NBFC New Regulatory Regime 2014Knowledge BaseNBFC New Regulatory Regime 2014

NBFC New Regulatory Regime 2014

The Reserve Bank of India (RBI) , pursuant to its review of the regulatory framework for Non-Banking Finance Company (NBFC), on Monday, 10 November 2014 made certain amendments to the regulatory framework for NBFCs. Additionally, the RBI revoked with immediate effect its temporary suspension of the issuance of Certificate of Registration (CoR) to companies proposing to conduct NBFC business.

    Need for Regulation:

  • Over the years , the NBFC sector has become systematically important with rise in assets under management from around 11% of bank assets to 13% of bank assets in 2013.
  • The rising importance of NBFCs and their growing interconnectedness with banks as well as issues like risk management framework for the sector, regulatory gaps and arbitrages ,compliance and governance issues have led to the RBI making certain regulatory changes.

Key points in the revised regulatory framework
“The following major changes have been made through the 10th November,2014 circular’’:

  • Definition of NBFC-ND-SI changed
  • Determination of Asset size for NBFC-ND-SI to include total assets of NBFC’s in a ‘group’.
  • Prudential Norms applicable based on categories of asset size.
  • Capital requirements increased with 10% Tier 1 capital for NBFC-ND-SI
  • Change in asset classification for NBFC’s-ND-SI and NBFCs-D
  • Increased provision for standard assets to 0.40%.
  • Extensive corporate governance controls on NBFCs

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