RBI bundles NBFCs into 1 type, offering operational flexibility

To provide greater operational flexibility to non-banking lenders, the Reserve Bank on Friday created a single category for them by bundling their present three-tier structure.

The central bank also decided that exposures to all NBFCs, excluding core investment companies, will be risk weighted as per credit ratings.

Both the decisions were first announced at the last bi-monthly review of the monetary policy in the statement on developmental and regulatory policies.

"It has been decided that to provide NBFCs with greater operational flexibility, harmonisation of different categories of NBFCs into fewer ones shall be carried out based on the principle of regulation by activity rather than regulation by entity," the RBI notification said.

Asset finance companies, loan companies and investment companies have been merged into a new category called NBFC- investment and credit companies (NBFC-ICCs), it said.

A deposit taking NBFC-ICC shall invest in unquoted shares of another company which is not a subsidiary company or a company in the same group of the NBFC, an amount not exceeding twenty per cent of its owned fund, it said.

The risk weight model will work in a manner similar to corporates, the RBI said, adding this has been done to facilitate flow of credit to well-rated NBFCs.

"Exposures to CICs will continue to be fully risk- weighted," it said, adding detailed guidelines will come in by the end of the month.