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Reserve Bank of India RBI/2021-22/149 DOR.CRE.REC.No.77/21.04.172/2021-22 January 05, 2022 All Scheduled Commercial Banks (excluding RRBs) Madam/ Dear Sir, Master Circular Bank Finance to Non-Banking Financial Companies(NBFCs) Please refer to ourMaster Circular DBR.BP.BC.No.5/21.04.172/2015-16 dated July 1, 2015on the captioned subject. ThisMaster Circularconsolidates instructions on the above matter issued up to January 04, 2022. Yours faithfully, (Manoranjan Mishra)
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FAQ :
The purpose of this Master Circular is to lay down the Reserve Bank of India's regulatory policy regarding the financing of Non-Banking Financial Companies (NBFCs) by banks.
This circular is applicable to all Scheduled Commercial Banks, excluding Regional Rural Banks.
Activities not eligible for bank credit include bills discounted/rediscounted by NBFCs (with specific exceptions for vehicle sales), investments by NBFCs in shares/debentures of any company, unsecured loans/inter-corporate deposits by NBFCs, loans by NBFCs to subsidiaries/group companies, and finance to NBFCs for further lending to individuals for IPOs or secondary market share purchases.
Yes, banks are prohibited from granting bridge loans or interim finance of any nature to all categories of NBFCs, including those pending capital/debenture issues or awaiting long-term funds.
Banks' exposures to a single NBFC (excluding gold loan companies) are restricted to 20% of their Tier I capital. Exposures to a group of connected NBFCs are limited to 25% of their Tier I Capital. For NBFCs predominantly engaged in gold loans, the exposure limit is 7.5% of the bank's capital funds, which can increase to 12.5% if the additional exposure is for on-lending to the infrastructure sector.
Banks should not invest in Zero Coupon Bonds (ZCBs) from NBFCs unless a sinking fund is established. They can invest in Non-Convertible Debentures (NCDs) with an initial maturity up to one year, provided they adhere to prudential guidelines and the stated purpose of the NCDs is eligible for bank finance.
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Source : https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12218&Mode=0