stop any failures from having knock-on results on the remainder of the monetary world.

The central financial institution has regularly moved in the direction of tighter norms for non-banking finance firms (NBFCs) since one of many greatest companies - Infrastructure Leasing & Financial Services - collapsed in late 2018 amid fraud allegations.

The following 12 months Dewan Housing Finance Corp and Altico Capital defaulted on funds, whereas Srei Infrastructure Finance joined the record of defaulters in 2021.

"Many entities have grown and become systemically significant and hence there is a need to align the regulatory framework for NBFCs keeping in view their changing risk profile," the RBI stated.

The new framework can have a four-tier construction with solely about 25 to 30 of the 9,000-plus NBFCs within the high two tiers with the strictest rules.

"The top layer will ideally remain empty. This layer can get populated if the Reserve Bank is of the opinion that there is a substantial increase in the potential systemic risk from specific NBFCs in the upper layer. Such NBFCs shall move to the top layer from the upper layer," RBI stated.

The central financial institution stated NBFCs not utilizing public funds or having any publicity to client funds have a unique threat profile and want totally different regulatory remedy and the RBI will draw up separate rules for them.

It additionally stated that publicity to capital markets, each straight and not directly, in addition to to industrial actual property will likely be handled as delicate areas for NBFCs and that the companies might want to repair board-approved inner limits for such exposures individually.

It additionally set a ceiling of Rs 100 million per borrower for financing subscriptions to preliminary public choices and allowed particular person companies to set much more conservative limits if they need. The IPO funding ceiling will take impact in April, the central financial institution stated.