ICAI - DELHI CA BHAVESH VORA

 Reserve Bank of India has published the draft guidelines for NBFCs which are extensive in Nature mainly focusing on following aspects  Conditional Exemptions From Registration  Revision in Prudential Norms  Asset Classification – NPA  Criteria for New Entrants as NBFCs  Deposit Taking NBFCs  Liquidity Management  Corporate Governance CA Bhavesh Vora

Exempted GrantedRegistered - Total assets Below Rs. 25 crores whether or not accessing public funds - Deposit Taking NBFCs are always to be registered -Total assets upto Rs. 500 Crores and not accessing public funds RBI has right to inspect and right to frame rules in future. - Above Rs. 25 Crores and accessing public funds (Directly or Indirectly) “Public funds“ shall include funds raised either directly or indirectly through public deposits, Commercial Papers, debentures, inter- corporate deposits and bank finance but excludes funds raised by issue of instruments compulsorily convertible into equity shares within a period not exceeding 10 years from the date of issue. CA Bhavesh Vora

 Tier I capital requirement has been raised from 7.5% to 12% for captive NBFCs, and NBFCs which invests or lend in sensitive sectors such as Capital Market, Commodities or Real Estate Sector (Implemented in phased manner – 3 years)  For other NBFCs, risk weights for Capital Market exposure and Real Estate exposure has been raised to 150% and 125% respectively Impact: In both of the above cases, NBFCs will have to reduce their dependence on Tier II capital and will have to infuse more of permanent capital in the business in the form of Capital Infusion, Compulsory Convertible Debentures, etc… CA Bhavesh Vora

 NPA Provisions similar to Bank ◦ Assets will become NPA if overdue for 90 days instead of 180 days criteria at present ◦ The same will be implemented in phased manner  Provision on Standard Asset increased to 0.40% from present requirement of 0.25% Impact: This will affect profitability of NBFCs because of higher provisioning against NPAs and provision against Standard Assets. CA Bhavesh Vora

 Existing Deposit Taking NBFCs should be credit rated  Unrated NBFCs will be given 1 year time to get rated  Acceptance of Deposits for Rated Asset Finance Companies – Reduced to 2.5 times of Net owned Funds (NOF) as against present limit of 4 times of NOF CA Bhavesh Vora

 Minimum Asset size to be Rs. 25 Crores  Fulfill 75% Financial Assets and 75% Income from Financial assets Criteria  Net Owned Funds requirements continues to be Rs. 2 crores  For FINANCIAL ENTITIES having asset size Rs Crores or more, need to register if Financial Assets OR Income from Financial Assets exceeds 50% CA Bhavesh Vora

 Need to approach RBI afresh for CoR if ◦ Asset Size exceeds Rs. 25 crores and company desires to access public funds ◦ Asset size Exceeds Rs. 500 Crores even if no public funds are accessed  Notes: ◦ Assets of All NBFCs in single group will be aggregated for checking applicability of revised regulations ◦ Existing captive NBFCs will need to raise Tier I capital in phased manner (3 years) CA Bhavesh Vora

Surrender or Enhance Asset Size  Having total assets below Rs. 25 crores – Required to notify RBI within 3 months from date of notification with a roadmap to increase the asset size to Rs. 25 crores (2 years period allowed to achieve the same)  Revised Principal Business criteria to be fulfilled in phased manner (75% instead of 50%)  If no plan to go above Rs. 25 crores asset size, surrender CoR and get de-registered CA Bhavesh Vora

 All registered NBFCs (Whether deposit taking or non deposit taking) should maintain high quality liquid assets, equal to the gap between Expected cash outflows and inflows in the 1 to 30 days bucket.  Quality liquid assets includes cash, bank deposits available within 30 days, money market instruments maturing within 30 days, actively traded debt securities with ratings CA Bhavesh Vora

 Prior approval from RBI – For change in control and shareholding of more than 25%  Clause 49 to be followed by NBFCs having asset size Rs Crores or more  Disclosure Norms in balance sheet has been enhanced to cover any registration under SEBI, IRDA, FMC, etc and penalties charged by those regulators  Remuneration and compensation committee for NBFCs with asset size above Rs crores CA Bhavesh Vora

Norms Affecting Directors and Directorships  Prior approval for appointment of CEO – for NBFCs having assets Rs crores and above  Cap on directorship of director of any NBFCs, public or private, to be in line with Section 275 of Companies Act, 1956  All NBFCs-ND-SI and NBFC-D shall have a policy in place for ascertaining fit & proper criteria for appointment of directors and shall certify annually to RBI about fit and proper status of the Directors CA Bhavesh Vora

 Fit and proper person declaration to be given by Directors including ◦ list of relatives, associated entities connected or interested in any other NBFCs ◦ Fund and non-fund based facility presently availed by Director himself or by his relatives or associated concerns from any NBFCs CA Bhavesh Vora

ICAI - DELHI CA BHAVESH VORA