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RBI categorises Bajaj Finance, M&M Finance, 14 other NBFCs in ‘Upper Layer’

These NBFCs have to put in place a board-approved policy for the adoption of the enhanced regulatory framework applicable to all NBFCs in the upper layer and chart out an implementation plan for adhering to the new set of regulations within three months, the RBI said.

September 30, 2022 / 06:51 PM IST
NBFC

NBFC


The Reserve Bank of India (RBI) on September 30 identified 16 non-banking finance companies, including Bajaj Finance and Mahindra & Mahindra Financial Services, under the ‘Upper Layer.’

Other NBFCs include LIC Housing Finance, Shriram Transport Finance, Tata Sons Private Limited, L&T Finance, Indiabulls Housing Finance, Piramal Capital & Housing Finance, and Cholamandalam Investment and Finance Company, the RBI said in a release.

In addition to these, the RBI has also included Shanghvi Finance Private Limited, Muthoot Finance, PNB Housing Finance, Tata Capital Financial Services, Aditya Birla Finance, HDB Financial Services, and Bajaj Housing Finance in the upper layer.

Despite appearing in the list of top 10 NBFCs in terms of asset size, HDFC

was not included in the list due to its ongoing merger process with HDFC Bank, said the RBI.

These NBFCs have to put in place a board-approved policy for the adoption of the enhanced regulatory framework applicable to all NBFCs in the upper layer and chart out an implementation plan for adhering to the new set of regulations within three months, the RBI said.

Further, the boards of these NBFCs shall ensure that the stipulations prescribed for the upper layer NBFCs are adhered to within a maximum time period of 24 months, the regulator said.

In October last year, the RBI introduced a scale-based regulatory framework for NBFCs that will be effective October 1, 2022. This framework enlists different facets of regulation of NBFCs pertaining to capital requirements, governance standards, and prudential regulation, among others. Under this regime, NBFCs are divided into four layers on the basis of their size, activity, and perceived risk.

The RBI issued guidelines on April 19 for loans and advances by NBFCs and the disclosures they are required to make under what it called a scale-based regulatory framework.

According to the RBI, the aggregate exposure of an upper layer NBFC, which is in the top category, to any entity must not exceed 20 percent of its capital base, although this limit can be enhanced to 25 percent with board approval. The aggregate exposure to a group of connected entities will be limited to 25 percent of the capital base for all upper-layer NBFCs.

On June 6, the RBI had said that upper layer NBFCs have to keep a 0.25 percent provision for the funded amount outstanding in the case of individual housing loans and loans to small and micro enterprises, while releasing norms on standard assets provisioning for such shadow lenders.

Further, for housing loans extended at teaser rates, upper layer NBFCs need to provide 2 percent of the funded outstanding amount, which will decrease to 0.40 percent after one year from the date on which the rates are reset at higher rates, if the accounts remain standard, the RBI had said.

Through such regulations, the central bank aims to tighten the regulatory norms for NBFCs, especially after the systemic risks posed by the fallout of the Infrastructure Leasing & Financial Services and Dewan Housing Finance Corporation Ltd crises.
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