45 343 Miscellaneous Instructions To NBFC ND SI Master Circulars

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RBI/2013-14/45
DNBS (PD) CC No.343/ 03.10.001/2013-14

July 1, 2013

To
All Non-Banking Financial Companies (NBFCs)

Dear Sirs,
Master Circulars- Miscellaneous Instructions to NBFC- ND-SI
In order to have all current instructions in one place, the Reserve Bank of India has
consolidated all the instructions issued during the year ended June 30, 2013. The
circular seeks to consolidate all instructions issued exclusively to NBFC-ND-SI i.e. other
than those which have been consolidated in Master Notification on Prudential Norms
and Master Circular - compendium of instructions issued to NBFCs. A consolidated list
of all instructions issued under various subjects is compiled for ready reference. The
compendium

of

circulars

has

also

been

placed

on

the

RBI

web-site

(http://www.rbi.org.in). A copy of the compendium is enclosed.

Yours faithfully,

(N. S. Vishwanathan)
Principal Chief General Manager

Table of Contents
Para
No
1

Particulars
Financial Regulation of Systemically Important NBFCs and Banks’
Relationship with them
Modifications to the Regulatory Framework
A.

Regulatory Framework for Systemically Important NBFCs – ND
(NBFC – ND – SI)
(i) Determination of NBFC – ND – SI
(ii) Capital Adequacy Ratio for NBFCs – ND – SI
(iii) Single / Group Exposure norms for NBFCs – ND – SI
B. Additional Single Exposure norms for Asset Finance Companies
C. Expansion of activities of NBFCs through automatic route
D. Effective date and transition
E. Scope of application to certain categories
2.
3.

Supervisory Framework for Systemically Important non-deposit
taking/holding NBFCs (NBFC-ND-SI)
Guidelines for NBFC-ND-SI as regards capital adequacy, liquidity and
disclosure norms
(i) Capital adequacy
(ii) Disclosure in the Balance Sheet

4.

Asset Liability Management (ALM) – Reporting

5.

Enhancement of NBFCs’ capital raising option for capital adequacy
purposes
Ratings of NBFCs
Criteria for deciding NBFC-ND-SI status
Ready Forward Contracts in Corporate Debt Securities

6.
7.
8.

A. Eligible participants
B. Capital Adequacy

1

9.

1.

C. Classification of balances in the accounts
Participation in Currency Options
Appendix

Financial Regulation of Systemically Important NBFCs and Banks’
Relationship with them

The Reserve Bank of India had set up an Internal Group to examine the issues relating
to level playing field, regulatory convergence and regulatory arbitrage in the financial
sector. Based on the recommendations of the Internal Group and on the basis of the
feedback received, final guidelines were issued for implementation on December 12,
2006.

Modifications to the Regulatory Framework
In the light of the concerns that arise out of the divergent regulatory requirements for
various aspects of functioning of banks and NBFCs and keeping in view the broad
principles for the proposed revision, the following modifications were made in the
regulatory framework for NBFCs.

A. Regulatory Framework for Systemically Important
NBFCs – ND (NBFC – ND – SI)
(i)

Determination of NBFC – ND – SI
All NBFCs – ND with an asset size of Rs. 100 crore and more as per the last
audited balance sheet will be considered as a systemically important NBFC –
ND (NBFC-ND-SI).

(ii)

Capital Adequacy Ratio for NBFCs – ND – SI
NBFCs – ND – SI shall maintain a minimum Capital to Risk-weighted Assets
Ratio (CRAR) of 10% which was changed to 12% as on March 31, 2010 and

2

15% as on March 31, 2011. 1 The present minimum CRAR stipulation at 12 %
or 15%, as the case may be, for NBFCs – D shall continue to be applicable.
(iii)

Single / Group Exposure norms for NBFCs – ND – SI

Exposure norms were laid down for NBFC-ND-SIs.
Further, the NBFCs – ND – SI were advised to have a policy in respect of exposures to
a single entity / group. NBFCs-ND-SI not accessing public funds both directly and
indirectly can apply to the Reserve Bank for an appropriate dispensation consistent with
the spirit of the exposure limits.

B.

Additional Single Exposure norms for Asset Finance Companies
(iv)

In

terms

of

circular

DNBS.PD.CC.No.85/03.02.089/2006-2007

dated

December 6, 2006, companies financing real/physical assets for productive
/economic activity will be classified as Asset Finance Companies (AFCs) as
per the criteria prescribed therein.
In addition to the single party and single group of parties exposure norms
prescribed for NBFCs-D and NBFCs-ND-SI, AFCs are permitted to exceed
the exposure to a single party and single group of parties up to a further 5
percent of their owned fund in exceptional circumstances with the approval of
their Boards.

C.

Expansion of activities of NBFCs through automatic route
(v) NBFCs set up under the automatic route will be permitted to undertake only
those 18 activities 2 which are permitted under the automatic route.
Diversification into any other activity would require the prior approval of FIPB.
Similarly a company which has entered into an area permitted under the FDI

1
2

Amended vide CC 138 dated April 2`4, 2009 and Notification No 206 dated May 26, 2009
Changed vide Press Note No 1 dated March 12, 2008

3

policy (such as software) and seeks to diversify into NBFC sector
subsequently would also have to ensure compliance with the minimum
capitalization norms and other regulations as applicable.

D. Effective date and transition
Taking into account the likelihood that some of the NBFCs may not be in compliance
with some of the elements of the revised regulatory framework a transition period up to
end March 2007 was provided. Accordingly, NBFCs had to comply with all elements of
the revised framework with effect from April 1, 2007. In case any NBFC – ND – SI
needed more time for compliance, it had to apply to DNBS before the close of business
on January 31, 2007 clearly indicating the reasons for which it is not able to ensure
compliance within the above period and the time frame within which it would be able to
comply with all the relevant elements.

E. Scope of application to certain categories
The guidelines contained in this circular are applicable to the NBFCs as specified in the
relevant paragraphs except the categories mentioned below:

i). The Residuary Non Banking Companies(RNBCs) and Primary
Dealers (PDs) as they are subjected to a separate set of regulations.
ii).Government owned companies, as defined under Section 617 of the
Companies Act, which are registered with the Reserve Bank of India
as NBFCs, are exempted from certain provisions of Non-Banking
Financial Companies Prudential Norms (Reserve Bank) Directions,
1998, at present. It is proposed to bring all deposit taking and
systemically important government owned companies under the
provisions of the said Directions which will be in conformity with the
existing guidelines, including those contained in this circular. However,

4

the date from which they are to fully comply with the regulatory
framework will be decided later. These companies, were therefore,
required to prepare a roadmap for compliance with the various
elements

of

the

NBFC

regulations,

in

consultation

with

the

Government, and submit the same to the Reserve Bank (Department
of Non Banking Supervision – (DNBS)), by March 31, 2007 3 .
2.

Supervisory Framework for Systemically
taking/holding NBFCs (NBFC-ND-SI)

Important

non-deposit

To ensure adherence to compliance with the regulatory framework for Systemically
Important NBFCs – ND such companies were advised to put in place a system for
submission of an annual statement of capital funds, risk asset ratio etc., as at end of
March every year in form NBS-7 as per prescribed format. The first such return was to
be submitted for the year ending March 31, 2007. The return may be submitted within a
period of three months from the close of the financial year, every year.
Such returns are to be submitted electronically and for the purpose, NBFC-ND-SI has
to approach the Information Division of Central Office of this Department for assignment
of user-id and password for web-enabled submission of the return . A hard copy of the
return duly signed by the designated authority may be filed with the Regional Office of
the Department of Non-Banking Supervision in whose jurisdiction the company is
registered.

3.

4

Guidelines for NBFC-ND-SI as regards capital adequacy, liquidity and
disclosure norms

On a review of the experience with the regulatory framework since April 2007, it was felt
desirable to enhance the capital adequacy requirement and put in place guidelines for
3

For details please refer to DNBS.PD/ CC No. 86/ 03.02.089/2006-07 dated December 12, 2006

4

( Details are in DNBS.PD/ CC.No. 93 / 03.05.002 /2006-07 April 27, 2007 )

5

liquidity management and reporting, as also norms for disclosures. Accordingly, the
Bank placed on its web-site on June 2, 2008, the draft guidelines for NBFCs-ND-SI as
regards the above aspects for receiving the comments of the public. These guidelines
were finalized and issued as Non-Banking Financial (Non- Deposit Accepting or
Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007. 5

(i) Capital adequacy
The Capital adequacy for NBFC-ND-SI was enhanced to 12% as on March 31, 2010
and 15% as on March 31, 2011. 6

(ii) Disclosure in the Balance Sheet
The disclosure norms in respect of NBFCs-ND-SI have been reviewed and it has been
decided that such Systemically Important NBFCs-ND shall make additional disclosures
in their Balance Sheet from the year ending March 31, 2009 relating to:
Capital to Risk Assets Ratio (CRAR)
Exposure to real estate sector, both direct and indirect; and
Maturity pattern of assets and liabilities

The format of disclosure of this additional information is furnished in Company Circular
DNBS (PD). CC. No. 125/03.05.002 / 2008-2009 dated August 1, 2008
4.

Asset Liability Management (ALM) – Reporting

NBFC-ND-Sis are required to submit three ALM returns i.e. ALM 1,ALM-2 and ALM-The
periodicity of the Statement of short term dynamic liquidity [NBS-ALM1] shall be monthly
and that of Statement of structural liquidity [NBS-ALM2] half-yearly. The frequency of
Statement of Interest Rate Sensitivity [NBS-ALM3] would be half yearly, The Bank has
5

6

(Notification No. DNBS. 200 / CGM(PK)-2008 dated August 1, 2008)
Modification made vide Circular DNBS.PD/CC.No.138 /03.02.002 / 2008-2009 dated April 24, 2009

6

since hosted the format of the ALM Returns (I, II and III) on the Bank's following website
(https://cosmos.rbi.org.in).
5.

Enhancement of NBFCs’ capital raising option for capital adequacy
purposes

Taking into consideration, the need for enhanced funds for increasing business and
meeting regulatory requirements, it has been decided that Systemically Important NonDeposit taking Non-Banking Financial Companies (NBFCs-ND-SI) may augment their
capital funds by issue of Perpetual Debt Instruments (PDI) in accordance with the
guidelines contained in the circular. Such PDI shall be eligible for inclusion as Tier I
Capital to the extent of 15% of total Tier I capital as on March 31 of the previous
accounting year.

6.

Ratings of NBFCs

NBFCs also issue financial products like Commercial Paper, Debentures etc. to which
rating is assigned by rating agencies. The ratings assigned to such products may
undergo changes for various reasons ascribed to by the rating agencies. It has
therefore been decided that all NBFCs (both deposit taking and non-deposit taking) with
asset size of Rs 100 crore and above shall furnish the information about downgrading /
upgrading of assigned rating of any financial product issued by them, within fifteen days
of such a change in rating, to the Regional Office of the Bank under whose jurisdiction
their registered office is functioning.

7.

Criteria for deciding NBFC-ND-SI status

A non-deposit taking NBFC with an asset size of less than Rs. 100 crore as on balance
sheet date might subsequently add on assets before the next balance sheet date due to
several reasons including business expansion plan. It is clarified that once an NBFC
reaches an asset size of Rs. 100 crore or above, it shall come under the regulatory
requirement for NBFCs-ND-SI as stated above, despite not having such assets as on

7

the date of last balance sheet. Therefore, it is advised that all such non-deposit taking
NBFCs may comply with RBI regulations issued to NBFC-ND-SI from time to time, as
and when they attain an asset size of Rs. 100 crore, irrespective of the date on which
such size is attained.
It is further observed that in a dynamic environment, the asset size of a company can
fall below Rs 100 crore in a given month, which may be due to temporary fluctuations
and not due to actual downsizing. It is clarified that in such a case the company may
continue to submit the Monthly return on Important Financial Parameters to Reserve
Bank of India and to comply with the extant directions as applicable to NBFC-ND-SI, till
the submission of their next audited balance sheet to Reserve Bank of India and a
specific dispensation is received from the Bank in this regard.
8. Ready Forward Contracts in Corporate Debt Securities
In terms of 'Repo in Corporate Debt Securities (Reserve Bank) Directions, 2010' dated
January 08, 2010 issued by Internal Debt Management Department (IDMD) of RBI,
NBFCs registered with RBI (other than Govt companies as defined in Section 617 of the
Companies Act, 1956) are eligible to participate in repo transactions in corporate debt
securities. IDMD has also issued revised guidelines on uniform accounting for repo /
reverse repo transactions on March 23, 2010.
2. NBFCs participating in such repo transactions shall comply with the Directions and
accounting guidelines issued by IDMD. Certain clarifications are being made in this
regard as given below.
A.Eligible participants
(i) NBFCs-ND with asset size of Rs. 100 crore and above (i.e. NBFCs-ND-SI).
B.Capital Adequacy
(ii)
Risk weights for credit risk for assets that are the collateral for such
transactions as well as risk weights for the counterparty credit risk shall be as
applicable to the issuer / counterparty in the NBFC (non-deposit accepting or
holding) Prudential Norms Directions, 2007 as amended from time to time.

8

C.Classification of balances in the accounts
(iv) Classification of balances in the various accounts viz; repo account, reverse
repo account etc. shall be done in the relevant schedules similar to that of banks.
3. In all other matters related to such repo transactions, NBFCs-ND-SI shall follow the
Directions and accounting guidelines issued by IDMD viz; Repo in Corporate Debt
Securities (Reserve Bank) Directions, 2010 dated January 08, 2010 and Revised
Guidelines on Uniform Accounting for Repo / Reverse repo transactions on March 23,
2010 respectively.

9. Participation in Currency Options
Reserve Bank had issued guidelines to banks on trading in currency options in
recognised stock/new exchanges on July 30, 2010.
2. Accordingly, it has been decided that NBFCs may participate in the designated
currency options exchanges recognized by SEBI as clients, subject to RBI (Foreign
Exchange Department) guidelines in the matter, only for the purpose of hedging their
underlying forex exposures. Appropriate disclosures may be made regarding
transactions undertaken in the Balance sheet.

9

Appendix
List of circulars
Sl. No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17

Circular No.

Date

DNBS (PD) C.C. No. 45/ 02.02/ 2004-05
DNBS (RID) C.C. No. 57/02.05.15/2005-06
DNBS (CMDI) C.C. No. 67 /21.05.15/2005-06
DNBS (CMDI) C.C. No. 69 /21.05.15/2005-06
DNBS.PD/ CC. No. 86/ 03.02.089 /2006-07
DNBS (PD) CC. No.90/ 03.10.001/ 2006-07
DNBS.PD/ CC. No. 93 / 03.05.002 /2006-07
DNBS (PD). CC. No. 125/03.05.002 / 2008-2009
DNBS (PD). CC.131/ 03.05.002/2008-09
DNBS. PD. CC . No. /132/22.10.72/ 2008-09
DNBS (PD) CC. No.134/03.10.001 / 2008-2009
DNBS (PD) CC.No.136 /03.10.001/2008-09
DNBS.PD/ CC. No.138 / 03.02.002 /2008-09
DNBS (PD) CC. No.141/03.10.001/2008-09
DNBS.PD.CC. No.169 /22.05.02/2009-10
DNBS.PD/ CC.No.196 / 03.05.002 /2010-11
DNBS (PD) CC No.199 / 03.10.001/ 2010-11

November 13, 2004
September 6, 2005
April 5, 2006
June 2, 2006
December 12, 2006
February 23, 2007
April 27, 2007
August 1, 2008
October 29, 2008
December 23, 2008
February 04, 2009
February 18, 2009
April 24, 2009
June 4, 2009
April 22, 2010
August 11, 2010
September 16, 2010

10



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