The evolution of NBFC sector over the years in terms of size , complexity and interconnectivity has led to increase in risk factor as well. To align with the regulatory framework of NBFC's with changing risk dimensions, SBR framework has been introduced by RBI, guidelines of which were effective from 1st October 2022. With multi facets framework, it has been first decided to issue an integrated regulated framework, then guidelines to be issued subsequently.
Circular no. DOR.CRE.REC.No.60/03.10.001/2021-22 dated 22.10.2021 issued by RBI on SBR (Scale Based Regulation )- a revised regulatory framework for NBFC's, stated regulatory structure of NBFC's comprises of four layers :
- BASE LAYER - Non -deposit taking NBFC below the asset size of ₹1000 crore.
- MIDDLE LAYER- All deposit-taking NBFCs (NBFC-Ds). irrespective of the asset size, Non-deposit taking NBFC's having asset size of ₹1000 crore and above.
- UPPER LAYER- Those NBFCs which are specifically identified by RBI.
- TOP LAYER- 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.
Regulatory changes under SBR for all the layers in the regulatory structure
1. Net Owned Fund
Regulatory minimum Net Owned Fund (NOF) for NBFC-ICC, NBFC-MFI and NBFC-Factors shall be increased to ₹10 crore.
It is to be noted that there is no change in the existing regulatory minimum NOF for NBFCs - IDF, IFC, MGCs, HFC, and SPD.
2. NPA Classification
The extant NPA classification norm stands changed to the overdue period of more than 90 days for all categories of NBFCs.
NPA Norms Timeline
- 150 days overdue By March 31, 2024
- 120 days overdue. By March 31, 2025
- 90 days. By March 31, 2026
It is to be noted that will not be applicable to NBFCs which are already required to follow the 90-day NPA norm
3. Experience of the Board
Considering the need for professional experience in managing the affairs of NBFCs, at least one of the directors shall have relevant experience of having worked in a bank/ NBFC.
4. Ceiling on IPO Funding
There shall be a ceiling of ₹1 crore per borrower for financing subscription to Initial Public Offer (IPO). NBFCs can fix more conservative limits.
Standardization and regulation of NBFC's in the fast paced competitive changing era is of utmost importance for transparent and efficient management of the sector.
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Disclaimer: This document contains information for general guidance only. We do not accept any responsibility for any loss incurred by any person as a result of any matter in this document.
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