๐ง๐ต๐ฒ ๐ฅ๐๐ ๐ต๐ฎ๐ ๐ฏ๐ฒ๐ฒ๐ป ๐ฐ๐ฟ๐๐ฐ๐ถ๐ฎ๐น ๐ถ๐ป ๐ฟ๐ฒ๐ด๐๐น๐ฎ๐๐ถ๐ป๐ด ๐๐ต๐ฒ ๐ก๐๐๐ ๐๐ฒ๐ฐ๐๐ผ๐ฟ over the years. With the sectorโs evolution and changing dynamics, the regulator has been proactive in amending regulations.
Previously, NBFCs were classified into two categories:
๐ฆ๐๐๐๐ฒ๐บ๐ถ๐ฐ๐ฎ๐น๐น๐ ๐๐บ๐ฝ๐ผ๐ฟ๐๐ฎ๐ป๐ ๐ฎ๐ป๐ฑ ๐ก๐ผ๐ป-๐ฆ๐๐๐๐ฒ๐บ๐ถ๐ฐ๐ฎ๐น๐น๐ ๐๐บ๐ฝ๐ผ๐ฟ๐๐ฎ๐ป๐. However, starting in October 2022, the RBI introduced a new classification system based on layers: Base, Middle, Upper, and Top.
In the SBR Notification issued on October 22, 2021, the RBI provided clarification that the previous nomenclature “๐ก๐๐๐-๐ก๐” (๐ก๐ผ๐ป-๐๐ฒ๐ฝ๐ผ๐๐ถ๐ ๐ง๐ฎ๐ธ๐ถ๐ป๐ด ๐ก๐ผ๐ป-๐๐ฎ๐ป๐ธ๐ถ๐ป๐ด ๐๐ถ๐ป๐ฎ๐ป๐ฐ๐ถ๐ฎ๐น ๐๐ผ๐บ๐ฝ๐ฎ๐ป๐) ๐๐ผ๐๐น๐ฑ ๐ฏ๐ฒ ๐ฟ๐ฒ๐ฝ๐น๐ฎ๐ฐ๐ฒ๐ฑ ๐๐ถ๐๐ต “๐ก๐๐๐-๐๐.” ๐๐ฑ๐ฑ๐ถ๐๐ถ๐ผ๐ป๐ฎ๐น๐น๐, ๐๐ต๐ฒ ๐๐ฒ๐ฟ๐บ๐ “๐ก๐๐๐-๐” (๐๐ฒ๐ฝ๐ผ๐๐ถ๐-๐ง๐ฎ๐ธ๐ถ๐ป๐ด ๐ก๐๐๐) ๐ฎ๐ป๐ฑ “๐ก๐๐๐-๐ก๐-๐ฆ๐” (๐ฆ๐๐๐๐ฒ๐บ๐ถ๐ฐ๐ฎ๐น๐น๐ ๐๐บ๐ฝ๐ผ๐ฟ๐๐ฎ๐ป๐ ๐ก๐ผ๐ป-๐๐ฒ๐ฝ๐ผ๐๐ถ๐ ๐ง๐ฎ๐ธ๐ถ๐ป๐ด ๐ก๐๐๐) ๐๐ผ๐๐น๐ฑ ๐ฏ๐ฒ ๐๐๐ฏ๐๐๐ถ๐๐๐๐ฒ๐ฑ ๐๐ถ๐๐ต “๐ก๐๐๐-๐ ๐” ๐ผ๐ฟ “๐ก๐๐๐-๐จ๐.”
Nevertheless, after an initial examination of the SBR Master Directions, it becomes evident that specific directives traditionally meant for NBFC-SI and logically relevant for NBFC-ML are explicitly maintained for NBFCs with assets exceeding โน 500 crores. Here is a compilation of such directives:
โ All NBFCs need to be registered with the RBI.
โ NBFCs must follow KYC and AML guidelines to prevent money laundering and terrorist financing.
โ All NBFCs are expected to adhere to a Fair Practices Code, which outlines ethical business practices, transparency, and fairness in their dealings with customers.
โ Interest rates charged by NBFCs are subject to regulation by the RBI.
โ NBFCs need to follow the guidelines for asset classification and provisioning.
โ Regulations govern the functioning of Securitization Companies (SCs) and Reconstruction Companies (ARCs), which are specialized NBFCs involved in the acquisition and resolution of stressed assets.
โ NBFCs engaged in microfinance activities have specific regulations.
โ Housing Finance Companies (HFCs) have specific regulations governing their activities, including the requirement to invest in housing and real estate-related assets.
โ Promoters of new entities applying for an NBFC license are required to set up a NOFHC structure.
โ NBFCs, particularly Systemically Important NBFCs (SI-NBFCs), are subject to more stringent regulations regarding liquidity management and risk mitigation.
โ Corporate governance guidelines for NBFCs emphasize the role of the board, internal controls, and compliance mechanisms.
โ All NBFCs are subject to periodic regulatory reporting and supervision by the RBI. The frequency and depth of supervision may vary based on the category and size of the NBFC.
It’s essential to note that regulations and guidelines are subject to change and updates by the RBI.