{"id":19122,"date":"2020-11-07T14:14:17","date_gmt":"2020-11-07T08:44:17","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=19122"},"modified":"2021-01-20T16:01:26","modified_gmt":"2021-01-20T10:31:26","slug":"operational-manual-of-the-nbfcs","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/operational-manual-of-the-nbfcs\/","title":{"rendered":"A Complete Guide on Operational Manual of the NBFCs"},"content":{"rendered":"\n<p class=\"has-drop-cap\">NBFCs make their way to the financial market about six decades back and since then they are playing a commendable role in serving the lower strata of society. Unlike banks, they are easier to access and facilitate lucrative financial services to the needy ones. Apart from providing easy finances, the NBFC also deals with numerous businesses such as hire\/purchase, buying government securities, and insurance. In this article, we shall briefly describe the Operational manual of the NBFCs.&nbsp;<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/operational-manual-of-the-nbfcs\/#Overview_of_NBFCs\" >Overview of NBFCs<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/operational-manual-of-the-nbfcs\/#Area_of_Operations_in_NBFCs\" >Area of Operations in NBFCs<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/operational-manual-of-the-nbfcs\/#Classification_of_NBFC\" >Classification of NBFC<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/operational-manual-of-the-nbfcs\/#Operational_and_Credit_policy_operational_manual_of_the_NBFCs\" >Operational and Credit policy (operational manual of the NBFCs)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/corpbiz.io\/learning\/operational-manual-of-the-nbfcs\/#Customer_Identification_Procedure_%E2%80%93_Operational_manual_of_the_NBFCs\" >Customer Identification Procedure &#8211; Operational manual of\nthe NBFCs<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/corpbiz.io\/learning\/operational-manual-of-the-nbfcs\/#Probing_of_Financial_Transaction-_KYC_Framework\" >Probing\nof Financial Transaction- KYC Framework<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/corpbiz.io\/learning\/operational-manual-of-the-nbfcs\/#Risk_Management\" >Risk\nManagement<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/corpbiz.io\/learning\/operational-manual-of-the-nbfcs\/#Pre-settlement_policy\" >Pre-settlement\npolicy<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/corpbiz.io\/learning\/operational-manual-of-the-nbfcs\/#Asset_Classification_%E2%80%93_Operational_manual_of_the_NBFCs\" >Asset Classification &#8211; Operational manual of the NBFCs<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/corpbiz.io\/learning\/operational-manual-of-the-nbfcs\/#Loan_Write_off_Policy\" >Loan Write off Policy<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/corpbiz.io\/learning\/operational-manual-of-the-nbfcs\/#Loans_Restructuring\" >Loans\nRestructuring<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/corpbiz.io\/learning\/operational-manual-of-the-nbfcs\/#Restricted_Loan\" >Restricted\nLoan<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/corpbiz.io\/learning\/operational-manual-of-the-nbfcs\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Overview_of_NBFCs\"><\/span>Overview of NBFCs<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Non-Banking Financial Company (NBFC) is basically an entity registered under the Companies Act, 2013, which offers financial services such as loans and advances. All NBFCs are registered under the Reserve Bank Act 1934 and are governed by the Reserve Bank of India (RBI).<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Area_of_Operations_in_NBFCs\"><\/span>Area of Operations in NBFCs<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" width=\"580\" height=\"348\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/11\/image-23.png\" alt=\"Area of Operations in NBFCs\" class=\"wp-image-19123\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/11\/image-23.png 580w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/11\/image-23-300x180.png 300w\" sizes=\"(max-width: 580px) 100vw, 580px\" \/><\/figure><\/div>\n\n\n\n<h3 class=\"wp-block-heading\">Areas that NBFCs don\u2019t Serve<\/h3>\n\n\n\n<p><em><strong>NBFCs don\u2019t deal with the following areas:-<\/strong><\/em><\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" width=\"580\" height=\"343\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/11\/image-24.png\" alt=\"Areas that NBFCs don\u2019t Serve\" class=\"wp-image-19124\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/11\/image-24.png 580w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/11\/image-24-300x177.png 300w\" sizes=\"(max-width: 580px) 100vw, 580px\" \/><\/figure><\/div>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/documents-required-for-nbfc-registration\/\">Documents Required for NBFC Registration<\/a><\/mark><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Classification_of_NBFC\"><\/span>Classification of NBFC<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Depending on the type of business\noperation, Non-banking financial companies are classified into ten types.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">ICC: Investment &amp;\nCredit Company<\/h3>\n\n\n\n<p><strong><em>Such category of NBFC carries out the given investment and lending activities:-<\/em><\/strong><\/p>\n\n\n\n<ul><li>Asset<\/li><li>Providing Loan<\/li><li>Financing<\/li><li>Providing Investment solutions<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">IFC: Infrastructure\nFinance Company<\/h3>\n\n\n\n<p>This category of NBFC provides financing\nservices to infrastructure companies such as construction companies and real\nestate. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">NBFC-ND-SI (Non- Deposit taking\nSystemically Important Core Investment Company)<\/h3>\n\n\n\n<p>Such type of NBFC primarily deals in\nfinancial instruments such as debentures, Equity &amp; Preference shares, and\nstocks. Also, these entities render credit to companies for different purposes.\nIt should be noted that only those NBFCs come under the category of\nSystemically Important whose total assets are more than five hundred crores\naccording to the last audited balance sheet.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">IDF: Infrastructure Debt Fund NBFC<\/h3>\n\n\n\n<p>Such NBFCs are mainly concerned with\nfacilitating long- term debt to the infrastructural projects.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Microfinance NBFCs<\/h3>\n\n\n\n<p>As the name suggests Microfinance\ninstitutions are involved in providing small financial loans to individuals\nfrom lower strata of the society.&nbsp; <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">NBFC- Factor <\/h3>\n\n\n\n<p>These categories of financial lenders are\nprimarily engaged in acquiring accounts of receivables\nof an assignor. They conduct such activities with an objective to render\ndiscounted loans against the security interest over the receivables.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Non-Operative\nFinancial Holding Companies (NOFHC) <\/h3>\n\n\n\n<p>These forms of NBFCs provide financial\ncredit to those entities looking to establish new bank or financial\ninstitutions. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Mortgage Guarantee Company <\/h3>\n\n\n\n<p>Such companies mainly serve those\nindividuals who are confronting repayment issues against the home loan. The\nmortgage guarantee helps them to address the risk of default on a home loan. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Account Aggregators<\/h3>\n\n\n\n<p>Account aggregators essentially retrieve or\naccumulate information of its client in relation to financial assets under a\ncontract.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Peer to Peer Platform<\/h3>\n\n\n\n<p>Peer to peer platform is an online platform registered by the Reserve bank. It essentially conducts the activities regarding  <a href=\"https:\/\/corpbiz.io\/peer-to-peer-lending-license\"><strong>Peer to Peer Lending<\/strong><\/a>  through an online platform. Such a form of NBFC allows the borrowers to interact with exhaustive list of lenders registered on the platform.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Operational_and_Credit_policy_operational_manual_of_the_NBFCs\"><\/span>Operational and Credit policy (operational manual of the NBFCs)<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>As mentioned above, all NBFCs are regulated\nby the Reserve bank. Henceforth, for hassle-free operations, these entities are\nneeded to comply with certain credit and operational policy as mentioned by the\ncentral bank i.e. Reserve Bank of India.<\/p>\n\n\n\n<p>The following section exhibits the crucial elements of the operational and credit policy provided by the <em><strong>Reserve Bank of India<\/strong><\/em><sup><a href=\"https:\/\/en.wikipedia.org\/wiki\/Reserve_Bank_of_India\"><em><strong>[1]<\/strong><\/em><\/a><\/sup>.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Customer KYC Policy <\/h3>\n\n\n\n<p>Reserve Bank of India directs all the\nfinancial lenders to operate pursuant to the prescribed \u2018Know your Customer\u2019\nprocedure (KYC). KYC is imperative to scrutinize the flimsy or vague\ntransaction and report it to the relevant authority. <\/p>\n\n\n\n<p>The primary objective behind the KYC guideline\nis to protect the financial institutions from being tricked by fraudulent\nborrowers engaged in money laundering activities. Besides, the motive of KYC is\nto empower financial institutions to get familiar with their borrowers\u2019 needs\nin a better way. Consequently, this will allow them to address the disparities\nin an authentic way.<\/p>\n\n\n\n<p><em><strong>All the Non-banking financial companies are needed to lay out their KYC policy pursuant to the given essential elements. Those are as follows:-<\/strong><\/em><\/p>\n\n\n\n<ul><li>Financial Risk Management<\/li><li>Customer Acceptance Policy<\/li><li>Monitoring of transactions <\/li><li>Customer Identification process<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Anti-Money Transaction <\/h3>\n\n\n\n<p>It does make\nsense that transparent transactions are imperative not only for brisker growth\nof the industry but also for the sovereignty of the country. In the purview of\nthe above, the Department of Banking Operations and Development, aka DBOD and\nReserve bank had laid down elaborate directions to all NBFCs and Banks, under\nthe supervision of the Financial Action Task Force.<\/p>\n\n\n\n<p>The recommendation\nof the Financial Action Task Force, (FATF) on terror financing standards and\nAnti-money laundering have now becomes a benchmark for the regulatory\nauthorities for framing out the policies for terror funding and Anti Money\nLaundering (AML). <\/p>\n\n\n\n<p>Compliance with\nthese benchmarks by these financial institutions is therefore essential for\nglobal financial relationships. Here are some crucial directions by the Reserve\nBank for the NBFCs for laying out operational guidelines of anti-money\nlaundering and KYC measures. Those are as follows:-<\/p>\n\n\n\n<ul><li>The\ncustomer\u2019s information must not be accessible to anyone other than NBFCs. <\/li><li>Client\ninformation must be pertinent to the perceived risk, and not interfering by\nnature.<\/li><li>Banks\ncannot get their hand on the client\u2019s information without their permission.\nSuch activities are required to perform after the opening of a bank account.<\/li><li>The\noperational directions for Non-Banking Financial Companies are issued under\nsection 45K and 45L of the Reserve Bank Act 1934. In case of any violation, the\ndefaulter has to confront prescribed penal actions drafted under this Act. <\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Customer Acceptance Policy <\/h3>\n\n\n\n<p>Customer\u2019s acceptance policy is an\nimperative part of the operational manual of\nthe NBFCs. NBFCs must layout detailed\nand clears guidelines regarding the acceptance of customers. The policy should\nenclose the clear-cut direction regarding the given aspects.<\/p>\n\n\n\n<ul><li>Banks\nmust avoid opening an account on somebody\u2019s name that is not legitimate or\ndoesn\u2019t even exist.<\/li><li>Classification\nof the customer on the basis of risks and other aspects such as business\nactivity, mode of payment, location, and turnover, etc.&nbsp;<\/li><li>Documentation\nand other information in accordance with the Reserve bank guideline and PML Act\n2002 should be issued from time to time. <\/li><li>Bank\ncannot open or close the account in the event of the non-cooperation of the\ncustomers. <\/li><li>Preliminary\nvalidation checklist for opening a new account.<\/li><li>If\nin case any customer is permitted to act on behalf of any another\nentity\/individual, should be visibly spelt out.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Customer_Identification_Procedure_%E2%80%93_Operational_manual_of_the_NBFCs\"><\/span>Customer Identification Procedure &#8211; Operational manual of\nthe NBFCs<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Customer\nidentification indicates probing a customer and its credibility depending on\nthe documents and information. Henceforth, Non-banking financial companies are\nneeded to accumulate adequate and legitimate information for every new\ncustomer. Consider the following points during the validation process of new\ncustomers.<\/p>\n\n\n\n<ul><li>Verify\nthe relevant documents to determine the legal status of the entity\/individual<\/li><li>Check\nthat the person if approved by the relevant source to act on the behalf of\nanother company\/person. <\/li><li>Get\nfamiliar with the entitlement structure and ownership of a new customer. <\/li><li>Ascertain\nthe ownership and entitlement structure of a new customer.<\/li><li>NBFC\nmust examine the person who is in authority or acting as a legitimate\nindividual on the behalf of another person. <\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Probing_of_Financial_Transaction-_KYC_Framework\"><\/span>Probing\nof Financial Transaction- KYC Framework<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Probing the\ntransactions is indeed an imperative part of an effective KYC framework. In\nreality, the NBFCs can efficiently control and overcome their risk factor by\nascertaining the financial activity of new customers.&nbsp; In view of this, the given pointers could\nprove to be effective:<\/p>\n\n\n\n<ul><li>NBFCs\nshould lay out a system for probing the risk categorization of the account. <\/li><li>In\nthe view of the same, NBFCs must take appropriate measures to mitigate\nsuspicion.<\/li><li>NBFCs\nmust take good care of transaction records with utmost diligence and care in\nthe view of u\/s 12 of the PML Act, 2002.<\/li><li>Additionally,\nit\u2019s essential for making sure that flimsy or vague records are reported\npromptly to the relevant authority.&nbsp; <\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Risk_Management\"><\/span>Risk\nManagement<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Companies deploy Risk management with an\naim to mitigate the immediate and complex threat. The same is also true with\nNBFCs.&nbsp; Nonetheless, in order to overcome\nintricacies, NBFC must implement an effective KYC program that consolidates\neffective measures for risk elimination. Here are some crucial elements of the\nKYC program, which must encompass proper management flaws, assignment of taks,\ntraining, etc. <\/p>\n\n\n\n<ul><li>The NBFCs should prepare risk profiles of their existing and new customers by taking Anti Money Laundering measures into account to mitigate transaction risks. <\/li><li>An efficient training program should be there in place to train the employee about KYC procedures. <\/li><li>Distinctive training modules for the front-end and back-end compliance employees. <\/li><\/ul>\n\n\n\n<p>The business members should enact a sound risk management policy as soon as they availed the <a href=\"https:\/\/corpbiz.io\/nbfc-registration\"><strong>NBFC registration<\/strong><\/a>. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Pre-settlement_policy\"><\/span>Pre-settlement\npolicy <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>As the name\nsuggests Pre-settlement policy is referred to as early payment of the loan.\nUnder this policy, borrowers can clear all its dues related to the loan before\nthe completion of the loan tenure. The banks and financial institutions are\nliable to lay out policy regarding the same so that customers can pre-settle\ntheir loans without any hassle. There must be proper terms and conditions in\nplace for the pre-settlement policy. The T&amp;C of pre-settlement policy must\nthe following conditions:-<\/p>\n\n\n\n<ul><li>Clarify whether part prepayment is\npermitted or not.<\/li><li>Mention about penalties provision\nregarding prepayment, if any.<\/li><li>Mention rebate\/reward for pre-settlement\npolicy, if any.<\/li><li>Mention whether pre-settlement of loan permits\nnext loan cycle or not<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Asset_Classification_%E2%80%93_Operational_manual_of_the_NBFCs\"><\/span>Asset Classification &#8211; Operational manual of the NBFCs<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>It should be\nnoted that loans are valuable asset for financial institutions. Thus; it\u2019s\nimperative for the banks to classify the borrowers into standards and\nnon-performing assets.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Flowchart of Complete Asset\nclassification <\/h3>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" width=\"669\" height=\"343\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/11\/image-25.png\" alt=\"Flowchart of Complete Asset classification \" class=\"wp-image-19125\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/11\/image-25.png 669w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/11\/image-25-300x154.png 300w\" sizes=\"(max-width: 669px) 100vw, 669px\" \/><\/figure><\/div>\n\n\n\n<p>\u201cSMA* stands\nfor Special mention accounts. It is referred to as the loan asset on which the\nprincipal and interest are overdue for ninety days.\u201d<\/p>\n\n\n\n<p>Income\nrecognition by the Non-banking financial companies shall be done on the basis\nof the accounting standards drafted by ICAI. In view of the above:-<\/p>\n\n\n\n<ul><li>Income that consolidates interest plus\nany other charges in pursuant to non-performing assets shall be recognized only\nwhen realized.<\/li><li>Income generated from non-performing\nassets shall be recognized on a Cash basis.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Loan_Write_off_Policy\"><\/span>Loan Write off Policy<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>When the non-performing assets loan manages to spend some time in arrears, then it can be written off. RBI has drafted some guidelines in the view of the above. The following tabular representation exhibits the same.  Loan Write-Off Policy Drafted by Reserve Bank <\/p>\n\n\n\n<table class=\"table table-bordered\"><tbody><tr><td>\n  <strong><em>Types\n  of loan assets<\/em><\/strong>\n  <\/td><td>\n  <strong><em>Reserve\n  Bank Guidelines<\/em><\/strong>\n  <\/td><\/tr><tr><td>\n  <strong>Standard Assets<\/strong>\n  <\/td><td>\n  One percent\n  of outstanding\n  <\/td><\/tr><tr><td>\n  <strong>Sub-Standard Assets<\/strong>\n  <\/td><td>\n  Fifty percent\n  of outstanding\n  <\/td><\/tr><tr><td>\n  <strong>Loan asset<\/strong>\n  <\/td><td>\n  Hundred\n  percent of outstanding\n  <\/td><\/tr><\/tbody><\/table>\n\n\n\n<p>It is evident,\nthat financial houses including NBFCs must draft an effective accounting policy\nwith respect to loan write-off. A policy that is capable of removing NPA loans\nfrom the account book can however devalue the credibility portfolio; while\nunnecessarily exaggerate the portfolio\u2019s quality. Thus; while examining the\nquality of the portfolio, the analyst must probe the level of bad debts.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Loans_Restructuring\"><\/span>Loans\nRestructuring <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>NBFCs reserve\nthe right to alter the terms of the ongoing loan agreement as the policy drafted\nby the board of Directors. The following events entice such a situation:-<\/p>\n\n\n\n<ul><li>Prior commencement of the business<\/li><li>In case the asset is classified as\nsub-standard. <\/li><li>Post commencement of the business after\nthe asset has been classified as sub-standard.<\/li><li>In each said cases, the restructuring of\ninterest or principal can be done, with\/without sacrifice. <\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Restricted_Loan\"><\/span>Restricted\nLoan<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>In the purview\nof the bylaws and RBI\u2019s regulation, all financial institution including NBFCs\nand MFIs cannot approve loan to the following candidates. <\/p>\n\n\n\n<ul><li>Loans to bailout\/replace the lenders who\nwish to withdraw. Loans to political candidates, parties, or other political\norganizations.<\/li><li>Loans to gambling enterprises.<\/li><li>Loans for drugs and alcohol-related\nactivities. Loans for weapon\/ armament activities<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Well, that&#8217;s all about the operational manual of the NBFCs. NBFCs and MFIs playing a pivotal role in stabilizing the turbulence exists in the economic infrastructure of the country. With that being said, NBFCs are still evolving and seeking soft regulations from the governing authorities to carry out their operations more proactively. Hope this presentation has strengthened your understanding regarding the operational manual of the NBFCs. Please do connect with us or communicate with <a href=\"https:\/\/corpbiz.io\/\"><strong>CorpBiz\u2019s<\/strong><\/a> experts if you need help regarding NBFC registration or other matters.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/step-by-step-nbfc-registration-procedure\/\">NBFC Registration: Step by Step Procedure<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>NBFCs make their way to the financial market about six decades back and since then they are playing a commendable role in serving the lower strata of society. Unlike banks, they are easier to access and facilitate lucrative financial services to the needy ones. Apart from providing easy finances, the NBFC also deals with numerous [&hellip;]<\/p>\n","protected":false},"author":22,"featured_media":19145,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[91],"tags":[1189],"acf":{"service_id":"8"},"authorName":"Pankaj Tyagi","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/01\/MicrosoftTeams-image-42.jpg","authorDescription":"Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.","postViews":13999,"readingTime":7,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/19122"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=19122"}],"version-history":[{"count":11,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/19122\/revisions"}],"predecessor-version":[{"id":24598,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/19122\/revisions\/24598"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/19145"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=19122"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=19122"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=19122"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}