All this can be considered as CET1 capital with a 55% discount rather than Tier 2 capital under existing regulations. 27 April: The RBI issues guidelines for the appointment and operation of auditors in banks and NBFCs. The RBI`s rules focus primarily on key areas, including the auditor appointment process, tenure, eligibility, and independence. Before deciding to level the playing field for regulated companies, the RBI followed regulations based on the companies or a category to which the lender belonged. In 2013, under former governor Raghuram Rajan, the RBI deliberately shifted to activity-based regulation. „The changes that started then are now visible after years of work,“ Gandhi said. In addition to the disclosures required in NBFCs` financial statements, the new circular requires NBFCs to disclose information in the financial statements in accordance with new regulatory guidelines, applicable accounting standards, laws and regulations. Yes, we think so. Maintaining regulations (based on the size and impact of a product or service) is a great way to regulate the tech ecosystem. It keeps the big NBFCs and their fintech ambitions at bay. Another example of proportionate regulation is the 2021 guidelines for intermediaries, where „significant social media intermediaries“ (which have more than 50 lakh registered users) must follow stricter standards than other intermediaries. This regulatory framework reduces the compliance burden for smaller players while keeping large tech companies at bay. NBFS are regulated based on their size, activity and risk exposure.
They are classified into basic, intermediate, upper and upper layers. With each shift, regulations become stricter. NBFCs without deposit (with assets below Rs 1000 crore), peer-to-peer lending platforms and account aggregators are in the base layer. And for this layer, the RBI will prescribe light regulations. The middle tier includes deposit-taking NBFCs, deposit-free NBFCs (with assets above Rs.1000 crore), stand-alone primary dealers, infrastructure debt funds, basic investment corporations, housing finance corporations and infrastructure finance companies. In the top layer are NBFS that require stricter regulatory oversight. The ten largest NBFS in terms of wealth size will always be part of the top layer. At the moment, the top layer is empty. The RBI will move an NBFC to this layer if it poses a higher systemic risk. However, NBFS (at all levels) must comply with risk management standards, disclosure standards, etc. The RBI will separately announce detailed guidelines for each category of NBFC.
For example, RBI announced in February 2022 that mid- and senior-level NBFCs with more than 10 physical offices serving as customer interfaces (staffed or outsourced agents) must implement the Core Financial Services Solution (CFSS) by September 2025. CFSS will be similar to the basic banking solution used by banks. It will provide a digital interface for customers to access products and services and enable better registration for internal and regulatory purposes. With this announcement, the central bank has now harmonized regulations for upper-class non-banks, commercial banks and cooperative banks, leaving little room for arbitrage. The large exposures framework was first introduced for banks in 2016 and revised in 2019. In 2020, following the collapse of the Punjab and Maharashtra Cooperative Bank in 2019, the guidelines were extended to municipal cooperative banks. „More settlements will bridge the gap between banking and NBFC formats and strengthen surviving NBFCs at every stage. There should be a relevant model at every stage,“ Iyer said in an exclusive interview with Business Today. In recent years, the Reserve Bank of India (RBI) has tightened the rules for non-bank financial corporations (NBFCs).
The Reserve Bank of India (RBI) recently said it would not exempt non-bank financial corporations (NBFCs) from stricter rules on bad loans, which are expected to be adopted soon. Many NBFCs have asked the RBI to exempt small loans from the rules, as this could pose a challenge for the NBFC sector. On Tuesday, the RBI said a non-bank financial company`s (NBFC) exposure to a single company must not exceed 20 percent of its available capital base and an additional 5 percent exposure will be allowed, subject to board approval. For a group of related enterprises, the overall exposure is limited to 25 % of the capital base of non-bank enterprises. However, the rules provide more flexibility for infrastructure finance companies. According to the rules, the two partner credit institutions must conclude an agreement defining the terms of the agreement, the criteria for selecting partner institutions, the specific product lines and the areas of activity. The Reserve Bank announced a number of regulatory changes for non-bank lenders by amending the October 2021 circulars on scale-based regulations that put major NBFCs almost on a level playing field with bankers when it comes to tackling their concentration of credit risk. In October 2021, the RBI announced scale-based regulations for NBFCs (which will come into effect on October 1, 2022).
