{"id":33281,"date":"2021-07-22T11:18:43","date_gmt":"2021-07-22T05:48:43","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=33281"},"modified":"2024-12-09T18:13:11","modified_gmt":"2024-12-09T12:43:11","slug":"rbis-revision-on-regulatory-framework-for-nbfcs","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/rbis-revision-on-regulatory-framework-for-nbfcs\/","title":{"rendered":"RBI\u2019s Revision on Regulatory Framework for NBFCs"},"content":{"rendered":"\n<p class=\"has-drop-cap\">The NBFCs have considerably grown over years in terms of their complexity, technological sophistication, interconnectedness, operations, and size. Many of the NBFC\u2019s have started to venture to new financial services sectors with the new products. Taking into consideration the noteworthy growth of NBFC, RBI has revised the regulatory framework for NBFCs in the recent years because it was much needed to ensure the transparency in its operations. \u00a0In the blog, we will learn more about the RBI\u2019s Revision on Regulatory Framework for NBFCs.<\/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\/rbis-revision-on-regulatory-framework-for-nbfcs\/#What_is_NBFC\" >What is NBFC?<\/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\/rbis-revision-on-regulatory-framework-for-nbfcs\/#What_is_the_regulatory_framework_for_NBFCs\" >What is the regulatory framework for 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\/rbis-revision-on-regulatory-framework-for-nbfcs\/#What_is_the_guideline_for_the_revised_regulatory_framework_for_NBFCs\" >What is the guideline for the revised regulatory framework for NBFCs?<\/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\/rbis-revision-on-regulatory-framework-for-nbfcs\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_NBFC\"><\/span>What is NBFC?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>A Non Banking Financial Company (NBFC) is a non banking financial institutions registered under the<strong>\u00a0<em>Companies Act, 2013<\/em><\/strong><sup><a href=\"https:\/\/en.wikipedia.org\/wiki\/Companies_Act_2013\"><strong><em>[1]<\/em><\/strong><\/a><\/sup>. NBFC offers various banking services but does not have a <strong><a href=\"https:\/\/corpbiz.io\/merchant-banker-license\">banking license<\/a><\/strong>. It is engaged in the acquisition of shares, business of advances and loans, stock, hire-purchase insurance business, bonds or chit-fund business. But it does not include any institution whose principal business is that of industrial activity, agriculture, sale or purchase of any goods (except securities) or giving any services and purchase, sale, construction of any immovable property.<\/p>\n\n\n\n<p>The functioning and operations of the NBFCs are regulated by the\u00a0Reserve Bank of India\u00a0(<strong><a href=\"https:\/\/corpbiz.io\/rbi\">RBI<\/a><\/strong>) which is within the framework of Reserve Bank of India Act, 1934.<\/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\/procedure-of-nbfc-registration-in-india\/\" title=\"nbfc registration process\">NBFC Registration \u2013 Know the Entire Incorporation Procedure <\/a><\/mark><\/p>\n\n\n\n<p><strong>What is the purpose of Revision of regulatory framework for NBFCs?<\/strong><\/p>\n\n\n\n<p>The main\npurpose behind revising the doctrines underlying the current regulatory\nframework was the need to examine and develop a scale based approach for\nregulating and recommending suitable measures supporting the healthy financial\nsystem. RBI introduced the regulatory frameworks for&nbsp;NBFC&nbsp;in order to keep updated\nwith the changing realities and to&nbsp;re- examine the regulatory framework\u2019s\nsustainability.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_the_regulatory_framework_for_NBFCs\"><\/span>What is the regulatory framework for NBFCs? <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The supervisory and regulatory framework for NBFCs is based on the four-layered structure as said by RBI i.e. \u2013<\/p>\n\n\n\n<ul>\n<li><strong>NBFC Base Layer<\/strong> &#8211; The NBFC at the base layer is classified as the non-systemically NBFC i.e. as a NBFC-Non Deposit Taking, Non-operative Financial Holding, <strong><a href=\"https:\/\/corpbiz.io\/nbfc-account-aggregator-license\">NBFC Non-Aggregator License<\/a><\/strong> and <strong><a href=\"https:\/\/corpbiz.io\/peer-to-peer-lending-license\">Peer to Peer Lending<\/a><\/strong> and NBFC for asset size of Rs. 1000 Crores. <\/li>\n<\/ul>\n\n\n\n<p>At base\nlayer, the norms for NBFC \u2013BL has been revised by the Central Bank from Rs 2\nCrore to 20 Crores and the balancing of the NPA is covered from 180 days to 90\ndays.<\/p>\n\n\n\n<ul>\n<li><strong>NBCF Middle Layer<\/strong> \u2013 It includes NBFC which is presently classified as Non Deposit Taking Systemically Important, NBFC-ND-SI, Standalone Primary Dealers, Deposit taking NBFC, Infrastructure Debt Funds, <strong><a href=\"https:\/\/corpbiz.io\/housing-finance-company-registration\">Housing Finance<\/a><\/strong> and Core Investment Companies. The linkages to the exposure limits are changed from the Owned Funds to the Tier Capital. For the financing of IPO, the limit has been fixed to Rs 1 Crore<\/li>\n\n\n\n<li><strong>NBFC Upper\nLayer<\/strong> \u2013 In the Upper layer at least 25 to 30 NBFCs are enclosed.\nThe NBFC included under this layer shall work like a bank. It is recognized as\nCET and for enhancing the regulatory capital for NBFC-UL, Common Equity Tier\n(CET) I Capital might be introduced. CET has been accessible at the rate of 9 %\nat Tier I capital.<\/li>\n\n\n\n<li><strong>NBFC\nTop Layer<\/strong> \u2013 The NBFC at the top layer is kept empty in the structure. Basically, the top layer of the\npyramid structure shall remain empty unless the supervisors view some particular\nNBFCs. According to the supervisory judgments, if some NBFC in the upper layer\nare undergoing some extreme risks then in such case they will be added to considerably\nhigher regulatory or supervisory requirements.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_the_guideline_for_the_revised_regulatory_framework_for_NBFCs\"><\/span>What is the guideline for the revised regulatory framework for NBFCs?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The guideline for the revised regulatory framework for NBFCs is as given below:<\/p>\n\n\n\n<ul>\n<li><strong>A Layered Approach- <\/strong>Under this framework, it has been revised into the four-layered structure as has been explained above. The structure includes-<\/li>\n<\/ul>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter is-resized\"><img decoding=\"async\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/07\/revised-regulatory-framework-for-NBFC.png\" alt=\"revised regulatory framework for NBFC\" class=\"wp-image-33297\" width=\"456\" height=\"446\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/07\/revised-regulatory-framework-for-NBFC.png 998w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/07\/revised-regulatory-framework-for-NBFC-300x294.png 300w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/07\/revised-regulatory-framework-for-NBFC-768x753.png 768w\" sizes=\"(max-width: 456px) 100vw, 456px\" \/><\/figure><\/div>\n\n\n<ul>\n<li><strong>A Pyramid Structure \u2013 <\/strong>This structure is formed in a pyramid shape and has the minimum regulatory intervention. It has been further classified as non systematically important NBFC &#8211; NBFCP2P , NBFC-ND, and the leading Platforms like \u2013 NOFHC, NBFCAA, and Type I NBFCs and the third layer which includes the systematically significant NBFC like Deposit-taking NBFC (NBFC-D), NBFC-ND-SI, IDFs, HFC\u2019s, SPDs, CICs and IFCs.<\/li>\n\n\n\n<li><strong>Adverse Regulatory Arbitrage- <\/strong>The banks shall be addressed for covering NBFCs under this layer for the purpose to reduce the systematic risk in case of any spill over. The regulatory arbitrage has been divided into two parts: <\/li>\n<\/ul>\n\n\n\n<p>(a). Structural arbitrage and b) Prudential arbitrage. <\/p>\n\n\n\n<p>The banks in the structural\narbitrage case, maintains the SLR and CRR against the time demand liabilities. <\/p>\n\n\n\n<p>In\nthe Prudential arbitrage case, the NBFC benefits from the flexibility in provisos\nof the asset classification, capital adequacy, and provisioning norms.<\/p>\n\n\n\n<ul>\n<li><strong>Extant Regulatory Framework- <\/strong>The framework will apply to NBFC-NDs that are still existing regulatory frameworks. It shall be applicable to the base layer of the NBFCs. NDSI will be applicable to the middle layer of NBFCs.<\/li>\n\n\n\n<li><strong>Revision for upper layer-<\/strong> The alteration in the lower layer NBFCs shall equally apply to the upper layer of NBFCs unless there is any conflict stated.<\/li>\n\n\n\n<li><strong>The threshold of the systematic importance- <\/strong>presently it is 500 Crores but it has been revised to Rs 1000 crores.<\/li>\n\n\n\n<li><strong>NPA Classification Days \u2013 <\/strong>The NPA days is reduced down from 180 days to now it is 90 days.<\/li>\n<\/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>Therefore, it can be concluded that with the revision of the regulatory framework for NBFCs, the RBI has upgraded the hierarchy of the structural pyramid. The objective behind this is to ease the procedure of <strong><a href=\"https:\/\/corpbiz.io\/nbfc-registration\">NBFC Registration<\/a><\/strong> and promote flexibility by granting the much required backup within the financial system.<\/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>The NBFCs have considerably grown over years in terms of their complexity, technological sophistication, interconnectedness, operations, and size. Many of the NBFC\u2019s have started to venture to new financial services sectors with the new products. Taking into consideration the noteworthy growth of NBFC, RBI has revised the regulatory framework for NBFCs in the recent years [&hellip;]<\/p>\n","protected":false},"author":33,"featured_media":33295,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[91],"tags":[1875],"acf":{"service_id":"8"},"authorName":"Kandarp Vanita","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/02\/image_2021_02_01T09_09_44_024Z.png","authorDescription":"Kandarp Vanita has done masters in Corporate and Commercial Law from WB National University of Juridical Sciences. She has 3 yrs of experience in drafting legal documents &amp; dissertations. Being a curious reader, she is also passionately into providing legal backups and comprehensive understandings in every aspect of Law to the firms.","postViews":3803,"readingTime":4,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/33281"}],"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\/33"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=33281"}],"version-history":[{"count":24,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/33281\/revisions"}],"predecessor-version":[{"id":67676,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/33281\/revisions\/67676"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/33295"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=33281"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=33281"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=33281"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}