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In a slew of regulatory frameworks, the Reserve Bank of India (RBI) on Tuesday laid down a set of rules for non-bank financiers on large exposures, lending to directors and sought additional disclosures in their notes to accounts.
These guidelines are meant to further harmonize regulations between banks and non-banks.
In October last year, RBI had announced scale-based regulations for non-banking financial companies (NBFCs), with effect from October this year. The regulatory structure for NBFCs will be divided into four layers based on their size, activity, and perceived riskiness. The lowest layer is base layer, followed by middle, upper and top layers.
On Tuesday, RBI said that aggregate exposure of an upper layer NBFC to any entity must not be higher than 20% of its capital base, although the board can approve an additional 5% to take it to 25%. However, for infrastructure finance companies, the aggregate limit will be 30% to a single entity. To a group of connected entities, aggregate exposure will be limited to 25% of the capital base (unless on account of an infra loan) for all upper layer NBFCs apart from infrastructure finance companies where it will be 35%.
In another circular, RBI set out norms for lending by NBFCs to their directors and senior employees. RBI said that unless sanctioned by the board of directors, NBFCs in the middle and upper layer should not grant loans of ₹5 crore and above to their directors or relatives of directors. The list of exclusion would also include any firm in which any of their directors or their relatives is interested as a partner, manager, employee or guarantor.
These norms would be applicable to NBFCs in the middle and upper regulatory layers. While the middle layer would include all deposit-taking NBFCs and non-deposit taking ones with assets of ₹1,000 crore and above, the upper layer would comprise those identified by RBI for enhanced regulatory requirement.
Loan proposals for less ₹5 crore to directors may be sanctioned by the appropriate authority in the NBFC, but the matter should be reported to the board, RBI said. The regulator said that loans sanctioned to senior officers of NBFCs should be reported to the board.
These, however, would exclude loans against government securities, life insurance policies, fixed deposits, stocks and shares; housing loans and car loans granted to an employee of the NBFC under any scheme applicable generally to employees will also be exempt from these guidelines.
RBI also said that non-bank lenders will have to ensure that potential real estate borrowers have obtained prior permission from government for the project, wherever required.
“To ensure that the loan approval process is not hampered on account of this, while the proposals may be sanctioned in normal course, the disbursements shall be made only after the borrower has obtained requisite clearances from the government or other statutory authorities," it said.
The base layer of non-banks, RBI said, must have a board-approved policy on grant of loans to directors, senior officers and relatives of directors and to entities where directors or their relatives have major shareholding. The policy should include a threshold beyond which loans to these people shall be reported to the board. The base layer would include non-deposit taking lenders with assets of less than ₹1,000 crore.
That apart, RBI said all non-bank lenders will have to disclose their exposure to real estate sector, capital market, intra-group entities, unhedged foreign currency exposure. They must also make adequate related-party disclosures, provide a summary information on complaints received by the NBFCs. Lenders in the middle and upper layer will have to make corporate governance disclosures, reveal all instances of breach of covenants of loan availed or debt securities issued, divergence in asset classification and provisioning.
According to the regulator, since NBFCs in the upper layer would have to get listed within three years of being categorized in that layer, unlisted lenders need to draw up a board-approved roadmap for compliance with the disclosure requirements of a listed company.