RBI tightens NBFC lending and disclosure guidelines

The Reserve Bank of India (RBI) has tightened the standards of non-bank financial institutions (NBFC) and banned lending of interest-bearing companies to executives and directors. The NBFC is also obliged to disclose its disclosure to all soft sectors such as real estate, equity loans and mortgage loans.

Introduction

The Reserve Bank of India enforces the NBFC borrowing and disclosure rules by imposing certain limits on lending to NBFC executives, directors, executives, and companies or companies of interest. In addition, the RBI has issued disclosure guidelines to the financial statements of key and soft areas that can be included at normal rates. Real Estate Loans – Loans for residential and commercial projects, equity and secure housing loans.

NBFC Borrowing and Disclosure Guidelines

• Direct exposure to home loans (home and mortgage loans, mortgage-backed securities (MBS) investments and other securities)
• Indirect financial exposure to National Housing and Housing Banks An unfunded financial exposure company.
• Capital Markets Exposure – (Direct / Indirect Investment in Securities Market / Security Development / Funding for AIFs / Equity Brokers, etc.)
• Inter-party exposure – The NBFC should provide the following information for the current year, as well as annual comparisons:
  • Amount of internal group exposure
  • A total of 20 high exposure within the group
  • NBFC rate of intragroup exposure to total borrower / customer openness.
• Unrestricted exposure to foreign currency – NBFC discloses details of unrestricted foreign exchange exposure. In addition, policies relating to dealing with risks related to currency should be disclosed.
• The NBFC should disclose stakeholder relations and disclose (details) of complaints. 8th. Differences in business management disclosure, breach disclosure, asset disclosure disclosures and provisions (applicable to NBFCML and NBFCUL financial statements).

Circulations issued to strengthen borrowing and disclosure guidelines

• The controls issued four different cycles. Large debt line of overlay NBFC layers. Disclosure in financial statements; scale-based management of high capital requirements. Borrowing limits and rules on rot. This is an improvement on the broadcast of 22 October 2021.
• With regard to the framework for greater exposure with higher layers, regulators stated that these monitoring guidelines address credit risk collection in the NBFC, identify major exposure and integrate with other related teams. He said the aim was to improve standards and introduce greater standards for reporting exposure. The regulators have stated that the total value of one NBFC exposure on one side cannot exceed 20 per cent of the available capital. However, if the NBFC has a policy framework that allows for more than 20% exposure, the board may at any time allow 5% exposure to more than 20%. However, it cannot exceed 25% of the eligible cash basis. And if he informs the RBI in writing, there is a special reason why more than 20 per cent commitment is allowed in each case.

NBFC Guidelines – Middle Class (ML) and NBFC – Advanced Category (UL) – Regulatory Limits on borrowing and borrowing

• Lending and Borrowing to Director -Unless approved by the Board of Directors Grant a loan and a total prepayment of 5 million rupees or more to a director (including the chairman/managing director) or a relative of the director. A company in which the director or one of his or her relatives is involved as a partner, manager, employee, or supplier. A company in which one of the directors or their relatives is the principal shareholder, director, executive officer, or supplier.
• Loans and prepaid payments to NBFC officials – The NBFC must comply with the following when borrowing and prepaying officials. Loans and prepaid payments approved by NBFC officials must be reported to the Board of Directors. In particular, an officer or committee in which an official member may not authorize the credit line of a relative of such official while exercising the authority to authorize a credit line. Such institutions are authorized by the next senior authority within the delegation authority.

Conclusion

The role of the NBFC in supporting the real economic activity and its role in the network of credit unions in private banks is well known. Over the years, the sector has grown significantly in terms of size, complexity, and collaboration within the financial sector. As more companies grow and acquire a more strategic value, NBFC regulatory frameworks need to be changed to accommodate a risk profile change account.