New RBI Regulatory Guidelines for NBFCs

FCA surbhi jain | Last updated: 21 January 2025

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The Reserve Bank of India has introduced significant new regulations for Non-Banking Financial Companies (NBFCs) to bolster financial stability and protect consumers. Key changes include revised Fixed Deposit rules offering more flexibility for emergency withdrawals and shorter notice periods for maturity. Housing Finance Companies will see harmonised regulations with NBFCs, including increased liquid asset requirements and mandatory credit ratings. Additionally, a Key Facts Statement (KFS) will be mandatory for loans from October 2024, ensuring greater transparency for borrowers, and restrictions have been placed on microfinance loans to prevent loan evergreening.

The Reserve Bank of India (RBI) has recently implemented several regulatory changes affecting Non-Banking Financial Companies (NBFCs) to enhance financial stability and protect consumer interests. Key updates include:

RBI NBFC Guidelines: What You Need to Know

1. Revised Fixed Deposit (FD) Regulations

Effective January 1, 2025, NBFCs are required to:

Emergency Withdrawals: Return the full deposit amount within the first three months upon request due to emergencies, without accruing interest.
Non-Emergency Withdrawals: Allow premature withdrawal of up to 50% of the deposit amount (maximum ₹5 lakh) within three months, without interest.
Maturity Notifications: Inform depositors of maturity details at least 14 days in advance, reducing the previous notice period from two months.

These measures aim to provide greater liquidity and transparency for depositors.

2. Harmonization of Housing Finance Companies (HFCs) Regulations

To align HFCs with NBFCs, the RBI has:

Increased Liquid Asset Requirements: Raised the minimum percentage of liquid assets to be held by HFCs from 13% to 15% of public deposits.
Asset Coverage: Mandated full asset coverage for public deposits and annual 'investment grade' credit ratings.
Deposit Terms: Set public deposits to have a maturity period of at least 12 months but no more than 60 months.These steps are intended to strengthen the financial health of HFCs and protect depositors.

3. Introduction of Key Facts Statement (KFS)

Starting October 1, 2024, all banks and NBFCs are mandated to provide a KFS to borrowers. This document will detail:

Interest Rates: Clearly specified rates applicable to the loan.
Additional Costs: Any extra charges or fees associated with the loan.

The objective is to enhance transparency and enable borrowers to make informed financial decisions.

4. Restrictions on Microfinance Loans

The RBI has expressed concerns over unfair practices in the microfinance sector, such as high interest rates and processing fees. Informal directives have been issued to banks to:

Cease Issuing New Loans: Suspend the issuance of new microfinance loans to borrowers with outstanding previous loans.

This measure aims to prevent the "evergreening" of loans and reduce the risk of defaults.

5. Lifting of Restrictions on Navi Finserv

The RBI has removed the ban on Navi Finserv, allowing the NBFC to resume sanctioning and disbursing new loans. This decision follows the company's implementation of improved processes and systems to comply with regulatory guidelines

These regulatory changes reflect the RBI's commitment to strengthening the NBFC sector, ensuring financial stability, and safeguarding consumer interests.

The author can also be reached at ca.surbhi28@gmail.com

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.