Reserve Bank of India (File image)
The Reserve Bank of India on October 22 said the scale-based regulation (SBR) for non-banking finance companies (NBFCs) shall be effective from October 01, 2022.
The RBI said the SBR framework encompasses different facets of regulation of NBFCs covering capital requirements, governance standards, prudential regulation, etc.
It has been decided to first issue an integrated regulatory framework for NBFCs under SBR providing a holistic view of the SBR structure, set of fresh regulations being introduced and respective timelines, the central bank added.
Under the scale based regulations, the regulatory structure for NBFCs shall comprise of four layers based on their size, activity, and perceived riskiness.
The base layer is for NBFCs with asset size upto Rs 1000 crore including NBFCs P2P and NBFC Account Aggregators.
The middle layer is for NBFCs having asset size over Rs 1,000 crore and housing finance companies, core investment companies, infrastructure finance companies.
The upper layer NBFCs will be identified by RBI as warranting enhanced regulatory requirement based on a set of parameters and scoring methodology. The top ten eligible NBFCs in terms of their asset size shall always reside in the upper layer, irrespective of any other factor, RBI said.
The top layer remains empty, this layer can get populated if the RBI is of thinks that there is a substantial increase in the potential systemic risk from specific NBFCs in the upper Layer, RBI said. Then these NBFCs will be shifted to top layer.
RBI has also imposed a ceiling of Rs 1 crore per borrower for financing subscription to initial public offer (IPO) and NBFCs can fix more conservative limits.
The central bank has also given direction on the requirement of net owned funds. For NBFC-P2P, NBFC-AA, and NBFCs with no public funds and no customer interface, the net owned fund continues to be Rs 2 crore.
However it has increased the requirement for NBFCs, viz., Investment and Credit Companies (NBFC-ICC), Micro Finance Institution (NBFC-MFI), NBFC-Factors and Mortgage Guarantee Companies (NBFC- MGC) to Rs 10 crore with a glide path to achieve it.
NBFC ICC will have to accomplish the net owned fund requirement of Rs 5 crore by March 31, 2025 and Rs 10 crore by March 2027. NBFC MFIs except in north east region will have to achieve Rs 7 crore by March 31, 2025 and Rs 10 crore by March 31, 2027 and the same glide path applies for NBFC Factors.