NBFCs face tougher standards on capital, loans and bad debts

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Mumbai: The Reserve Bank of India (RBI) on Friday announced a revised regulatory framework for non-bank financial corporations (NBFCs), which tightens standards for recognizing capital and bad debts. In the revised framework, there will be many more categories of NBFCs based on their activity, with the rules getting stricter with the scale. The rules also cap NBFC loans for IPO funding at Rs 1 crore per borrower.
Under the new standards, the RBI will increase the net held funds requirement for all NBFCs to Rs 10 crore. They will also need to recognize loans that are more than 90 days past due as non-performing assets (NPAs) by March 2026 and more than 150 days by March 2024.
Earlier today, RBI Deputy Governor Mr. Rajeshwar Rao said the failure of any major NBFC or housing finance company (HFC) could translate into risk for its lenders with the potential to create contagion. In addition, the failure of any large and deeply interconnected NBFCs can disrupt the operations of small and medium NBFCs through a domino effect by limiting their ability to raise funds. Speaking at an CII event, Rao said the liquidity stress in the industry triggered by the failure of a core investment company (IL&FS) shattered the myth that NBFCs pose no systemic risk. for the financial system.
Rao said NBFCs will be classified into three categories: base layer, top layer and middle layer. Regarding the new framework, the base layer will include non-depositing NBFCs with assets below Rs 1,000 crore. These could include peer-to-peer lending platforms, account aggregators, non-operating financial holding companies, and other financial companies that do not have public funds and have no customer interface.
The middle layer would include NBFCs accepting deposits with assets over Rs 1,000 crore and would include prime brokers, infrastructure debt funds, core investment firms, HFCs, and finance companies. infrastructure. The top layer will be specifically identified by the RBI as warranting enhanced regulatory requirements and would include the country’s top 10 NBFCs.
Rao also cautioned against the bad practices of digital lenders. “While the benefits of digital financial services are not a subject of debate, the business conduct issues and governance standards adopted by these digital lenders have shaken the confidence placed in digital finance in India. We have been and are inundated with complaints of harsh recovery practices, a breach of data privacy, an increase in fraudulent transactions, cybercrime, excessive interest rates and harassment, ”said Rao.


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