Master Direction - Non-Banking Financial Company – Non-Systemically Important Non-Deposit taking Company (Reserve Bank) Directions, 2016

RESERVE BANK OF INDIA

DEPARTMENT OF REGULATION

CENTRAL OFFICE, 2nd FLOOR, MAIN OFFICE BUILDING

SHAHID BHAGAT SINGH MARG, FORT, MUMBAI – 400 001

RBI/DNBR/2016-17/44

Master Direction DNBR.PD.007/03.10.119/2016-17 September 01, 2016

(Updated as on June 14, 2022*)

(Updated as on May 02, 2022*)

(Updated as on April 01, 2022*)

(Updated as on March 03, 2022*)

(Updated as on February 17, 2020*)

(Updated as on November 22, 2019*)

(Updated as on August 02, 2019*)

(Updated as on February 22, 2019*)

(Updated as on May 31, 2018*)

(Updated as on February 23, 2018*)

(Updated as on November 09, 2017*)

(Updated as on March 09, 2017*)

(Updated as on March 02, 2017*)

(Updated as on February 02, 2017*)

(Updated as on October 17, 2016*)

Master Direction - Non-Banking Financial Company – Non-Systemically Important Non-Deposit taking Company (Reserve Bank) Directions, 2016

The Reserve Bank of India (the Bank), having considered it necessary in the public interest, and being satisfied that, for the purpose of enabling the Bank to regulate the financial system to the advantage of the country and to prevent the affairs of any Non-Systemically Important Non-Deposit taking Non-Banking Financial Company (NBFC-ND)from being conducted in a manner detrimental to the interest of investors or in any manner prejudicial to the interest of such NBFCs, and in exercise of the powers conferred under sections 45JA, 45L and 45M of the Reserve Bank of India Act, 1934 (Act 2 of 1934) and section 3 read with section 31A and section 6 of the Factoring Regulation Act, 2011 (Act 12 of 2012), hereby issues to every NBFC- ND, in supersession of the Notification No.DNBS.193/ DG(VL)-2007 dated February 22, 2007, Notification DNBS. PD. CC. No. 168 / 03.02.089 / 2009- 10 dated February 12, 2010, Notification DNBS.PD.No.234 / CGM(US)2011 dated December 02, 2011, Notification DNBS.PD.No.247/CGM(US)-2012 dated July 23, 2012 and Notification No.DNBR.008/CGM(CDS)-2015 dated March 27, 2015 the Non-Banking Financial

Company–Non-Systemically Important Non-Deposit taking (Reserve Bank) Directions, 2016 (the Directions) hereinafter specified.

(J P Sharma)

Chief General Manager

Since this Master Direction has been significantly amended, it has been replaced rather than showing the changes in track mode for reader convenience.

Index

Section I : Introduction

Chapter I – Preliminary

Chapter II – Definition

Chapter III – Registration

Section II : Prudential Issues

Chapter IV – Prudential Regulations

Chapter V – Fair Practice Code

Chapter VI – Specific Directions to NBFC- Factors

Chapter VII – Specific Directions to IFC-NBFCs

Chapter VIII – Specific Directions to NBFC-MFIs and Microfinance Loans of Applicable NBFCs including NBFC-MFIs

Section III: Governance Issues

Chapter IX – Acquisition/Transfer of Control

Section IV: Miscellaneous Issues

Chapter X - Opening of Branch/Subsidiary/Joint Venture/Representative Office or Undertaking Investment Abroad by NBFCs

Chapter XI – Miscellaneous Instructions

Chapter XII – Reporting Requirements

Chapter XIII – Interpretations

Chapter XIV – Repeal

Annex

Annex I –Timeline for Government NBFCs

Annex II – Guidelines on Liquidity Risk Management Framework

Annex III - Schedule to the Balance Sheet of a NBFC

Annex IV - Data on Pledged Securities

Annex V - Guidelines for Licensing of New Banks in the Private Sector - Definitions

Annex VI - Norms on Restructuring of Advances by NBFC

Annex VII - Flexible Structuring of Long Term Project Loans to Infrastructure and Core Industries

Annex VIII - Deleted

Annex IX- Deleted

Annex X - Self – Regulatory Organization (SRO) for NBFC-MFIs –Criteria for Recognition

Annex XI- Information about the proposed promoters/directors/shareholders of the company

Annex XII - Guidelines for Entry of NBFCs2into Insurance Annex XIII - Guidelines on issue of Co-Branded Credit Cards

Annex XIV - Guidelines on Distribution of Mutual Fund Products by NBFCs

Annex XV- Guidelines for Credit Default Swaps - NBFCs as users

Annex XVI – Deleted

Annex XVII - Guidelines on Private Placement of NCDs

Annex XVIII - Early Recognition of Financial Distress, Prompt Steps for Resolution and Fair Recovery for Lenders: Framework for Revitalising Distressed Assets in the Economy

Annex XIX – Directions on Managing Risks and Code of Conduct in Outsourcing of Financial Services by NBFCs

Annex XX - Regulatory Guidance on Implementation of Indian Accounting Standards by Non-Banking Financial Companies

Section I: Introduction

Chapter – I

Preliminary

Short Title and Commencement of the Directions.

These Directions shall be called the Non-Banking Financial Company–Non-

Systemically Important Non-Deposit taking Company (Reserve Bank) Directions, 2016

These Directions shall come into force with immediate effect.

Applicability

(1) The provisions of the Directions shall apply to the following:

every Non-Banking Financial Company (NBFC) not accepting/ holding public deposits which is not systemically important (as defined in paragraph 3(xxix) of the Directions);

every Non-Banking Financial Company – Factor (NBFC-Factor) registered with the Bank under section 3 of the Factoring Regulation Act, 2011 and having an asset size of below ₹500 crore;

every Non-Banking Financial Company– Micro Finance Institution (NBFC-MFI) registered with the Bank under the provisions of Reserve Bank of India Act, 1934 (RBI Act) and having an asset size of below ₹500 crore;

every Non-Banking Financial Company - Infrastructure Finance Company (NBFC-IFC) registered with the Bank under the provisions of RBI Act, 1934 and having an asset size of below ₹500 crore.

The Category of NBFCs as mentioned in points (i) to (iv) above are hereinafter referred to as ‘applicable NBFCs’, for the purpose of these Directions. Specific directions applicable to specific categories of NBFCs registered as NBFC-Factors, NBFC-IFCs and NBFC-MFIs are as provided for under respective Chapters in these Directions.

These Directions, shall apply to a non-banking financial company being a Government company as defined under clause (45) of section 2 of the Companies

Act, 2013 (Act 18 of 2013). The directions relating to prudential regulation, acceptance of public deposits, corporate governance, conduct of business regulations and statutory provisions etc. shall, however, be followed by the government companies as per the timeline provided in Annex I. Government NBFCs that are already complying with the prudential regulation as per the road map submitted by them shall continue to follow the same1.

(4)(i) The Directions under Chapter IV, paragraph 70 and Chapter V shall not apply to those applicable NBFCs who have not accessed any public funds and do not have any customer interface.

Applicable NBFCs accessing public funds but having no customer interface are exempt from the applicability of paragraph 70 and Chapter V of the directions.

Applicable NBFCs having customer interface but not accessing public funds are exempt from the applicability of Chapter IV of the directions.

Ā Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ȀĀ Ā ㈀ ЀȀ ̀⠀Ā⤀Ā ЀȀ ̀⠀Ȁ⤀Ā ЀĀ Ā̀Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ These Directions consolidate the regulations as issued by Department of Regulation, Reserve Bank of India. However, any other Directions/ guidelines issued by any other Department of the Bank, as applicable to an applicable NBFC shall be adhered to by it.

Chapter II

Definitions

For the purpose of these Directions, unless the context otherwise requires:

"Act" means the Reserve Bank of India Act, 1934;

"Bank" means the Reserve Bank of India constituted under section 3 of the Reserve Bank of India Act, 1934

“Break up value” means the equity capital and reserves as reduced by intangible assets and revaluation reserves, divided by the number of equity shares of the investee company;

“Carrying cost” means book value of the assets and interest accrued thereon but not received;

1Government Companies were advised vide DNBS.PD/CC.No. 86/03.02.089/2006-07 dated December 12, 2006 to submit to the Reserve Bank [Department of Supervision – (DoS)] a road map for compliance with the various elements of the NBFC regulations, in consultation with the Government.]

‘Company’ means a company registered under section 3 of the Companies Act, 1956 or a corresponding provision under Companies Act, 2013;

“Companies in the group”, shall mean an arrangement involving two or more entities related to each other through any of the following relationships: Subsidiary – parent (defined in terms of AS 21), Joint venture (defined in terms of AS 27), Associate (defined in terms of AS 23), Promoter-promotee (as provided in the SEBI (Acquisition of Shares and Takeover) Regulations, 1997) for listed companies, a related party (defined in terms of AS 18), Common brand name, and investment in equity shares of 20per cent and above.

“Conduct of business regulations” means the directions issued by the Bank from time to time on Fair Practices Code and Know Your Customer.

"Control" shall have the same meaning as is assigned to it under clause (e) of sub-regulation (1) of regulation 2 of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

“Current investment” means an investment which is by its nature readily realisable and is intended to be held for not more than one year from the date on which such investment is made;

“Customer interface” means interaction between the NBFC and its customers

while carrying on its business.

(x)(a) “Dividend Payout Ratio” means the ratio between the amount of the dividend payable in a year and the net profit as per the audited financial statements for the financial year for which the dividend is proposed. Proposed dividend shall include both dividend on equity shares and compulsory convertible preference shares eligible for inclusion in Tier I Capital. In case the net profit for the relevant period includes any exceptional and/or extra-ordinary profits/ income or the financial statements are qualified (including ’emphasis of matter’) by the statutory auditor that indicates an overstatement of net profit, the same shall be reduced from net profits while determining the Dividend Payout Ratio.

“Earning value” means the value of an equity share computed by taking the average of profits after tax as reduced by the preference dividend and adjusted for extra-ordinary and non-recurring items, for the immediately preceding three years and further divided by the number of equity shares of the investee company and capitalised at the following rate:

in case of predominantly manufacturing company, eight per cent;

in case of predominantly trading company, ten per cent; and

in case of any other company, including non-banking financial company, twelve per cent;

Note: If, an investee company is a loss making company, the earning value will be taken at zero;

“Fair value” means the mean of the earning value and the break up value;

“Hybrid debt” means capital instrument which possesses certain characteristics of equity as well as of debt;

“NBFC-IFC” means a non-deposit taking NBFC that fulfills the following criteria:

a minimum of 75 per cent of its total assets deployed in “infrastructure loans”;

Net owned funds of ₹300 crore or above;

minimum credit rating of 'A' issued by any of the SEBI-registered Credit Rating Agencies;

CRAR of 15 percent (with a minimum Tier I capital of 10 percent).

“Infrastructure lending” means a credit facility extended by non-banking financial company to a borrower, by way of term loan, project loan subscription to bonds/debentures/preference shares/ equity shares in a project company acquired as a part of the project finance package such that subscription amount to be “in the nature of advance” or any other form of long term funded facility for exposure in the infrastructure sub-sectors as notified by the Department of Economic Affairs, Ministry of Finance, Government of India, from time to time2.

“Non-Banking Financial Company- Investment and Credit Company - (NBFC-ICC)" means any company which is a financial institution carrying on as its principal business - asset finance, the providing of finance whether by making loans or advances or otherwise for any activity other than its own and the acquisition of securities; and is not any other category of NBFC as defined by the Bank in any of its Master Directions.

“Leverage Ratio” means the total Outside Liabilities/ Owned Funds.

“Long term investment” means an investment other than a current investment;

"NBFC-Factor" means a non-banking financial company as defined in clause

of section 45-I of the RBI Act, 1934, which has its principal business as defined in paragraph 42 of these directions and has been granted a certificate of registration under section 3 of the Factoring Regulation Act, 2011.

Modified vide Circular No. DNBR.PD.CC.No. 085/03.10.001/2016-17 dated March 02, 2017

“NBFC-MFI” means a non-deposit taking NBFC that fulfils the following conditions:

Minimum Net Owned Funds of ₹5 crore. (For NBFC-MFIs registered in the North Eastern Region of the country, the minimum NOF requirement shall stand at ₹2 crore).

Not less than 75% of its total assets are in the nature of “microfinance loans” as defined under Reserve Bank of India (Regulatory Framework for Microfinance Loans) Directions, 2022.

“Non-Operative Financial Holding Company (NOFHC)” means a non-deposit taking NBFC referred to in the "Guidelines for Licensing of New Banks in the Private Sector", issued by the Bank, which holds the shares of a banking company and the shares of all other financial services companies in its group, whether regulated by the Bank or by any other financial regulator, to the extent permissible under the applicable regulatory prescriptions.

“Net asset value” means the latest declared net asset value by the mutual fund concerned in respect of that particular scheme;

“Net book value” means:

in the case of hire purchase asset, the aggregate of overdue and future instalments receivable as reduced by the balance of unmatured finance charges and further reduced by the provisions made as per paragraph 13(2) of these Directions;

in the case of leased asset, aggregate of capital portion of overdue lease rentals accounted as receivable and depreciated book value of the lease asset as adjusted by the balance of lease adjustment account.

“Owned fund” means paid up equity capital, preference shares which are compulsorily convertible into equity, free reserves, balance in share premium account and capital reserves representing surplus arising out of sale proceeds of asset, excluding reserves created by revaluation of asset, as reduced by accumulated loss balance, book value of intangible assets and deferred revenue expenditure, if any;

“Public deposit” for the purpose of the Directions shall have the same meaning as defined in the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions 2016.

“Public funds” includes funds raised either directly or indirectly through public deposits, inter-corporate deposits, bank finance and all funds received from

outside sources such as funds raised by issue of Commercial Papers, debentures etc. but excludes funds raised by issue of instruments compulsorily convertible into equity shares within a period not exceeding 5 years from the date of issue.;

"Subordinated debt" means an instrument, which is fully paid up, is unsecured and is subordinated to the claims of other creditors and is free from restrictive clauses and is not redeemable at the instance of the holder or without the consent of the supervisory authority of the non-banking financial company. The book value of such instrument shall be subjected to discounting as provided hereunder:

Remaining Maturity of the instruments Rate of discount

(a) Upto one year 100 per cent

(b) More than one year but upto two years 80 per cent

(d) More than three years but upto four years 40 per cent

(e) More than four years but upto five years 20 per cent

to the extent such discounted value does not exceed fifty per cent of Tier I capital;

“Substantial interest” means holding of a beneficial interest by an individual or his spouse or minor child, whether singly or taken together in the shares of a company, the amount paid up on which exceeds ten per cent of the paid-up capital of the company; or the capital subscribed by all the partners of a partnership firm;

“Systemically important non-deposit taking non-banking financial company”, means a non-banking financial company not accepting / holding public deposits and having total assets of ₹500 crore and above as shown in the last audited balance sheet;

“Tier I Capital” means owned fund as reduced by investment in shares of other non-banking financial companies and in shares, debentures, bonds, outstanding loans and advances including hire purchase and lease finance made to and deposits with subsidiaries and companies in the same group exceeding, in aggregate, ten per cent of the owned fund;

“Tier II capital” includes the following:

preference shares other than those which are compulsorily convertible into equity;

revaluation reserves at discounted rate of fifty five percent;

General provisions (including that for Standard Assets) and loss reserves to the extent these are not attributable to actual diminution in value or identifiable potential loss in any specific asset and are available to meet unexpected losses, to the extent of one and one fourth percent of risk weighted assets;

hybrid debt capital instruments;

subordinated debt; and

to the extent the aggregate does not exceed Tier I capital.

Words or expressions used in these Directions but not defined herein and defined in the RBI Act shall have the same meaning as assigned to them in the RBI Act. Any other words or expressions not defined in the RBI Act shall have the same meaning as assigned to them in the Factoring Regulation Act, 2011. Any words or expressions used and not defined in these directions or in the RBI Act or any of the Directions issued by the Bank, shall have the meanings respectively assigned to them under the Companies Act, 1956 or Companies Act, 2013 (Act 18 of 2013) as the case may be.

Chapter III

Registration

In exercise of the powers conferred under clause (b) of sub-section (1) of section 45–IA of the RBI Act and all the powers enabling it in that behalf, the Bank, hereby specifies two hundred lakh rupees as the Net Owned Fund (NOF) required for a non-banking financial company to commence or carry on the business of non-banking financial institution, except wherever otherwise a specific requirement as to NOF is prescribed by the Bank.

Provided that a non-banking financial company holding a Certificate of Registration (CoR) issued by the Bank and having NOF of less than two hundred lakhs of rupees, may continue to carry on the business of non-banking financial institution, if such company achieves NOF of two hundred lakh of rupees before April 1, 2017.

It will be incumbent upon such NBFCs, the NOF of which currently falls below ₹200 lakh, to submit a statutory auditor's certificate certifying compliance with the prescribed levels by the end of the period as given above.

NBFCs failing to achieve the prescribed level within the stipulated period shall not be eligible to hold the CoR as NBFCs.

5A. Investment in applicable NBFCs from FATF non-compliant jurisdictions:

Investments in applicable NBFCs from FATF non-compliant jurisdictions shall not

be treated at par with those from the compliant3 jurisdictions. In terms of directions issued vide circular DOR.CO.LIC.CC No.119/03.10.001/2020-21 dated February 12, 2021, new investors from or through non-compliant FATF jurisdictions, whether in existing NBFCs or in companies seeking Certification of Registration (COR), should not be allowed to directly or indirectly acquire ‘significant influence’ in the investee, as defined in the applicable accounting standards. In other words, fresh investors (directly or indirectly) from such jurisdictions in aggregate should be less than the

threshold of 20 per cent of the voting power (including potential voting power4) of the NBFC.

Investors in existing NBFCs holding their investments prior to the classification of the source or intermediate jurisdiction/s as FATF non-compliant, may continue with the investments or bring in additional investments as per extant regulations so as to support continuity of business in India.

Section – II: Prudential Issues

Chapter - IV

Prudential Regulations

6. Leverage Ratio

The leverage ratio of an applicable NBFC (except NBFC-MFIs and NBFC-IFCs) shall not be more than 7 at any point of time, with effect from March 31, 2015.

In respect of NBFCs primarily engaged in lending against gold jewellery (such loans comprising 50 percent of more of their financial assets) they shall maintain a minimum Tier I capital of 12 per cent.

The Financial Action Task Force (FATF) periodically identifies jurisdictions with weak measures to combat money laundering and terrorist financing (AML/CFT) in its following publications: i) High-Risk Jurisdictions subject to a Call for Action, and ii) Jurisdictions under Increased Monitoring. A jurisdiction, whose name does not appear in the two aforementioned lists, shall be referred to as a FATF compliant jurisdiction.

Potential voting power could arise from instruments that are convertible into equity, other instruments with contingent voting rights, contractual arrangements, etc. that grant investors voting rights (including contingent voting rights) in the future. In such cases, it should be ensured that new investments from FATF non-compliant jurisdictions are less than both (i) 20 per cent of the existing voting powers and (ii) 20 per cent of existing and potential voting powers assuming those potential voting rights have materialised.

7. Income recognition

The income recognition shall be based on recognised accounting principles.

Income including interest/ discount/ hire charges/ lease rentals or any other charges on NPA shall be recognised only when it is actually realised. Any such income recognised before the asset became non-performing and remaining unrealised shall be reversed.

8. Income from investments

Income from dividend on shares of corporate bodies and units of mutual funds shall be taken into account on cash basis:

Provided that the income from dividend on shares of corporate bodies shall be taken into account on accrual basis when such dividend has been declared by the corporate body in its annual general meeting and the applicable NBFC’s right to receive payment is established.

Income from bonds and debentures of corporate bodies and from Government securities/bonds shall be taken into account on accrual basis:

Provided that the interest rate on these instruments is pre-determined and interest is serviced regularly and is not in arrears.

Income on securities of corporate bodies or public sector undertakings, the payment of interest and repayment of principal of which have been guaranteed by Central Government or a State Government shall be taken into account on accrual basis.

9. Accounting standards

NBFCs that are required to implement Indian Accounting Standards (Ind AS) as per the Companies (Indian Accounting Standards) Rules, 2015 shall prepare their financial statements in accordance with Ind AS notified by the Government of India and shall comply with the regulatory guidance specified in Annex XX of these Directions. Disclosure requirements for notes to accounts specified in these directions shall continue to apply. Other NBFCs shall comply with the requirements of notified Accounting Standards (AS) insofar as they are not inconsistent with any of these directions.

10. Accounting of investments

(i) The Board of Directors of every applicable NBFC shall frame investment policy for the company and shall implement the same;

The criteria to classify the investments into current and long term investments shall be spelt out by the Board of the company in the investment policy;

Investments in securities shall be classified into current and long term, at the time of making each investment;

In case of inter-class transfer –

There shall be no such transfer on ad-hoc basis;

such transfer, if warranted, shall be effected only at the beginning of each half year, on April 1 or October 1, with the approval of the Board;

the investments shall be transferred scrip-wise, from current to long-term or vice-versa, at book value or market value, whichever is lower;

the depreciation, if any, in each scrip shall be fully provided for and appreciation, if any, shall be ignored;

the depreciation in one scrip shall not be set off against appreciation in another scrip, at the time of such inter-class transfer, even in respect of the scrips of the same category.

(i) Quoted current investments shall, for the purposes of valuation, be grouped into the following categories, viz.

equity shares,

preference shares,

debentures and bonds,

Government securities including treasury bills,

units of mutual fund, and

others.

Quoted current investments for each category shall be valued at cost or market value whichever is lower. For this purpose, the investments in each category shall be considered scrip-wise and the cost and market value aggregated for all investments in each category. If the aggregate market value for the category is less than the aggregate cost for that category, the net depreciation shall be provided for or charged to the profit and loss account. If the aggregate market value for the

category exceeds the aggregate cost for the category, the net appreciation shall be ignored. Depreciation in one category of investments shall not be set off against appreciation in another category.

Unquoted equity shares in the nature of current investments shall be valued at cost or breakup value, whichever is lower. However, applicable NBFCs may substitute fair value for the breakup value of the shares, if considered necessary. Where the balance sheet of the investee company is not available for two years, such shares shall be valued at one Rupee only.

Unquoted preference shares in the nature of current investments shall be valued at cost or face value, whichever is lower.

Investments in unquoted Government securities or Government guaranteed bonds shall be valued at carrying cost.

Unquoted investments in the units of mutual funds in the nature of current investments shall be valued at the net asset value declared by the mutual fund in respect of each particular scheme.

Commercial papers shall be valued at carrying cost.

A long term investment shall be valued in accordance with the Accounting Standard issued by ICAI.

Note: Unquoted debentures shall be treated as term loans or other type of credit facilities depending upon the tenure of such debentures for the purpose of income recognition and asset classification.

11. Need for policy on demand/ call loans

The Board of Directors of every applicable NBFC granting/intending to grant demand/call loans shall frame a policy for the company and implement the same.

Such policy shall, inter alia, stipulate the following -

A cut-off date within which the repayment of demand or call loan shall be demanded or called up;

The sanctioning authority shall, record specific reasons in writing at the time of sanctioning demand or call loan, if the cut-off date for

demanding or calling up such loan is stipulated beyond a period of one year from the date of sanction;

The rate of interest which shall be payable on such loans;

Interest on such loans, as stipulated shall be payable either at monthly or quarterly rests;

The sanctioning authority shall, record specific reasons in writing at the time of sanctioning demand or call loan, if no interest is stipulated or a moratorium is granted for any period;

A cut-off date, for review of performance of the loan, not exceeding six months commencing from the date of sanction;

Such demand or call loans shall not be renewed unless the periodical review has shown satisfactory compliance with the terms of sanction.

12. Asset classification

The asset classification norms as given below shall apply to every applicable NBFC (except NBFC-MFIs):

Every NBFC shall, after taking into account the degree of well-defined credit weaknesses and extent of dependence on collateral security for realisation, classify its lease/hire purchase assets, loans and advances and any other forms of credit into the following classes, namely:

Standard assets;

Sub-standard assets;

Doubtful assets; and

Loss assets.

The class of assets referred to above shall not be upgraded merely as a result of rescheduling, unless it satisfies the conditions required for the upgradation.

(i) Standard asset shall mean the asset in respect of which, no default in repayment of principal or payment of interest is perceived and which does not disclose any problem or carry more than normal risk attached to the business;

(ii) "sub-standard asset" shall mean:

an asset which has been classified as non-performing asset for a period not exceeding 18 months;

an asset where the terms of the agreement regarding interest and/ or principal have been renegotiated or rescheduled or restructured after commencement of operations, until the expiry of one year of satisfactory performance under the renegotiated or rescheduled or restructured terms:

Provided that the classification of infrastructure loan as a sub-standard asset shall be in accordance with the provisions of paragraph 25 of the Directions;

"doubtful asset" shall mean:

a term loan, or

a lease asset, or

a hire purchase asset, or

any other asset,

which remains a sub-standard asset for a period exceeding 18 months; (iv) loss asset shall mean:

an asset which has been identified as loss asset by the non-banking financial company or its internal or external auditor or by the Bank during the inspection of the applicable NBFC, to the extent it is not written off by the applicable NBFC; and

an asset which is adversely affected by a potential threat of non-recoverability due to either erosion in the value of security or non-availability of security or due to any fraudulent act or omission on the part of the borrower.

Non-Performing Asset (referred to in these Directions as “NPA”) shall mean:

an asset, in respect of which, interest has remained overdue for a period of six months or more;

a term loan inclusive of unpaid interest, when the instalment is overdue for a period of six months or more or on which interest amount remained overdue for a period of six months or more;

a demand or call loan, which remained overdue for a period of six months or more from the date of demand or call or on which interest amount remained overdue for a period of six months or more;

a bill which remains overdue for a period of six months or more;

̀⠀ ⤀Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā Ȁ ̀⠀ ⤀Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ the interest in respect of a debt or the income on receivables under the head 'other current assets' in the nature of short term loans / advances, which facility remained overdue for a period of six months or more;

̀⠀ ⤀Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā Ȁ ̀⠀ ⤀Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ any dues on account of sale of assets or services rendered or reimbursement of expenses incurred, which remained overdue for a period of six months or more;

̀⠀ ⤀Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā Ȁ ̀⠀ ⤀Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ the lease rental and hire purchase instalment, which has become overdue for a period of twelve months or more;

̀⠀ ⤀Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā Ȁ ̀⠀ ⤀Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ in respect of loans, advances and other credit facilities (including bills purchased and discounted), the balance outstanding under the credit facilities (including accrued interest) made available to the same borrower / beneficiary when any of the above credit facilities becomes non-performing asset;

Provided that in the case of lease and hire purchase transactions, an applicable NBFC shall classify each such account on the basis of its record of recovery.

13. Provisioning requirements

The provisioning requirements as given below shall apply to every applicable NBFC (except NBFC-MFIs):

Every applicable NBFC shall, after taking into account the time lag between an account becoming non-performing, its recognition as such, the realisation of the security and the erosion over time in the value of security charged, make provision against sub-standard assets, doubtful assets and loss assets as provided hereunder:-

Loans, advances and other credit facilities including bills purchased and discounted-

The provisioning requirement in respect of loans, advances and other credit facilities including bills purchased and discounted shall be as under:

(i) Loss Assets The entire asset shall be written off.

If the assets are permitted to remain in the

books for any reason, 100 per cent of the

outstanding shall be provided for;

(ii) Doubtful Assets (a) 100 per cent provision to the extent to

which the advance is not covered by the

realisable value of the security to which the

applicable NBFC has a valid recourse shall

Period for which the asset has been considered as doubtful Up to one year

One to three years More than three years (iii) Sub-standard assets

be made. The realisable value is to be estimated on a realistic basis;

In addition to item (a) above, depending upon the period for which the asset has remained doubtful, provision to the extent of 20 per cent to 50 per cent of the secured portion (i.e. Estimated realisable value of the outstanding) shall be made on the following basis:-

Per cent of provision

A general provision of 10 per cent of total outstanding shall be made.

Lease and hire purchase assets -The provisioning requirements in respect of hire purchase and leased assets shall be as under:

Hire purchase assets - In respect of hire purchase assets, the total dues (overdue and future instalments taken together) as reduced by

the finance charges not credited to the profit and loss account and carried forward as unmatured finance charges; and

the depreciated value of the underlying asset shall be provided for.

Explanation: For the purpose of this paragraph,

the depreciated value of the asset shall be notionally computed as the original cost of the asset to be reduced by depreciation at the rate of twenty per cent per annum on a straight line method; and

in the case of second hand asset, the original cost shall be the actual cost incurred for acquisition of such second hand asset.

Additional provision for hire purchase and leased assets

In respect of hire purchase and leased assets, additional provision shall be made as under:

ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā Ȁ ̀⠀ ⤀Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Where hire charges or lease rentals are overdue upto 12 months

ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā Ȁ ̀⠀ ⤀Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Where hire charges or lease rentals are overdue for more than 12 months upto 24 months

ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā Ȁ ̀⠀ ⤀Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Where hire charges or lease rentals are overdue for more than 24 months but upto 36 months

ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā Ȁ ̀⠀ ⤀Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Where hire charges or lease rentals are overdue for more than 36 months but upto 48 months

ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā Ȁ ̀⠀ ⤀Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Where hire charges or lease rentals are overdue for more than 48 months

Nil

10 per cent of the

net book value

40 per cent of the

net book value

70 per cent of the

net book value

100 per cent of the

net book value

On expiry of a period of 12 months after the due date of the last instalment of hire purchase/leased asset, the entire net book value shall be fully provided for.

Notes:

The amount of caution money/margin money or security deposits kept by the borrower with the applicable NBFC in pursuance of the hire purchase agreement may be deducted against the provisions stipulated under clause

above, if not already taken into account while arriving at the equated monthly instalments under the agreement. The value of any other security available in pursuance to the hire purchase agreement shall be deducted only against the provisions stipulated under clause (ii) above.

The amount of security deposits kept by the borrower with the applicable NBFC in pursuance to the lease agreement together with the value of any other security available in pursuance to the lease agreement shall be deducted only against the provisions stipulated under clause (ii) above.

It is clarified that income recognition on and provisioning against NPAs are two different aspects of prudential norms and provisions as per the norms are required to be made on NPAs on total outstanding balances including the depreciated book value of the leased asset under reference after adjusting the balance, if any, in the lease adjustment account. The fact that income on an NPA has not been recognised shall not be taken as reason for not making provision.

An asset which has been renegotiated or rescheduled as referred to in paragraph 12(3)(ii)(b) of these Directions shall be a sub-standard asset or

continue to remain in the same category in which it was prior to its renegotiation or re-schedulement as a doubtful asset or a loss asset as the case may be. Necessary provision shall be made as applicable to such asset till it is upgraded.

The balance sheet to be prepared by the NBFC shall be in accordance with the provisions contained in sub-paragraph (2) of paragraph 17 of the Directions.

All financial leases written on or after April 1, 2001 shall attract the provisioning requirements as applicable to hire purchase assets.

Standard asset provisioning

Every applicable NBFC shall make provision for standard assets at 0.25 per cent of the outstanding, which shall not be reckoned for arriving at net NPAs. The provision towards standard assets need not be netted from gross advances but shall be shown separately as 'Contingent Provisions against Standard Assets' in the balance sheet.

15. Guidelines on Liquidity Risk Management Framework

Applicable NBFCs having an asset size of ₹100 crore and above, as per their last audited balance sheet, shall adhere to the set of liquidity risk management guidelines as detailed in Annex II of these Directions. However, these guidelines will not apply to Type I NBFC-NDs5, Non-Operating Financial Holding Companies and Standalone Primary Dealers. It will be the responsibility of the Board of each NBFC to ensure that the guidelines are adhered to. The internal controls required to be put in place by NBFCs as per these guidelines shall be subject to supervisory review. Further, as a matter of prudence, all other NBFCs are also encouraged to adopt these guidelines on liquidity risk management on voluntary basis.

16. Multiple NBFCs

Applicable NBFCs that are part of a corporate group or are floated by a common set of promoters shall not be viewed on a standalone basis. The total assets of the NBFCs in a group including deposit taking NBFCs, if any, shall be aggregated to determine if such consolidation falls within the asset sizes of the two categories i.e. those with asset size of below ₹500 crore and those with asset size of ₹500 crore and above. The regulations as applicable to the two categories shall be applicable to

Type I NBFC-ND as defined in RBI press release dated June 17, 2016.

each of the non-deposit taking NBFC within the group. For this purpose, Statutory Auditors are required to certify the asset size of all the NBFCs in the Group. However, NBFC-D, within the group, if any, shall be governed under the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Direction 2016 and Non-Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016 as applicable to deposit taking NBFCs.

17. Disclosure in the balance sheet

Every applicable NBFC shall separately disclose in its balance sheet the provisions made as per these Directions without netting them from the income or against the value of assets.

The provisions shall be distinctly indicated under separate heads of account as under:-

provisions for bad and doubtful debts; and

provisions for depreciation in investments.

Such provisions shall not be appropriated from the general provisions and loss reserves held, if any, by the applicable NBFC.

Such provisions for each year shall be debited to the profit and loss account. The excess of provisions, if any, held under the heads general provisions and loss reserves may be written back without making adjustment against them.

18. Accounting year

Every applicable NBFC shall prepare its balance sheet and profit and loss account as on March 31 every year. Whenever an applicable NBFC intends to extend the date of its balance sheet as per provisions of the Companies Act, 2013, it shall take prior approval of the Bank before approaching the Registrar of Companies for this purpose.

Even in cases where the Bank and the Registrar of Companies grant extension of time, the applicable NBFC shall furnish to the Bank a proforma balance sheet (unaudited) as on March 31 of the year and the statutory returns due on the said date. Every applicable NBFC shall finalise its balance sheet within a period of 3 months from the date to which it pertains.

18A. Declaration of dividend by applicable NBFCs:

NBFCs shall comply with the following guidelines to declare dividends from the profits of the financial year ending March 31, 2022, and onwards.

The Board of Directors, while considering the proposals for dividend, shall take into account each of the following aspects:

ĀȀĀ ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ѐ Ȁ ̀⠀ ⤀Ā ȀĀ ĀĀĀ ЀĀ ĀȀĀ ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ȀȀ Supervisory findings of the Reserve Bank on divergence in classification and provisioning for Non-Performing Assets (NPAs).

ĀȀĀ ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ѐ Ȁ ̀⠀ ⤀Ā ȀĀ ĀĀĀ ЀĀ ĀȀĀ ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ȀȀ Qualifications in the Auditors Report to the financial statements.

ĀȀĀ ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ѐ Ȁ ̀⠀ ⤀Ā ȀĀ ĀĀĀ ЀĀ ĀȀĀ ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ȀȀ Long term growth plans of the NBFC.

Only NBFCs that meet the following minimum prudential requirements shall declare dividend:

NBFCs shall have met the minimum capital requirements (including leverage ratio wherever applicable) prescribed under this Master Direction in each of

the last three6 financial years including the financial year for which the dividend is proposed.

The net NPA ratio shall be less than six per cent in each of the last three years, including as at the close of the financial year for which dividend is proposed to be declared.

NBFCs shall comply with the provisions of Section 45 IC of the Reserve Bank of India Act, 1934.

NBFCs shall be compliant with the prevailing regulations/ guidelines issued by the Reserve Bank. The Reserve Bank shall not have placed any explicit restrictions on declaration of dividend.

NBFCs that meet the eligibility criteria specified in paragraph (2) above can declare dividend upto a dividend payout ratio of 50 per cent. There will be no ceiling on dividend payout ratio for eligible NBFCs that do not accept public funds and have no customer interface.

An NBFC which does not meet the applicable capital ratio (including leverage ratio wherever applicable) requirements and/ or the net NPA ratio requirement as above, for each of the last three financial years, shall be eligible to declare dividend, subject to a cap of 10 per cent on the dividend payout ratio, provided the NBFC complies with both the following conditions:

Where an NBFC has been in existence for less than three financial years, it shall be since registration.

ĀĀĀ ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ЀȀ ̀⠀ ⤀Ā ȀĀ ȀĀ⸀Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ meets the applicable minimum capital requirement (including leverage ratio wherever applicable), as per this Master Direction, in the financial year for which it proposes to pay dividend, and

ĀĀĀ ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ЀȀ ̀⠀ ⤀Ā ȀĀ ȀĀ⸀Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ Ā ᜀ has net NPA of less than four per cent as at the close of the said financial year.

The Board shall ensure that the total dividend proposed for the financial year does not exceed the ceilings specified in these guidelines. The Reserve Bank shall not entertain any request for ad-hoc dispensation on declaration of dividend.

19. Schedule to the balance sheet

Every applicable NBFC shall append to its balance sheet prescribed under the Companies Act, 2013, the particulars in the schedule as set out in Annex III.

20. Transactions in Government securities

Every applicable NBFC shall undertake transactions in Government securities through its gilt account or its demat account or any other account, as permitted by the Bank.

Loans against NBFCs own shares prohibited No applicable NBFC shall lend against its own shares.

Loans against security of shares

Applicable NBFC with asset size of ₹100 crore and above lending against the collateral of listed shares shall,

maintain a Loan to Value (LTV) ratio of 50 per cent for loans granted against the collateral of shares. LTV ratio of 50 per cent is required to be maintained at all times. Any shortfall in the maintenance of the 50 per cent LTV occurring on account of movement in the share prices shall be made good within 7 working days.

in case where lending is being done for investment in capital markets, accept only Group 1 securities (specified in SMD/ Policy/ Cir - 9/ 2003 dated March 11, 2003 as amended from time to time, issued by SEBI) as collateral for loans of value more than ₹5 lakh, subject to review by the Bank.

report on-line to stock exchanges on a quarterly basis, information on the shares pledged in their favour, by borrowers for availing loans in format as given in Annex IV.

Concentration of credit/ investment for applicable NBFC

An applicable NBFC which is held by an NOFHC shall not

have any exposure (credit and investments including investments in the equity/ debt capital instruments) to the Promoters/ Promoter Group entities or individuals associated with the Promoter Group or the NOFHC;

make investment in the equity/ debt capital instruments in any of the financial entities under the NOFHC;

invest in equity instruments of other NOFHCs.

Explanation: For the purposes of this paragraph, the expression, 'Promoter' and 'Promoter Group' shall have the meanings assigned to those expressions in the "Guidelines for Licensing of New Banks in the Private Sector" issued by the Bank -

Annex V.

Information with respect to change of address, directors, auditors, etc. to be submitted

Every applicable NBFC shall communicate, not later than one month from the occurrence of any change in:

the complete postal address, telephone number/s and fax number/s of the registered/ corporate office;

the names and residential addresses of the directors of the company;

the names and the official designations of its principal officers;

the names and office address of the auditors of the company; and

the specimen signatures of the officers authorised to sign on behalf of the company

to the Regional Office of the Department of Supervision of the Bank under whose jurisdiction it is registered.

25. Norms for restructuring of advances

Norms for restructuring of advances by applicable NBFCs are as set forth in Annex VI. For projects under implementation, the instructions in Annex VI and circular DoR.NBFC (PD).CC.No.110/03.10.001/2019-20 dated April 17, 2020 on ‘Prudential

Norms on Income Recognition, Asset Classification and Provisioning Pertaining to Advances - Projects under Implementation’ shall be applicable.

Flexible Structuring of Long Term Project Loans to Infrastructure and Core Industries

Norms for Flexible Structuring of Long Term project loans to Infrastructure and Core Industries by applicable NBFCs shall be on the lines of the norms specified by the Bank for banks as modified and set forth in Annex VII.

Loans against security of single product - Gold Jewellery

(1) (a) All applicable NBFCs shall

(i) maintain a Loan-to-Value (LTV) Ratio not exceeding 75 per cent for loans granted against the collateral of gold jewellery;

Provided that the value of gold jewellery for the purpose of determining the maximum permissible loan amount shall be the intrinsic value of the gold content therein and no other cost elements shall be added thereto. The intrinsic value of the gold jewellery shall be arrived at as detailed in paragraph (3) below.

(ii) disclose in their balance sheet the percentage of such loans to their total assets.

NBFCs shall not grant any advance against bullion / primary gold and gold coins. The NBFCs shall not grant any advance for purchase of gold in any form including primary gold, gold bullion, gold jewellery, gold coins, units of Exchange Traded Funds (ETF) and units of gold mutual fund.

(2) Verification of the Ownership of Gold

Where the gold jewellery pledged by a borrower at any one time or cumulatively on loan outstanding is more than 20 grams, NBFCs shall keep a record of the verification of the ownership of the jewellery. The ownership verification need not necessarily be through original receipts for the jewellery pledged but a suitable document shall be prepared to explain how the ownership of the jewellery has been determined, particularly in each and every case where the gold jewellery pledged by a borrower at any one time or cumulatively on loan outstanding is more than 20 grams.

NBFCs shall have an explicit policy in this regard as approved by the Board in their overall loan policy.

(3) Standardization of Value of Gold accepted as collateral in arriving at LTV Ratio

The gold jewellery accepted as collateral by the Non-Banking Financial Company shall be valued by the following method:

The gold jewellery accepted as collateral by the Non-Banking Financial Company shall be valued by taking into account the preceding 30 days’ average of the closing price of 22 carat gold as per the rate as quoted by the Bombay Bullion Association Ltd. (BBA) or the historical spot gold price data publicly disseminated by a commodity exchange regulated by the Forward Markets Commission.

If the purity of the gold is less than 22 carats, the NBFC shall translate the collateral into 22 carat and state the exact grams of the collateral. In other words, jewellery of lower purity of gold shall be valued proportionately.

NBFC, while accepting gold as collateral, shall give a certificate to the borrower on their letterhead, of having assayed the gold and state the purity (in terms of carats) and the weight of the gold pledged.

NBFCs may have suitable caveats to protect themselves against disputes during redemption, but the certified purity shall be applied both for determining the maximum permissible loan and the reserve price for auction.

(4) Auction

The auction shall be conducted in the same town or taluka in which the branch that has extended the loan is located. NBFCs can however pool gold jewellery from different branches in a district and auction it at any location within the district, subject to meeting the following conditions:

The first auction has failed.

The NBFC shall ensure that all other requirements of the extant directions

regarding auction (prior notice, reserve price, arms-length relationship, disclosures, etc.) are met.

Non-adherence to the above conditions will attract strict enforcement action.

While auctioning the gold the NBFC must declare a reserve price for the pledged ornaments. The reserve price for the pledged ornaments shall not be less than 85 per cent of the previous 30 day average closing price of 22 carat gold as declared by

the Bombay Bullion Association Ltd. (BBA) or the historical spot gold price data publicly disseminated by a commodity exchange regulated by the Forward Markets Commission and value of the jewellery of lower purity in terms of carats shall be proportionately reduced.

It shall be mandatory on the part of the NBFCs to provide full details of the value fetched in the auction and the outstanding dues adjusted and any amount over and above the loan outstanding shall be payable to the borrower.

NBFCs shall disclose in their annual reports the details of the auctions conducted during the financial year including the number of loan accounts, outstanding amounts, value fetched and whether any of its sister concerns participated in the auction.

Safety and security measures to be followed by Non-Banking Financial Companies lending against collateral of gold jewellery

(a) Non-Banking Financial Companies, which are in the business of lending against collateral of gold jewellery, shall ensure that necessary infrastructure and facilities are put in place, including safe deposit vault and appropriate security measures for operating the vault, in each of its branches where gold jewellery is accepted as collateral. This is required to safeguard the gold jewellery accepted as collateral and to ensure convenience of borrowers.

No new branch/es shall be opened without suitable arrangements for security and for storage of gold jewellery, including safe deposit vault.

(6) Opening Branches exceeding one thousand in number

Non-Banking Financial Company which are in the business of lending against collateral of gold jewellery, shall obtain prior approval of the Bank to open branches exceeding 1000. However, NBFCs which already have more than 1000 branches shall approach the Bank for prior approval for any further branch expansion. Besides, no new branches shall be allowed to be opened without the facilities for storage of gold jewellery and minimum security facilities for the pledged gold jewellery.

Chapter – V

Fair Practices Code for applicable NBFC

Applicable NBFCs having customer interface shall adopt the following guidelines:

28. Applications for loans and their processing

All communications to the borrower shall be in the vernacular language or a language as understood by the borrower.

Loan application forms shall include necessary information which affects the interest of the borrower, so that a meaningful comparison with the terms and conditions offered by other NBFCs can be made and informed decision can be taken by the borrower. The loan application form shall indicate the documents required to be submitted with the application form.

Applicable NBFCs shall devise a system of giving acknowledgement for receipt of all loan applications. Preferably, the time frame within which loan applications will be disposed of shall also be indicated in the acknowledgement.

29. Loan appraisal and terms/conditions

Applicable NBFCs shall convey in writing to the borrower in the vernacular language as understood by the borrower by means of sanction letter or otherwise, the amount of loan sanctioned along with the terms and conditions including annualised rate of interest and method of application thereof and keep the acceptance of these terms and conditions by the borrower on its record. As complaints received against NBFCs generally pertain to charging of high interest / penal interest, applicable NBFCs shall mention the penal interest charged for late repayment in bold in the loan agreement.

Borrowers may not be fully aware of the terms and conditions of the loans including rate of interest at the time of sanction of loans, either because the NBFC does not provide details of the same or the borrower has no time to look into detailed agreement. Not furnishing a copy of the loan agreement or enclosures quoted in the loan agreement is an unfair practice and this could lead to disputes between the NBFC and the borrower with regard to the terms and conditions. Applicable NBFCs, shall furnish a copy of the loan agreement as understood by the borrower along with a copy each of all enclosures quoted in the loan agreement to all the borrowers at the time of sanction / disbursement of loans.

30. Disbursement of loans including changes in terms and conditions

Applicable NBFCs shall give notice to the borrower in the vernacular language or a language as understood by the borrower of any change in the terms and conditions including disbursement schedule, interest rates, service charges, prepayment charges etc. Applicable NBFCs shall also ensure that changes in interest rates and charges are affected only prospectively. A suitable condition in this regard must be incorporated in the loan agreement.

Decision to recall/ accelerate payment or performance under the agreement shall be in consonance with the loan agreement.

Applicable NBFCs shall release all securities on repayment of all dues or on realisation of the outstanding amount of loan subject to any legitimate right or lien for any other claim they may have against borrower. If such right of set off is to be exercised, the borrower shall be given notice about the same with full particulars about the remaining claims and the conditions under which applicable NBFCs are entitled to retain the securities till the relevant claim is settled/ paid.

31. General

Applicable NBFCs shall refrain from interference in the affairs of the borrower except for the purposes provided in the terms and conditions of the loan agreement (unless information, not earlier disclosed by the borrower, has been noticed).

In case of receipt of request from the borrower for transfer of borrowal account, the consent or otherwise i.e., objection of the applicable NBFC, if any, shall be conveyed within 21 days from the date of receipt of request. Such transfer shall be as per transparent contractual terms in consonance with law.

In the matter of recovery of loans, an applicable NBFC shall not resort to undue harassment viz., persistently bothering the borrowers at odd hours, use muscle power for recovery of loans etc. As complaints from customers also include rude behaviour from the staff of the companies, applicable NBFC shall ensure that the staff are adequately trained to deal with the customers in an appropriate manner.

As a measure of customer protection and also in order to bring in uniformity with regard to prepayment of various loans by borrowers of banks and NBFCs, applicable NBFCs shall not charge foreclosure charges/ pre-payment penalties on any floating

rate term loan sanctioned for purposes other than business to individual borrowers, with or without co-obligant(s).

32. Responsibility of Board of Directors

The Board of Directors of applicable NBFCs shall also lay down the appropriate grievance redressal mechanism within the organization. Such a mechanism shall ensure that all disputes arising out of the decisions of lending institutions' functionaries are heard and disposed of at least at the next higher level. The Board of Directors shall also provide for periodical review of the compliance of the Fair Practices Code and the functioning of the grievances redressal mechanism at various levels of management. A consolidated report of such reviews shall be submitted to the Board at regular intervals, as may be prescribed by it.

33. Grievance Redressal Officer

At the operational level, all applicable NBFCs shall display the following information prominently, for the benefit of their customers, at their branches/ places where business is transacted:

the name and contact details (Telephone / Mobile nos. as also email address) of the Grievance Redressal Officer who can be approached by the public for resolution of complaints against the Company.

If the complaint / dispute is not redressed within a period of one month, the customer may appeal to the Officer-in-Charge of the Regional Office of Department of Supervision of the Bank (with complete contact details), under whose jurisdiction the registered office of the applicable NBFC falls.

34. Reserve Bank – Integrated Ombudsman Scheme, 2021

NBFCs covered under the Reserve Bank – Integrated Ombudsman Scheme, 2021 shall appoint Principal Nodal Officer in accordance with directions provided under the said Scheme.

35. Language and mode of communicating Fair Practice Code

Fair Practices Code (which shall preferably be in the vernacular language or a language as understood by the borrower) based on the guidelines outlined hereinabove shall be put in place by all applicable NBFCs having customer interface with the approval of their Boards. Applicable NBFCs will have the freedom of drafting

the Fair Practices Code, enhancing the scope of the guidelines but in no way sacrificing the spirit underlying the above guidelines. The same shall be put up on their website, if any, for the information of various stakeholders.

36. Regulation of excessive interest charged by applicable NBFC

The Board of each applicable NBFC shall adopt an interest rate model taking into account relevant factors such as cost of funds, margin and risk premium and determine the rate of interest to be charged for loans and advances. The rate of interest and the approach for gradations of risk and rationale for charging different rate of interest to different categories of borrowers shall be disclosed to the borrower or customer in the application form and communicated explicitly in the sanction letter.

The rates of interest and the approach for gradation of risks shall also be made available on the website of the companies or published in the relevant newspapers. The information published in the website or otherwise published shall be updated whenever there is a change in the rates of interest.

The rate of interest must be annualised rate so that the borrower is aware of the exact rates that would be charged to the account.

37. Complaints about excessive interest charged by Applicable NBFCs

The Bank has been receiving several complaints regarding levying of excessive interest and charges on certain loans and advances by NBFC. Though interest rates are not regulated by the Bank, rates of interest beyond a certain level may be seen to be excessive and can neither be sustainable nor be conforming to normal financial practice. Boards of applicable NBFCs shall lay out appropriate internal principles and procedures in determining interest rates and processing and other charges. In this regard, the guidelines indicated in the Fair Practices Code about transparency in respect of terms and conditions of the loans are to be kept in view.

38. Repossession of vehicles financed by applicable NBFCs

Applicable NBFCs must have a built-in re-possession clause in the contract/loan agreement with the borrower which must be legally enforceable. To ensure transparency, the terms and conditions of the contract/loan agreement shall also contain provisions regarding:

(i) notice period before taking possession;

circumstances under which the notice period can be waived;

the procedure for taking possession of the security;

a provision regarding final chance to be given to the borrower for repayment of loan before the sale / auction of the property;

the procedure for giving repossession to the borrower; and

the procedure for sale / auction of the property.

A copy of such terms and conditions must be made available to the borrower. Applicable NBFCs shall invariably furnish a copy of the loan agreement along with a copy each of all enclosures quoted in the loan agreement to all the borrowers at the time of sanction/ disbursement of loans, which forms a key component of such contracts/ loan agreements.

39. Lending against collateral of Gold Jewellery

While lending to individuals against collateral of gold jewellery, applicable NBFCs shall adopt the following in addition to the general guidelines as above.

They shall put in place Board approved policy for lending against gold that shall inter alia, cover the following:

Adequate steps to ensure that the KYC guidelines stipulated by RBI are complied with and to ensure that adequate due diligence is carried out on the customer before extending any loan,

Proper assaying procedure for the jewellery received,

Internal systems to satisfy ownership of the gold jewellery,

Adequate systems for storing the jewellery in safe custody, reviewing the systems on an on-going basis, training the concerned staff and periodic inspection by internal auditors to ensure that the procedures are strictly adhered to. Normally, such loans shall not be extended by branches that do not have appropriate facility for storage of the jewellery,

The jewellery accepted as collateral shall be appropriately insured,

Transparent auction procedure in case of non-repayment with adequate prior notice to the borrower. There shall be no conflict of interest and the auction process must ensure that there is arm’s length relationship in all transactions during the auction including with group companies and related entities,

The auction shall be announced to the public by issue of advertisements in at least two newspapers, one in vernacular and another in national daily newspaper,

As a policy, the applicable NBFCs themselves shall not participate in the auctions held,

Gold pledged shall be auctioned only through auctioneers approved by the Board,

The policy shall also cover systems and procedures to be put in place for dealing with fraud including separation of duties of mobilization, execution and approval.

The loan agreement shall also disclose details regarding auction procedure.

Other Instructions

NBFCs financing against the collateral of gold must insist on a copy of the PAN Card of the borrower for all transaction above ₹5 lakh.

Documentation across all branches must be standardized.

NBFCs shall not issue misleading advertisements like claiming the availability of loans in a matter of 2-3 minutes.

Chapter –VI

Specific Directions applicable to NBFC-Factors7 40. Registration

Every company intending to undertake factoring business shall make an application to the Bank for grant of CoR as NBFC-Factor under section 3 of the Factoring Regulation Act, 2011 and shall ensure compliance with principal business criteria(PBC) as stipulated in paragraph 42 of these directions.

Any existing non-systemically important NBFC-ICC, intending to undertake factoring business, shall approach the Bank for conversion from NBFC-ICC to NBFC-Factor. Such NBFC-ICCs shall comply with the PBC as specified in paragraph 42 of these directions.

Notification No. DOR.FIN.080/CGM(JPS) – 2022 dated January 14, 2022 (published in Official Gazette – Extraordinary – Part-III, Section 4 dated January 17, 2022)

Application for such conversion shall be submitted with all supporting documents meant for new registration as NBFC-Factor, together with surrender of original CoR issued by the Bank to the NBFC-ICC under section 45-IA of the RBI Act, 1934.

An entity not registered with the Bank under the Factoring Regulation Act, 2011 may conduct the business of factoring, if it is an entity mentioned in section 5 of the Factoring Regulation Act, 2011, i.e., a bank or a body corporate established under an Act of Parliament or State Legislature, or a Government Company;

NBFC-Factor shall commence factoring business within six months from the date of grant of CoR.

41. Net Owned Fund

Every company seeking registration as NBFC-Factor shall have a minimum Net Owned Fund (NOF) of ₹5 crore, or as specified by the Bank from time to time.

42. Principal Business

An NBFC-Factor shall ensure that its financial assets in the factoring business constitute at least fifty per cent of its total assets and its income derived from factoring business is not less than fifty per cent of its gross income.

43. Conduct of business and prudential regulations

NBFC-Factors shall conduct the factoring business in accordance with the Factoring Regulation Act, 2011 and the rules and regulations framed under it or the directions and guidelines issued by the Bank from time to time.

44. Asset Classification

In addition to the prudential norms contained in Chapter IV of these Directions, for an NBFC-Factor, a receivable acquired under factoring which is not paid within six months of due date as applicable, shall be treated as NPA irrespective of when the receivable was acquired by the factor or whether the factoring was carried out on "with recourse" basis or "without-recourse" basis. The entity on which the exposure was booked shall be shown as NPA and provisioning made accordingly.

Exposure norms shall be reckoned as under:

In case of factoring on "with-recourse" basis, the exposure shall be reckoned on the assignor.

In case of factoring on "without-recourse" basis, the exposure shall be reckoned on the debtor, irrespective of credit risk cover / protection provided, except in cases of international factoring where the entire credit risk has been assumed by the import factor.

46. Risk Management

Proper and adequate control and reporting mechanisms shall be put in place before factoring business is undertaken by an NBFC-Factor.

a. NBFC-Factors shall carry out a thorough credit appraisal of the debtors before entering into any factoring arrangement or prior to establishing lines of credit with the export factor.

b. Factoring services shall be extended in respect of invoices which represent genuine trade transactions.

c. Since under “without recourse” factoring transactions, the NBFC-Factor is underwriting the credit risk on the debtor, there shall be a clearly laid down board-approved limit for all such underwriting commitments.

d. NBFC-Factors and banks shall share information about common borrowers. For the purpose of exchange of information, the assignor will be deemed to be the borrower. NBFC-Factors shall ensure to intimate the limits sanctioned to the borrower to the concerned banks / NBFCs and details of debts factored so as to avoid double financing.

47. Export/ Import Factoring

Foreign Exchange Department (FED) of the Bank gives authorization to Factors under FEMA, 1999. NBFC-Factors, intending to deal in foreign exchange through export/import factoring, shall make an application to FED for necessary authorization under FEMA, 1999 to deal in foreign exchange and adhere to the terms and conditions prescribed by FED and all the relevant provisions of the FEMA or Rules, Regulations, Notifications, Directions or Orders made thereunder from time to time.

Chapter – VII

Specific Directions applicable to Infrastructure Finance Companies

(NBFC-IFCs)

48. Capital Requirements

Every NBFC-IFC shall maintain a minimum capital ratio consisting of Tier I and Tier II capital which shall not be less than 15 percent of its aggregate risk weighted assets on-balance sheet and of risk adjusted value of off-balance sheet items.

The Tier I capital, at any point of time, shall not be less than 8.5% by March 31, 2016 and 10% by March 31, 2017.

Explanations:

I. On balance sheet assets–

In these Directions, degrees of credit risk expressed as percentage weightages have been assigned to balance sheet assets. Hence, the value of each asset / item requires to be multiplied by the relevant risk weights to arrive at risk adjusted value of assets. The aggregate shall be taken into account for reckoning the minimum capital ratio. The risk weighted asset shall be calculated as the weighted aggregate of funded items as detailed hereunder:

Weighted risk assets - On-Balance Sheet items Percentage weight

(i) Cash and bank balances including 0

fixed deposits and certificates of deposits

with banks

(ii) Investments

(a) Approved securities [Except at (c) 0

below]

(b) Bonds of public sector banks 20

deposits/bondsof public financial

institutions

(d) Shares of all companies and

debentures/ bonds/ commercial 100

papers of all companies and units of

all mutual funds

(e) All assets covering PPP and post 50

commercialoperationsdate (COD)

infrastructureprojectsin existence

over a year of commercial operation.

(iii) Current assets

(a) Stock on hire (net book value) 100

(b) Intercorporate loans/ deposits 100

against deposits held

(d) Loans to staff 0

(e) Other secured loans and advances 100

considered good[Except at (vi) below]

(f) Bills purchased/ discounted 100

(g) Others (To be specified) 100

(iv) Fixed Assets (net of depreciation)

(a) Assets leased out (net book value) 100

(b) Premises 100

(v) Other assets

(a) Income tax deducted at source 0

(net of provision)

(b) Advance tax paid (net of provision) 0

securities

(d) Others (to be specified) 100

(vi) Domestic Sovereign

(a) fund based claims on the Central Government 0

(b) Direct loan/ credit/ overdraft exposure

and investment in State Government securities 0

State Government guaranteed claims,

which have not remained in default/ which

are in default for a period not more than 90 days 20

(e) State Government guaranteed claims,

which have remained in default for a period of more

than 90 days 100

Netting shall be done only in respect of assets where provisions for depreciation or for bad and doubtful debts have been made.

Assets which have been deducted from owned fund to arrive at net owned fund shall have a weightage of ’zero’.

While calculating the aggregate of funded exposure of a borrower for the purpose of assignment of risk weight, such non-banking financial companies shall net off the amount of cash margin/ caution money/ security deposits (against which right to set-off is available) held as collateral against the advances out of the total outstanding exposure of the borrower.

II. Off-balance sheet items

General

NBFC-IFCs shall calculate the total risk weighted off-balance sheet credit exposure as the sum of the risk-weighted amount of the market related and non-market related off-balance sheet items. The risk-weighted amount of an off-balance sheet item that gives rise to credit exposure shall be calculated by means of a two-step process:

the notional amount of the transaction shall be converted into a credit equivalent amount, by multiplying the amount by the specified credit conversion factor or by applying the current exposure method; and

the resulting credit equivalent amount shall be multiplied by the risk weight applicable viz., zero per cent for exposure to Central Government/ State Governments, 20 per cent for exposure to banks and 100 per cent for others.

(2) Non-market-related off- balance sheet items

The credit equivalent amount in relation to a non-market related off-balance sheet item shall be determined by multiplying the contracted amount of that particular transaction by the relevant credit conversion factor (CCF).

Sr. No. Instruments Credit Conversion Factor

i. Financial & other guarantees 100

ii. Share/ debenture underwriting obligations 50

iii. Partly-paid shares/ debentures 100

iv. Bills discounted/ rediscounted 100

v. Lease contracts entered into but yet to be 100

executed

vi. Sale and repurchase agreement and 100

asset sales with recourse, where the

credit risk remains with the applicable

NBFC

vii. Forward asset purchases, forward 100

deposits and partly paid shares and

securities, which represent commitments

with certain draw down.

viii. Lending of NBFC securities or posting of 100

securities as collateral by the NBFC-IFC,

including instances where these arise out

of repo style transactions

ix.Other commitments (e.g., formal standby

facilities and credit lines) with an original

maturity of

up to one year20

over one year50

x. Similar commitments that are 0

unconditionally cancellable at any time by

the NBFC-IFC without prior notice or that

effectivelyprovideforautomatic

cancellation due to deterioration in a

borrower’s credit worthiness

xi.Take-out Finance in the books of taking-over institution

(i) Unconditional take-out finance100

(ii) Conditional take-out finance50

Note: As the counter-party

exposurewilldetermine the

risk weight, it will be 100

percent in respect of all

borrowers or zero percent if

coveredbyGovernment

guarantee.

xii. Commitment to provide liquidity facility for 100

securitizationofstandardasset

transactions

xiii. Second loss credit enhancement for 100

securitizationofstandardasset

transactions provided by third party

xiv. Other contingent liabilities (To be 50

specified)

Note:

Cash margins/ deposits shall be deducted before applying the conversion factor

Where the non-market related off-balance sheet item is an undrawn or partially undrawn fund-based facility, the amount of undrawn commitment to be included in calculating the off-balance sheet non-market related credit exposures is the maximum unused portion of the commitment that could be drawn during the remaining period to maturity. Any drawn portion of a commitment forms a part of NBFC-IFCs on-balance sheet credit exposure.

For example:

A term loan of ₹700 crore is sanctioned for a large project which can be drawn down in stages over a three year period. The terms of sanction allow draw down in three stages – ₹150 crore in Stage I, ₹200 crore in Stage II and ₹350 crore in Stage III, where the borrower needs the NBFC-IFCs explicit approval for draw down under Stages II and III after completion of certain formalities. If the borrower has drawn already ₹50 crore under Stage I, then the undrawn portion would be computed with reference to Stage I alone i.e., it will be ₹100 crore. If Stage I is scheduled to be completed within one year, the CCF will be 20 per cent and if it is more than one year then the applicable CCF will be 50 per cent.

Market Related Off-Balance Sheet Items

NBFC-IFCs shall take into account all market related off-balance sheet items (OTC derivatives and Securities Financing Transactions such as repo/ reverse repo/ CBLO, etc.) while calculating the risk weighted off-balance sheet credit exposures.

The credit risk on market related off-balance sheet items is the cost to an NBFC-IFC of replacing the cash flow specified by the contract in the event of counterparty default. This shall depend, among other things, upon the maturity of the contract and on the volatility of rates underlying the type of instrument.

Market related off-balance sheet items shall include:

interest rate contracts - including single currency interest rate swaps, basis swaps, forward rate agreements, and interest rate futures;

foreign exchange contracts, including contracts involving gold, - includes cross currency swaps (including cross currency interest rate swaps), forward foreign exchange contracts, currency futures, currency options;

Credit Default Swaps; and

any other market related contracts specifically allowed by the Reserve Bank which give rise to credit risk.

Exemption from capital requirements is permitted for -

foreign exchange (except gold) contracts which have an original maturity of 14 calendar days or less; and

instruments traded on futures and options exchanges which are subject to daily mark-to-market and margin payments.

The exposures to Central Counter Parties (CCPs), on account of derivatives trading and securities financing transactions (e.g. Collateralized Borrowing and Lending Obligations - CBLOs, Repos) outstanding against them shall be assigned zero exposure value for counterparty credit risk, as it is presumed that the CCPs' exposures to their counterparties are fully collateralized on a daily basis, thereby providing protection for the CCP's credit risk exposures.

A CCF of 100 per cent shall be applied to the corporate securities posted as collaterals with CCPs and the resultant off-balance sheet exposure shall be assigned risk weights appropriate to the nature of the CCPs. In the case of Clearing Corporation of India Limited (CCIL), the risk weight shall be 20 per cent and for other CCPs, risk weight shall be 50 per cent.

The total credit exposure to a counter party in respect of derivative transactions shall be calculated according to the current exposure method as explained below.

(4) Current Exposure Method

The credit equivalent amount of a market related off-balance sheet transaction calculated using the current exposure method is the sum of (i) current credit exposure and (ii) potential future credit exposure of the contract.

Current credit exposure is defined as the sum of the gross positive mark-to-market value of all contracts with respect to a single counterparty (positive and negative marked-to-market values of various contracts with the same counterparty shall not be netted). The Current Exposure Method requires periodical calculation of the current credit exposure by marking these contracts to market.

Potential future credit exposure is determined by multiplying the notional principal amount of each of these contracts, irrespective of whether the contract has a zero, positive or negative mark-to-market value by the relevant add-on factor indicated below according to the nature and residual maturity of the instrument.

Credit Conversion Factors for interest rate related, exchange rate related and gold related derivatives Credit Conversion Factors (per cent)

Interest RateExchange Rate

ContractsContracts & Gold

One year or less 0.50 2.00

Over one year to five 1.00 10.00

years

Over five years 3.00 15.00

For contracts with multiple exchanges of principal, the add-on factors are to be multiplied by the number of remaining payments in the contract.

For contracts that are structured to settle outstanding exposure following specified payment dates and where the terms are reset such that the market value of the contract is zero on these specified dates, the residual maturity shall be set equal to the time until the next reset date. However, in the case of interest rate contracts which have residual maturities of more than one year and meet the above criteria, the CCF or add-on factor is subject to a floor of 1.0 per cent.

c. No potential future credit exposure shall be calculated for single currency floating / floating interest rate swaps; the credit exposure on these contracts shall be evaluated solely on the basis of their mark-to-market value.

d. Potential future exposures shall be based on 'effective' rather than 'apparent notional amounts'. In the event that the 'stated notional amount' is leveraged or enhanced by the structure of the transaction, the 'effective notional amount' must be used for determining potential future exposure. For example, a stated notional amount of USD 1 million with payments based on an internal rate of two times the lending rate of the NBFC-IFC would have an effective notional amount of USD 2 million.

(5) Credit conversion factors for Credit Default Swaps (CDS):

NBFC-IFCs are only permitted to buy credit protection to hedge their credit risk on corporate bonds they hold. The bonds shall be held in current category or permanent category. The capital charge for these exposures will be as under:

For corporate bonds held in current category and hedged by CDS where there is no mismatch between the CDS and the hedged bond, the credit protection shall be permitted to be recognised to a maximum of 80 per cent of the exposure hedged. Therefore, the NBFC-IFC shall continue to maintain capital charge for the corporate bond to the extent of 20 per cent of the applicable capital charge. This can be achieved by taking the exposure value at 20 per cent of the market value of the bond and then multiplying that with the risk weight of the issuing entity. In addition to this, the bought CDS position shall attract a capital charge for counterparty risk which shall be calculated by applying a credit conversion factor of 100 percent and a risk weight as applicable to the protection seller i.e. 20 per cent for banks and 100 per cent for others.

For corporate bonds held in permanent category and hedged by CDS where there is no mismatch between the CDS and the hedged bond, NBFC-IFCs can recognise full credit protection for the underlying asset and no capital shall be required to be maintained thereon. The exposure shall stand fully substituted by the exposure to the protection seller and attract risk weight as applicable to the protection seller i.e. 20 per cent for banks and 100 per cent for others.

Chapter – VIII

Specific directions applicable to Non-Banking Financial Company – Micro

Finance Institutions (NBFC-MFIs) and Microfinance Loans of applicable NBFCs

including NBFC-MFIs

49. Entry Point Norms

All new companies desiring registration as NBFC-MFIs shall need a minimum NOF of ₹5 crore (except those in the North Eastern Region of the country which shall require NOF of ₹2 crore till further notice, as hitherto) and shall comply, from the beginning, with all other criteria applicable to NBFC-MFIs.

Prudential Norms

(i) Capital Adequacy

NBFC-MFIs shall maintain a capital adequacy ratio consisting of Tier I and Tier II Capital which shall not be less than 15 percent of its aggregate risk weighted assets on-balance sheet and of risk adjusted value of off-balance sheet items. The total of Tier II Capital at any point of time, shall not exceed 100 percent of Tier I Capital. Note:

Explanations:

I. On balance sheet assets–

(1) In these Directions, degrees of credit risk expressed as percentage weightages have been assigned to balance sheet assets. Hence, the value of each asset / item requires to be multiplied by the relevant risk weights to arrive at risk adjusted value of assets. The aggregate shall be taken into account for reckoning the minimum capital ratio. The risk weighted asset shall be calculated as the weighted aggregate of funded items as detailed hereunder:

Weighted risk assets - On-Balance Sheet items Percentage weight

(i) Cash and bank balances including 0

fixed deposits and certificates of deposits

with banks

(ii) Investments

(a) Approved securities [Except at (c) 0

below]

(b) Bonds of public sector banks 20

deposits/bonds of publicfinancial

institutions

(d) Shares of all companies and

debentures/ bonds/commercial papers 100

of all companies and units of all

mutual funds

(e) All assets covering PPP and post 50

commercialoperationsdate(COD)

infrastructureprojectsin existence

over a year of commercial operation.

(iii) Current assets

(a) Stock on hire (net book value) 100

(b) Intercorporate loans/deposits 100

against deposits held

(d) Loans to staff 0

(e) Other secured loans and advances 100

considered good[Except at (vi) below]

(f) Bills purchased/discounted 100

(g) Others (To be specified) 100

(iv) Fixed Assets (net of depreciation)

(a) Assets leased out (net book value) 100

(b) Premises 100

(v) Other assets

(a) Income tax deducted at source 0

(net of provision)

(b) Advance tax paid (net of provision) 0

securities

(d) Others (to be specified) 100

(vi) Domestic Sovereign

(a) fund based claims on the Central Government 0

(b) Direct loan / credit / overdraft exposure

and investment in State Government securities 0

(d) State Government guaranteed claims,

which have not remained in default / which

are in default for a period not more than 90 days 20

(e) State Government guaranteed claims,

which have remained in default for a period of more

than 90 days 100

Notes:

Netting shall be done only in respect of assets where provisions for depreciation or for bad and doubtful debts have been made.

Assets which have been deducted from owned fund to arrive at net owned fund shall have a weightage of `zero’.

While calculating the aggregate of funded exposure of a borrower for the purpose of assignment of risk weight, NBFC-MFIs shall net off the amount of cash margin/caution money/security deposits (against which right to set-off is available) held as collateral against the advances out of the total outstanding exposure of the borrower.

For loans guaranteed by Credit Risk Guarantee Fund Trust for Low Income Housing (CRGFTLIH), NBFC-MFIs shall assign zero risk weight for the guaranteed portion. The balance outstanding in excess of the guaranteed portion shall attract a risk-weight as mentioned in these Directions.

II. Off-balance sheet items

General

NBFC-MFI shall calculate the total risk weighted off-balance sheet credit exposure as the sum of the risk-weighted amount of the market related and non-market related off-balance sheet items. The risk-weighted amount of an off-balance sheet item that gives rise to credit exposure shall be calculated by means of a two-step process:

the resulting credit equivalent amount shall be multiplied by the risk weight applicable viz. zero percent for exposure to Central Government/State Governments, 20 per cent for exposure to banks and 100 percent for others.

(2) Non-market-related off- balance sheet items

Sr. No. Instruments Credit Conversion Factor

i. Financial & other guarantees 100

ii. Share/debenture underwriting obligations 50

iii. Partly-paid shares/debentures 100

iv. Bills discounted/rediscounted 100

v. Lease contracts entered into but yet to be 100

executed

vi. Sale and repurchase agreement and 100

asset sales with recourse, where the

credit risk remains with the NBFC-MFI.

vii. Forward asset purchases, forward 100

deposits and partly paid shares and

securities, which represent commitments

with certain draw down.

viii. Lending of NBFC securities or posting of 100

securities as collateral by the NBFC-MFI,

including instances where these arise out

of repo style transactions

ix.Other commitments (e.g., formal standby

facilities and credit lines) with an original

maturity of

up to one year20

over one year50

Similar commitments that are 0

unconditionally cancellable at any time by

the NBFC-MFI without prior notice or that

effectivelyprovideforautomatic

cancellation due to deterioration in a

borrower’s credit worthiness

Take-out Finance in the books of taking-over institution

(i) Unconditional take-out finance100

(ii) Conditional take-out finance50

Note: As the counter-party

exposurewilldetermine the

risk weight, it will be 100

percent in respect of all

borrowers or zero percent if

coveredbyGovernment

guarantee.

xii. Commitment to provide liquidity facility for 100

securitizationofstandardasset

transactions

xiii. Second loss credit enhancement for 100

securitizationofstandardasset

transactions provided by third party

xiv. Other contingent liabilities (To be 50

specified)

Note:

Cash margins/ deposits shall be deducted before applying the conversion factor

For example:

A term loan of ₹700 crore is sanctioned for a large project which can be drawn down in stages over a three year period. The terms of sanction allow draw down in three stages – ₹150 crore in Stage I, ₹200 crore in Stage II and ₹350 crore in Stage III, where the borrower needs the NBFC’s explicit approval for draw down under Stages II and III after completion of certain formalities. If the borrower has drawn already ₹ 50 crore under Stage I, then the undrawn portion would be computed with reference to Stage I alone i.e., it will be ₹100 crore. If Stage I is scheduled to be completed within one year, the CCF will be 20 per cent and if it is more than one year then the applicable CCF will be 50 per cent.

Market Related Off-Balance Sheet Items

NBFC-MFIs shall take into account all market related off-balance sheet items (OTC derivatives and Securities Financing Transactions such as repo / reverse repo/ CBLO etc.) while calculating the risk weighted off-balance sheet credit exposures.

The credit risk on market related off-balance sheet items is the cost to an NBFC-MFI of replacing the cash flow specified by the contract in the event of counterparty default. This would depend, among other things, upon the maturity of the contract and on the volatility of rates underlying the type of instrument.

Market related off-balance sheet items shall include:

interest rate contracts - including single currency interest rate swaps, basis swaps, forward rate agreements, and interest rate futures;

foreign exchange contracts, including contracts involving gold,-includes cross currency swaps (including cross currency interest rate swaps), forward foreign exchange contracts, currency futures, currency options;

Credit Default Swaps; and

any other market related contracts specifically allowed by the Bank which give rise to credit risk.

Exemption from capital requirements is permitted for -

foreign exchange (except gold) contracts which have an original maturity of 14 calendar days or less; and

instruments traded on futures and options exchanges which are subject to daily mark-to-market and margin payments.

The total credit exposure to a counter party in respect of derivative transactions shall be calculated according to the current exposure method as explained below.

Current Exposure Method

Credit Conversion Factors for interest rate related, exchange rate related and gold related derivatives Credit Conversion Factors (per cent)

Interest RateExchange Rate

ContractsContracts & Gold

One year or less 0.50 2.00

Over one year to 1.00 10.00

five years

Over five years 3.00 15.0

For contracts with multiple exchanges of principal, the add-on factors are to be multiplied by the number of remaining payments in the contract.

No potential future credit exposure shall be calculated for single currency floating / floating interest rate swaps; the credit exposure on these contracts shall be evaluated solely on the basis of their mark-to-market value.

Potential future exposures shall be based on 'effective' rather than 'apparent notional amounts'. In the event that the 'stated notional amount' is leveraged or enhanced by the structure of the transaction, the 'effective notional amount' must be used for determining potential future exposure. For example, a stated notional amount of USD 1 million with payments based on an internal rate of two times the lending rate of the NBFC-MFI would have an effective notional amount of USD 2 million.

(5) Credit conversion factors for Credit Default Swaps (CDS):

NBFC-MFIs are only permitted to buy credit protection to hedge their credit risk on corporate bonds they hold. The bonds shall be held in current category or permanent category. The capital charge for these exposures shall be as under:

For corporate bonds held in current category and hedged by CDS where there is no mismatch between the CDS and the hedged bond, the credit protection shall be permitted to be recognised to a maximum of 80 per cent of the exposure hedged. Therefore, the NBFC-MFI shall continue to maintain capital charge for the corporate bond to the extent of 20 per cent of the applicable capital charge. This can be achieved by taking the exposure value at 20 per cent of the market value of the bond and then multiplying that with the risk weight of the issuing entity. In addition to this, the bought CDS position shall attract a capital charge for counterparty risk which shall be calculated by applying a credit conversion factor of 100 percent and a risk weight as applicable to the protection seller i.e. 20 per cent for banks and 100 per cent for others.

For corporate bonds held in permanent category and hedged by CDS where there is no mismatch between the CDS and the hedged bond, NBFC-MFIs can recognise full credit protection for the underlying asset and no capital shall be required to be maintained thereon. The exposure shall stand fully substituted by the exposure to the protection seller and attract risk weight as applicable to the protection seller i.e. 20 per cent for banks and 100 per cent for others.

Asset classification and provisioning norms All NBFC-MFIs shall adopt the following norms:

Asset Classification Norms:

Standard asset means the asset in respect of which, no default in repayment of principal or payment of interest is perceived and which does not disclose any problem nor carry more than normal risk attached to the business;

Nonperforming asset means an asset for which, interest/principal payment has remained overdue for a period of 90 days or more.

Provisioning Norms:

For non-performing assets related to microfinance loans of NBFC-MFIs, provisioning norms shall be as below:

The aggregate loan provision to be maintained by NBFC-MFIs at any point of time shall not be less than the higher of (a) 1 per cent of the outstanding loan portfolio or (b) 50 per cent of the aggregate loan instalments which are overdue for more than 90 days and less than 180 days and 100 per cent of the aggregate loan instalments which are overdue for 180 days or more.

If the advance covered by Credit Risk Guarantee Fund Trust for Low Income Housing (CRGFTLIH) guarantee becomes non-performing, no provision need be made towards the guaranteed portion. The amount outstanding in excess of the guaranteed portion shall be provided for as per provisioning norms as mentioned in paragraph 13 of these Directions.

All other provisions contained in Chapter IV of these Directions, where not contradictory to the contents of this paragraph, shall be applicable to NBFC-MFIs.

An NBFC, which does not qualify as an NBFC-MFI shall extend microfinance loans, which in aggregate does not exceed 25 per cent of its total assets.

51. Deleted8

52. Deleted9

53. Deleted

54. Deleted10

Channelizing Agents for Schemes operated by Central/State Government Agencies

NBFC-MFIs acting as Channelizing Agents for Schemes operated by Central/State Government Agencies shall abide by the following guidelines:

loans disbursed or managed by NBFC-MFIs in their capacity as channelizing agents for Central/ State Government Agencies shall be considered as a separate business segment. These loans shall not be included either in the

In view of instructions contained in Master Direction – Reserve Bank of India (Regulatory Framework for Microfinance Loans) Directions, 2022 dated March 14, 2022

numerator (microfinance loans) or the denominator (total assets) for the purpose of determining compliance with the minimum threshold of microfinance loans.

The NBFC-MFIs may act as channelising agents for distribution of loans under special schemes of Central/State Government Agencies subject to following conditions:

accounts and records for such loans as well as funds received/ receivable from concerned agencies shall be maintained in the books of NBFC-MFI distinct from other assets and liabilities, and depicted in the financials/ final accounts/balance sheet with requisite details and disclosures as a separate segment;

such loans shall be subject to applicable asset classification, income recognition and provisioning norms as well as other prudential norms as applicable to NBFC-MFIs except in cases where the NBFC-MFI does not bear any credit risk;

all such loans shall be reported to credit information companies (CICs) to prevent multiple borrowings and present complete picture of indebtedness of a borrower.

Deleted

Geographical Diversification

NBFC-MFIs shall approach their Boards for fixing internal exposure limits to avoid any undesirable concentration in specific geographical locations.

58. Formation of SRO

All NBFC-MFIs shall become member of at least one Self-Regulatory Organization (SRO) which is recognized by the Bank and shall also comply with the Code of Conduct prescribed by the SRO. Further, the SRO holding recognition from the Bank shall have to adhere to a set of functions and responsibilities as mentioned in Annex X. The same may be modified by the Bank from time to time to improve the efficiency of the sector.

59. Monitoring of Compliance

The responsibility for compliance to all regulations prescribed for NBFC- MFIs lies primarily with the NBFC-MFIs themselves. The industry associations/SROs shall also play a key role in ensuring compliance with the regulatory framework. In addition, banks’ lending to NBFC-MFIs shall also ensure that systems, practices and lending policies in NBFC-MFIs are aligned to the regulatory framework.

60. Deleted11

60A. Directions for Microfinance Loans

Applicable NBFCs shall be guided by the Reserve Bank of India (Regulatory Framework for Microfinance Loans) Directions, 2022, as amended from time to time.

Section III: Governance Issues

Chapter - IX

Acquisition / Transfer of Control of Applicable NBFCs

An applicable NBFC, shall require prior written permission of the Bank for the following:

any takeover or acquisition of control of the applicable NBFC, which may or may not result in change of management;

any change in the shareholding of the applicable NBFCs, including progressive increases over time, which would result in acquisition / transfer of shareholding of 26 per cent or more of the paid-up equity capital of the applicable NBFC.

Provided that, prior approval would not be required in case of any shareholding going beyond 26 per cent due to buyback of shares/ reduction in capital where it has approval of a competent Court. The same is to be reported to the Bank not later than one month from its occurrence;

any change in the management of the applicable NBFC which would result in change in more than 30 per cent of the directors, excluding independent directors.

In view of instructions contained in Master Direction – Reserve Bank of India (Regulatory Framework for Microfinance Loans) Directions, 2022 dated March 14, 2022

Provided that, prior approval would not be required in case of directors who get re-elected on retirement by rotation.

Notwithstanding paragraph 61, applicable NBFCs shall continue to inform the Bank regarding any change in their directors / management.

Application for prior approval

Applicable NBFCs shall submit an application, in the company letter head, for obtaining prior approval of the Bank, along with the following documents:

(a) Information about the proposed directors / shareholders as per the Annex XI;

(b) Sources of funds of the proposed shareholders acquiring the shares in the applicable NBFC;

(c) Declaration by the proposed directors/ shareholders that they are not associated with any unincorporated body that is accepting deposits;

(d) Declaration by the proposed directors/ shareholders that they are not associated with any company, the application for CoR of which has been rejected by the Bank;

(e) Declaration by the proposed directors/ shareholders that there is no criminal case, including for offence under section 138 of the Negotiable Instruments Act, against them; and

(f) Bankers' Report on the proposed directors/ shareholders.

Applications in this regard shall be submitted to the Regional Office of the Department of Supervision of the Bank in whose jurisdiction the Registered Office of the applicable NBFC is located.

Requirement of Prior Public Notice about change in control/ management

(1) A public notice of at least 30 days shall be given before effecting the sale of, or transfer of the ownership by sale of shares, or transfer of control, whether with or without sale of shares. Such public notice shall be given by the applicable NBFC and also by the other party or jointly by the parties concerned, after obtaining the prior permission of the Bank.

The public notice shall indicate the intention to sell or transfer ownership/ control, the particulars of transferee and the reasons for such sale or transfer of ownership/ control. The notice shall be published in at least one leading national and in one leading local (covering the place of registered office) vernacular newspaper.

64A. Investment in applicable NBFCs from FATF non-compliant jurisdictions:

NBFCs shall ensure compliance to the instructions as specified in paragraph 5A of these directions.

Section IV: Miscellaneous Issues

Chapter - X

Opening of Branch/ Subsidiary/ Joint Venture/ Representative Office or Undertaking Investment Abroad by NBFCs

The Directions contained in this chapter are in addition to those prescribed by Foreign Exchange Department for overseas investment.

Prior approval of the Bank shall be obtained in cases of opening of branch/ subsidiary/ joint venture/ representative office or undertaking investment abroad by applicable NBFCs No applicable NBFC shall open subsidiaries/ joint ventures/ representative office abroad or shall make investment in any foreign entities without obtaining prior approval in writing from the Bank. The application from the applicable NBFC seeking No Objection would be considered subject to general and specific conditions prescribed in these directions.

General conditions

Investment in non-financial service sectors shall not be permitted;

Direct investment in activities prohibited under FEMA or in sectoral funds shall not be permitted;

Investments shall be permitted only in those entities having their core activity regulated by a financial sector regulator in the host jurisdiction;

The aggregate overseas investment shall not exceed 100 per cent of the NOF. The overseas investment in a single entity, including its step down subsidiaries, by way of equity or fund based commitment shall not be more than 15 per cent of the applicable NBFC’s owned funds;

Overseas investment shall not involve multi layered, cross jurisdictional structures and at most only a single intermediate holding entity shall be permitted;

The CRAR/ Leverage of the applicable NBFCs post investment in subsidiary abroad shall be not less than the regulatory prescriptions;

The applicable NBFC shall continue to maintain required level of NOF after accounting for investment in the proposed subsidiary/investment abroad as prescribed in the explanation to section 45-IA of the RBI Act;

The level of Net Non-Performing Assets of the applicable NBFC shall not be more than 5 per cent of the net advances;

The applicable NBFC shall be earning profit for the last three years and its performance in general shall be satisfactory during the period of its existence;

The applicable NBFC shall comply with the regulations issued under FEMA, 1999 from time to time;

Regulatory compliance and servicing of public deposits, if held by the applicable NBFC, shall be satisfactory;

The applicable NBFC shall comply with the KYC norms;

SPVs set up abroad or acquisition abroad shall be treated as investment or subsidiary/ joint venture abroad, depending upon percentage of investment in overseas entity;

An annual certificate from statutory auditors shall be submitted by the applicable NBFC to the Regional Office of Department of Supervision of the Bank where it is registered, certifying that it has fully complied with all the conditions stipulated under these directions for overseas investment;

If any adverse features come to the notice of the Bank, the permission granted shall be withdrawn. All approvals for investment abroad shall be subject to this condition.

Specific conditions

(1) Opening of Branch

As a general policy, applicable NBFCs shall not be allowed to open a branch abroad. However, applicable NBFCs which have already set up branch(es) abroad for undertaking financial business shall be allowed to continue to operate them subject to complying with the revised directions, as applicable.

(2) Opening of subsidiary abroad by applicable NBFCs

In case of opening of a subsidiary abroad by the applicable NBFC, all the conditions as stipulated above shall be applicable. The NoC to be issued by the Bank is independent of the overseas regulators’ approval process. In addition, the following stipulations are made, which shall be applicable to all applicable NBFCs:

In case of opening of subsidiary abroad, the parent applicable NBFC shall not be permitted to extend implicit or explicit guarantee to or on behalf of such subsidiaries;

No request for letter of comfort in favour of the subsidiary abroad from any institution in India shall be permitted;

It shall be ensured that applicable NBFCs liability in the proposed overseas entity is restricted to its either equity or fund based commitment to the subsidiary;

The subsidiary being established abroad shall not be a shell company i.e "a company that is incorporated, but has no significant assets or operations." However, companies undertaking activities such as financial consultancy and advisory services with no significant assets shall not be considered as shell companies;

The subsidiary being established abroad by the applicable NBFC shall not be used as a vehicle for raising resources for creating assets in India for the Indian operations;

In order to ensure compliance of the provisions, the parent applicable NBFC shall obtain periodical reports/ audit reports about the business undertaken by the subsidiary abroad and shall make them available to the Bank and inspecting officials of the Bank;

If the subsidiary has not undertaken any activity or such reports are not forthcoming, the approvals given for setting up a subsidiary abroad shall be reviewed/ recalled;

The permission granted to any applicable NBFC for setting up of overseas subsidiary shall be subject to condition that the subsidiary shall make disclosure in its Balance Sheet to the effect that liability of the parent entity in the proposed overseas entity shall be limited to its either equity or fund based commitment to the subsidiary;

All the operations of the subsidiary abroad shall be subject to regulatory prescriptions of the host country.

(3) Joint Ventures abroad

Investments abroad, other than in subsidiaries shall also be governed by same guidelines as those applicable to subsidiaries.

(4) Opening of representative offices abroad

The representative office can be set up abroad for the purpose of liaison work, undertaking market study and research but not undertaking any activity which involves outlay of funds, provided it is subject to regulation by a regulator in the host country. As it is not envisaged that such office would be carrying on any activity other than liaison work, no line of credit shall be extended.

The parent NBFC shall obtain periodical reports about the business undertaken by the representative office abroad. If the representative office has not undertaken any activity or such reports are not forthcoming, the approvals given for the purpose shall be reviewed/ recalled.

Chapter - XI

Miscellaneous Instructions

Expansion of activities of applicable NBFC through automatic route Applicable NBFC with Foreign Direct Investment (FDI) under the automatic route shall be permitted to undertake only those activities which are permissible under the automatic route. Diversification into any other activity shall require the prior approval of FIPB. A company which has entered into an area permitted under the FDI policy (such as software) and seeks to diversify into NBFC sector subsequently would also have to ensure compliance with the minimum capitalization norms and other regulations as applicable.

Ratings of applicable NBFCs

All applicable NBFCs with asset size of ₹100 crore and above shall furnish information about downgrading/ upgrading of assigned rating of any financial product issued by them, within fifteen days of such a change in rating, to the Regional Office of the Bank under whose jurisdiction their registered office is functioning.

70. Applicability of Know Your Customer (KYC) Direction, 2016

All applicable NBFCs having customer interface shall follow the Know Your Customer (KYC) Direction, 2016, issued by the Department of Regulation as amended from time to time.

Non- Reckoning of Fixed Deposits with banks as Financial Assets Investments in fixed deposits shall not be treated as financial assets and receipt of interest income on fixed deposits with banks shall not be treated as income from financial assets as these are not covered under the activities mentioned in the definition of “financial Institution” in section 45-I(c) of the RBI Act. Besides, bank deposits constitute near money and can be used only for temporary parking of idle funds, and/or in cases where the funds are parked in fixed deposits initially to fulfil the requirement of registration as NBFC i.e., NOF of ₹200 lakh, till commencement of NBFI business.

Operative instructions relating to relaxation/ modification in Ready Forward Contracts, Settlement of Government Securities Transactions and Sale of securities allotted in Primary Issues

All applicable NBFCs shall follow the guidelines on transactions in Government Securities as given in the circular IDMD.PDRS.05/10.02.01/2003-04 dated March 29, 2004 and IDMD.PDRS.4777, & 4783/10.02.01/2004-05, both dated May 11, 2005 and Repurchase Transactions (Repo) (Reserve Bank) Directions, 2018, dated July 24, 2018, as amended from time to time.

Reporting Platform for Corporate Bond Transactions

With effect from April 01, 2014, all applicable NBFCs should report their secondary market OTC trades in corporate bonds within 15 minutes of the trade on any of the stock exchanges (NSE, BSE and MCX-SX). The provisions of the circular dated IDMD.PCD.10/14.03.06/2013-14 dated February 24, 2014, as amended from time to time, shall be adhered to.

Unsolicited Commercial Communications - National Do Not Call Registry

(1) Applicable NBFCs shall

Not engage Telemarketers (DSAs/ DMAs) who do not have any valid registration certificate from DoT, Govt. of India, as telemarketers; applicable

NBFCs shall engage only those telemarketers who are registered in terms of the guidelines issued by TRAI, from time to time, for all their promotional/ telemarketing activities.

Furnish the list of Telemarketers (DSAs/ DMAs) engaged by them along with the registered telephone numbers being used by them for making telemarketing calls to TRAI; and

Ensure that all agents presently engaged by them register themselves with DoT as telemarketers.

Investment through Alternative Investment Funds - Calculation of NOF of an applicable NBFC

While arriving at the NOF figure, investment made by an applicable NBFC in entities of the same group concerns shall be treated alike, whether the investment is made directly or through an Alternative Investment Fund (AIF)/ Venture Capital Fund (VCF), and when the funds in the VCF have come from the applicable NBFC to the extent of 50per cent or more; or where the beneficial owner, in the case of Trusts is the applicable NBFC, if 50 per cent of the funds in the Trusts are from the concerned applicable NBFC. For this purpose, "beneficial ownership" shall mean holding the power to make or influence decisions in the Trust and being the recipient of benefits arising out of the activities of the Trust. In arriving at the NOF, the substance would take precedence over form.

Treatment of deferred tax assets (DTA) and deferred tax liabilities (DTL) for computation of capital

(1) As creation of DTA or DTL give rise to certain issues impacting the balance sheet of the company, the regulatory treatment to be given to these issues shall be as under:

The balance in DTL account shall not be eligible for inclusion in Tier I or Tier II capital for capital adequacy purpose as it is not an eligible item of capital.

DTA shall be treated as an intangible asset and shall be deducted from Tier I Capital.

In this connection

DTL created by debit to opening balance of Revenue Reserves or to Profit and Loss Account for the current year shall be included under 'others' of "Other Liabilities and Provisions."

DTA created by credit to opening balance of Revenue Reserves or to Profit and Loss account for the current year shall be included under item 'others' of "Other Assets."

Intangible assets and losses in the current period and those brought forward from previous periods shall be deducted from Tier I capital.

DTA computed as under shall be deducted from Tier I capital:

DTA associated with accumulated losses; and

The DTA (excluding DTA associated with accumulated losses) net of DTL. Where the DTL is in excess of the DTA (excluding DTA associated with accumulated losses), the excess shall neither be adjusted against item (i) nor added to Tier I capital.

77. Introduction of Interest Rate Futures

Applicable NBFCs can participate in the designated interest rate futures (IRF) exchanges recognized by SEBI, as clients, subject to adherence to instructions contained in Rupee Interest Rate Derivatives (Reserve Bank) Directions, 2019 dated June 26, 2019, as amended from time to time, for the purpose of hedging their underlying exposures. Applicable NBFCs participating in IRF exchanges shall submit the data in this regard half yearly, in the prescribed format, to the Regional Office of the Department of Supervision of the Bank in whose jurisdiction their company is registered, within a period of one month from the close of the half year.

Finance for Housing Projects - Incorporating clause in the terms and conditions to disclose in pamphlets/ brochures/ advertisements, information regarding mortgage of property to the applicable NBFC

While granting finance to housing/ development projects, applicable NBFC shall also stipulate as a part of the terms and conditions that:

the builder/ developer/ owner/ company shall disclose in the Pamphlets/ Brochures/ advertisements etc., the name(s) of the entity to which the property is mortgaged.

the builder/ developer/ owner/ company shall indicate in the pamphlets/ brochures, that they would provide No Objection Certificate (NOC)/ permission of the mortgagee entity for sale of flats/ property, if required.

Applicable NBFCs shall ensure compliance with the above stipulations and funds shall not be released unless the builder/ developer/ owner/ company fulfil the above requirements.

Loan facilities to the physically/ visually challenged by applicable NBFCs Applicable NBFCs shall not discriminate in extending products and facilities including loan facilities to physically/ visually challenged applicants on grounds of disability. All branches of applicable NBFCs shall render all possible assistance to such persons for availing of the various business facilities. Applicable NBFCs shall include a suitable module containing the rights of persons with disabilities guaranteed to them by the law and international conventions, in all the training programmes conducted for their employees at all levels. Further, applicable NBFCs shall ensure redressal of grievances of persons with disabilities under the Grievance Redressal Mechanism already set up by them.

Participation in Currency Futures

Applicable NBFCs shall participate in the designated currency futures exchanges recognized by SEBI as clients, subject to Bank’s (Foreign Exchange Department) guidelines in the matter, only for the purpose of hedging their underlying forex exposures. Disclosures shall be made in the balance sheet relating to transactions undertaken in the currency futures market, in accordance with the guidelines issued by SEBI.

81. Entry into insurance business

For entry into insurance business applicable NBFCs shall make an application along with necessary particulars duly certified by their statutory auditors to the Regional Office of Department of Supervision of the Bank in whose jurisdiction the registered office of the applicable NBFCs is situated.

Applicable NBFCs shall take up insurance agency business on fee basis and without risk participation, without the approval of the Bank subject to the certain eligibility conditions.

The Detailed Guidelines are as provided for in Annex XII.

82. Issue of Credit Card

Applicable NBFCs registered with the Bank shall not undertake credit card business without prior approval of the Bank. Any company including a non-deposit taking company intending to engage in this activity requires a CoR, apart from specific permission to enter into this business, the pre-requisite for which is a minimum net owned fund of ₹100 crore and subject to such terms and conditions as the Bank may specify in this behalf from time to time. Applicable NBFCs shall not issue debit cards, smart cards, stored value cards, charge cards, etc. Applicable NBFCs shall comply with the instructions issued by Bank to commercial banks vide DBOD.FSD.BC.49/ 24.01.011/ 2005-06 dated November 21, 2005 and as amended from time to time.

83. Issue of Co-branded Credit Cards

Applicable NBFCs registered with the Bank are allowed selectively to issue co-branded credit cards with scheduled commercial banks, without risk sharing, with prior approval of the Bank, for an initial period of two years and a review thereafter. Applicable NBFCs fulfilling the minimum eligibility requirements and adhering to certain stipulations are eligible to apply. The eligibility requirements are as stipulated in Annex XIII.

84. Distribution of Mutual Fund (MF) products

Applicable NBFCs registered with the Bank shall distribute mutual fund products subject to compliance with the SEBI guidelines/ regulations, including its code of conduct, for distribution of mutual fund products. The detailed guidelines are as provided in Annex XIV.

85. Applicable NBFCs not to be partners in partnership firms

No applicable NBFC shall contribute to the capital of a partnership firm or become a partner of such firm.

In this connection;

Partnership firms shall also include Limited Liability Partnerships (LLPs).

The aforesaid prohibition shall also be applicable in respect of Association of

persons, these being similar in nature to partnership firms

Applicable NBFCs which had already contributed to the capital of a partnership firm/ LLP/ Association of persons or are a partner of a partnership firm/ LLP or member of

an Association of persons shall seek early retirement from the partnership firm/ LLP/ Association of persons.

Submission of data to Credit Information Companies (CICs) - Format of data to be submitted by Credit Institutions

(1) All applicable NBFCs (other than those which are purely into investment activities without any customer interface) shall become member of all CICs and submit data (including historical data) to them.

(2) In terms of sub-sections (1) and (2) of section 17 of the Credit Information Companies (Regulation) Act, 2005, a credit information company may require its members to furnish credit information as it may deem necessary in accordance with the provisions of the Credit Information Companies (Regulation) Act, 2005 and every such credit institution has to provide the required information to that credit information company. In terms of Regulation 10(a)(ii) of the Credit Information Companies Regulations, 2006, every credit institution shall:

keep the credit information maintained by it, updated regularly on a monthly basis or at such shorter intervals as mutually agreed upon between the credit institution and the credit information company; and

take all such steps which may be necessary to ensure that the credit information furnished by it, is update, accurate and complete.

Data Format for Furnishing of Credit Information to Credit Information Companies and other Regulatory Measures

All applicable NBFCs shall comply with the instructions contained in the Bank’s circular DBOD.No.CID.BC.127/20.16.056/2013-14 dated June 27, 2014, amended from time to time; laying down instructions regarding the following:

Creating Awareness about Credit Information Report (CIR);

Usage of CIR in all Lending Decisions and Account Opening;

Populating Commercial Data Records in Databases of all CICs;

Standardisation of Data Format;

Constitution of a Technical Working Group;

Process of Rectification of Rejected Data;

Determining Data Quality Index;

Calibration of Credit Score and Standardising Format of CIR;

Best practices for Banks/FIs.

Applicable NBFCs shall comply with the provisions contained in the circular DoR.FIN.REC.59/20.16.056/2021-22 dated October 14, 2021 on ‘Data Format for Furnishing of Credit Information to Credit Information Companies’.

Applicable NBFCs shall comply with the directive issued under CICRA Sec 11(1) by the Bank vide DBR.No.CID.BC.59/20.16.056/2014-15 dated January 15, 2015.

88. Implementation of Green Initiative of the Government

All Applicable NBFCs shall take proactive steps for increasing the use of electronic payment systems, elimination of post-dated cheques and gradual phase-out of cheques in their day-to-day business transactions which would result in more cost-effective transactions and faster and accurate settlements.

89. Attempt to defraud using fake bank guarantee- Modus Operandi

Instances of fraud have been brought to the notice of the RBI wherein Bank Guarantees (BGs) purportedly issued by a couple of bank branches in favour of different entities were presented for confirmation by other commercial banks/ individuals representing some beneficiary firms. The BGs were submitted along with Confirmation Advice/ Advice of Acceptance. One of the beneficiaries was the reporting banks customer. The remaining beneficiaries and applicants were neither the customers of the bank nor were they known to the bank branch officials.

A scrutiny of the said BG revealed that these bank guarantees were fake and the signatures of the bank officials appearing on the BG were forged. The bank branches purported to have issued the BGs also confirmed that they had not issued the same. Even the format of the BGs and their serial numbers did not match with that of the bank.

Applicable NBFCs shall take notice of the above facts in order to exercise due caution while handling such cases.

90. Credit Default Swaps (CDS) – Applicable NBFCs as Users

Applicable NBFCs shall only participate in CDS market as users. As users, they shall buy credit protection only to hedge their credit risk on corporate bonds they hold. They shall not sell protection and hence shall not enter into short positions in the CDS contracts. They shall exit their bought CDS positions by unwinding them

with the original counterparty or by assigning them in favour of buyer of the underlying bond.

Apart from complying with all the provisions above, applicable NBFCs shall, as users, also ensure that the guidelines enclosed including operational requirements for CDS as provided in Annex XV, are fulfilled by them.

Securitisation of Standard Assets and Transfer of Loan Exposures Applicable NBFCs shall ensure compliance with the instructions contained in Master Direction – Reserve Bank of India (Securitisation of Standard Assets) Directions, 2021 and Master Direction – Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021, both dated September 24, 2021 on matters related to securitisation of standard assets and transfer of loan exposures.

Deleted

Raising Money through Private Placement by applicable NBFCs-Debentures etc.

Applicable NBFCs shall follow the guidelines on private placement of Non-Convertible Debentures (NCDs) given in Annex XVII. The provisions of Companies Act, 2013 and Rules framed thereunder shall be applicable wherever not contradictory.

Filing of records of mortgages with the Central Registry

Applicable NBFCs shall file and register the records of equitable mortgages created in their favour on or after March 31, 2011 with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) and shall also register the records with the Central Registry as and when equitable mortgages are created in their favour. Applicable NBFCs shall register all types of mortgages with CERSAI.

Early Recognition of Financial Distress, Prompt Steps for Resolution and Fair Recovery for Lenders: Framework for Revitalizing Distressed Assets in the Economy

Framework for Revitalizing Distressed Assets in the Economy (Framework) as provided for in Annex XVIII shall apply to all NBFC-Factors. The Department of Regulation, of the Bank has made certain modifications to the Framework vide

circulars dated October 21, 2014, December 22, 2014, June 8, 2015, September 24, 2015 and February 25, 2016.The modifications in the Framework made vide the above mentioned circulars shall also apply, mutatis mutandis, to applicable NBFCs.

96. Rounding off transactions to the Nearest Rupee by applicable NBFCs

All transactions of applicable NBFCs, including payment of interest on deposits/ charging of interest on advances, shall be rounded off to the nearest rupee, i.e. fractions of 50 paise and above shall be rounded off to the next higher rupee and fractions of less than 50 paise shall be ignored. It shall be ensured that cheques/ drafts issued by clients containing fractions of a rupee shall not be rejected by them.

Appointment of Non-Deposit Accepting applicable NBFCs as sub- agents under Money Transfer Service Schemes (MTSS)

Applicable NBFCs may act as sub-agents under MTSS without any prior approval of the Bank.

Provision of Safe Deposit Locker Facility by applicable NBFCs

Providing safe deposit locker facility is a fee-based service and shall not be reckoned as part of the financial business carried out by applicable NBFCs. Applicable NBFCs offering safe deposit locker facility or intending to offer it, shall disclose to their customers that the activity is not regulated by the Bank.

Undertaking of Point of Presence (PoP) Services under Pension Fund Regulatory and Development Authority for National Pension System (NPS) Applicable NBFCs shall not undertake Point of Presence (PoP) services for National Pension System (NPS) under Pension Fund Regulatory and Development Authority.

Criteria for deciding NBFC-ND-SI status

Once an NBFC reaches an asset size of ₹500 crore or above, it shall be subject to the regulatory requirements as per Non-Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016, despite not having such assets as on the date of last balance sheet. All such non-deposit taking NBFCs shall comply with the regulations/directions issued to NBFC-ND-SI from time to time, as and when they attain an asset size of ₹500 crore, irrespective of the date on which such size is attained.

In a dynamic environment, the asset size of a company can fall below ₹ 500 crore in a given month, which may be due to temporary fluctuations and not due to actual downsizing. In such a case the company shall continue to meet the reporting requirements and shall comply with the extant directions as applicable to NBFC-ND-SI, till the submission of its next audited balance sheet to the Bank and a specific dispensation from the Bank in this regard.

Need for public notice before Closure of the Branch/ Office by applicable

NBFC

Applicable NBFCs shall give at least three months public notice prior to the date of closure of any of its branches / offices in, at least, one leading national newspaper and a leading local (covering the place of branch / office) vernacular newspaper indicating therein the purpose and arrangements being made to service the depositors etc.

Migration of Post-dated cheques (PDC)/ Equated Monthly Instalment (EMI) Cheques to Electronic Clearing Service (Debit)

Considering the protection available under section 25 of the Payment and Settlement Systems Act, 2007 which accords the same rights and remedies to the payee (beneficiary) against dishonour of electronic funds transfer instructions on grounds of insufficiency of funds as are available under section 138 of the Negotiable Instruments Act, 1881, there shall be no need for applicable NBFCs to take additional cheques, if any, from customers in addition to ECS (Debit) mandates. Cheques complying with CTS-2010 standard formats shall alone be obtained in locations, where the facility of ECS/ RECS is not available.

Refinancing of Project Loans

Applicable NBFCs are allowed to refinance any existing infrastructure and other project loans by way of take-out financing, without a pre-determined agreement with other lenders, and fix a longer repayment period, the same shall not be considered as restructuring if the following conditions are satisfied:

Such loans shall be 'standard' in the books of the existing lenders, and shall have not been restructured in the past;

Such loans shall be substantially taken over (more than 50 per cent of the outstanding loan by value) from the existing financing lenders; and

The repayment period shall be fixed by taking into account the life cycle of the project and cash flows from the project.

For existing project loans where the aggregate exposure of all institutional lenders is minimum ₹1,000 crore, applicable NBFCs may refinance such loans by way of full or partial take-out financing, even without a pre-determined agreement with other lenders, and fix a longer repayment period, and the same shall not be considered as restructuring in the books of the existing as well as taking over lenders, if the following conditions are satisfied:

The project shall have started commercial operation after achieving Date of Commencement of Commercial Operation (DCCO);

The repayment period shall be fixed by taking into account the life cycle of and cash flows from the project, and Boards of the existing and new lenders shall be satisfied with the viability of the project. Further, the total repayment period shall not exceed 85 per cent of the initial economic life of the project / concession period in the case of PPP projects;

Such loans shall be 'standard' in the books of the existing lenders at the time of the refinancing;

In case of partial take-out, a significant amount of the loan (a minimum 25% of the outstanding loan by value) shall be taken over by a new set of lenders from the existing financing lenders; and

The promoters shall bring in additional equity, if required, so as to reduce the debt to make the current debt-equity ratio and Debt Service Coverage Ratio (DSCR) of the project loan acceptable to the applicable NBFCs.

A lender who has extended only working capital finance for a project shall be treated as 'new lender' for taking over a part of the project term loan as required under the guidelines.

The above facility shall be available only once during the life of the existing project loans.

Guidelines for Relief Measures by NBFCs in areas affected by Natural Calamities

The Bank has issued guidelines to banks in regard to matters relating to relief measures to be provided in areas affected by natural calamities vide Master Direction – Reserve Bank of India (Relief Measures by Banks in Areas affected by Natural Calamities) Directions 2018 – SCBs dated October 17, 2018. These guidelines shall be mutatis mutandis, applicable, to NBFCs, in areas affected by natural calamities as identified for implementation of suitable relief measures by the institutional framework viz., District Consultative Committee/ State Level Bankers' Committee.

Disbursal of loan amount in cash

Every NBFC shall ensure compliance with the requirements under sections 269SS and 269T of the Income Tax Act, 1961, as amended from time to time.

Managing Risks and Code of Conduct in Outsourcing of Financial Services by NBFCs

NBFCs shall conduct a self-assessment of their existing outsourcing arrangements and bring these in line with the directions as provided at Annex XIX.

106A. Loans Sourced by NBFCs over Digital Lending Platforms: Adherence to Fair Practices Code and Outsourcing Guidelines

Many digital platforms have emerged in the financial sector claiming to offer hassle free loans to retail individuals, small traders, and other borrowers. NBFCs are also seen to be engaging digital platforms to provide loans to their customers. In addition, some NBFCs have been registered with Reserve Bank as ‘digital-only’ lending entities while some NBFCs are registered to work both on digital and brick-mortar channels of credit delivery. Thus, NBFCs are observed to lend either directly through their own digital platforms or through a digital lending platform under an outsourcing arrangement. Such digital platforms, on several occasions tend to portray themselves as lenders without disclosing the name of the NBFC at the backend, as a consequence of which, customers are not able to access grievance

redressal avenues available under the regulatory framework. Of late, there are several complaints against the lending platforms which primarily relate to exorbitant interest rates, non-transparent methods to calculate interest, harsh recovery measures, unauthorised use of personal data and bad behaviour.

Although digital delivery in credit intermediation is a welcome development, concerns emanate from non-transparency of transactions and violation of extant guidelines on outsourcing of financial services and Fair Practices Code, etc. issued to NBFCs. It is, therefore, reiterated that NBFCs, irrespective of whether they lend through their own digital lending platform or through an outsourced lending platform, must adhere to the Fair Practices Code guidelines in letter and spirit. They must also meticulously follow regulatory instructions on outsourcing of financial services and IT services.

It must be noted that outsourcing of any activity by NBFCs does not diminish their obligations, as the onus of compliance with regulatory instructions rests solely with them. Wherever NBFCs engage digital lending platforms as their agents to source borrowers and/ or to recover dues, they must follow the following instructions:

(a) Names of digital lending platforms engaged as agents shall be disclosed on the website of NBFCs.

(b) Digital lending platforms engaged as agents shall be directed to disclose upfront to the customer, the name of the NBFC on whose behalf they are interacting with him.

(c) Immediately after sanction but before execution of the loan agreement, the sanction letter shall be issued to the borrower on the letter head of the NBFC concerned.

d) A copy of the loan agreement along with a copy each of all enclosures quoted in the loan agreement shall be furnished to all borrowers at the time of sanction/ disbursement of loans.

e) Effective oversight and monitoring shall be ensured over the digital lending platforms engaged by the NBFCs.

f) Adequate efforts shall be made towards creation of awareness about the grievance redressal mechanism.

Any violation in this regard by NBFCs (including NBFCs registered to operate on ‘digital-only’ or on digital and brick-mortar channels of delivery of credit) will be viewed seriously.

Technical Specifications for all participants of the Account Aggregator ecosystem

The NBFC-Account Aggregator (AA) consolidates financial information, as defined in para 3(1)ix of Master Direction- Non-Banking Financial Company - Account Aggregator (Reserve Bank) Directions, 2016, of a customer held with different financial entities, spread across financial sector regulators adopting different IT systems and interfaces. In order to ensure that such movement of data is secured, duly authorised, smooth and seamless, it has been decided to put in place a set of core technical specifications for the participants of the AA ecosystem. Reserve Bank Information Technology Private Limited (ReBIT), has framed these specifications and published the same on its website (www.rebit.org.in).

Applicable NBFCs acting either as Financial Information Providers (FIP)12 or Financial Information Users (FIU) are expected to adopt the technical specifications published by ReBIT, as updated from time to time.

Chapter - XII

Reporting Requirements

The reporting requirements as prescribed by Department of Supervision shall be adhered to by all applicable NBFCs.

Chapter – XIII

Interpretations

For the purpose of giving effect to the provisions of these Directions, the Bank may, if it considers necessary, issue necessary clarifications in respect of any matter covered herein and the interpretation of any provision of these Directions given by the Bank shall be final and binding on all the parties concerned. Violation of these directions shall invite penal action under the provisions of RBI Act. Further, these provisions shall be in addition to, and not in derogation of the provisions of any other laws, rules, regulations or directions, for the time being in force.

The definitions of FIP and FIU are as per the Master Direction- Non-Banking Financial Company - Account Aggregator (Reserve Bank) Directions, 2016, as amended from time to time.

Chapter - XIV

Repeal Provisions

With the issue of the directions, the instructions/ guidelines contained in the following circulars issued by the Bank stand repealed (list as provided below). All approvals/ acknowledgements given under the above circulars shall be deemed as given under these directions. Notwithstanding such repeal, any action taken/ purported to have been taken or initiated under the instructions/ guidelines having repealed shall continue to be guided by the provisions of said instructions/ guidelines.

Sr.Circular No.DateSubject

No.

1 Notification

December 18,NBFCPrudentialNorms(Reserve

No.DNBS.128/CGM(VSNM)-

1998Bank) Directions, 1998

2 DNBS.(PD).CC.No. 11

November 15,Amendments to NBFC Regulations

/02.01/99-2000

1999

3 Notification No.

January 13,NBFCPrudentialNorms(Reserve

DNBS.135/CGM(VSNM)-

2000Bank) Directions, 1998

2000

4 Notification June 30, NBFC Prudential Norms (Reserve

DNBS.142/CGM(VSNM)-2000Bank) Directions, 1998

2000

5 DNBS(PD).CC.No.15/02.01/2

June 27, Asset Liability Management (ALM)

000-2001

2001System for NBFCs - Guidelines

6 DNBS.(PD).CC.No.16/02.01/

June 27,Amendments to NBFC Regulations

2000-01

2001

7 DNBS (PD) C.C.

February 10, Entry of NBFCs into Insurance

No.35/10.24/2003

-04

2004Business

8 DNBS (PD) CC No. 38

June 11, Transactions in Government

/02.02/2003-04

2004Securities

9 DNBS (PD) C.C.

July 7, 2004Issue of credit card

No.41/10.27/2004

-05

10 DNBS (PD) CC No.49

June 9, 2005 Operative instructions relating to

/02.02/2004-05

relaxation/modificationinReady

ForwardContracts, Settlementof

Government Securities Transactions

and Sale of securities allotted in

Primary Issues

11 DNBS.(PD).C.C.No.63/02.02/

January 24, Prior Public Notice About Change in

2005-06

2006Control / Management

12 DNBS (PD) CC

September Guidelines on Fair Practices Code

28, 2006forNon-BankingFinancial

No.80/03.10.042/2005-06

Companies

Sr.Circular No.DateSubject

No.

13 DNBS (PD) CC No. 82 /

October 27, Prior Public Notice about change in

03.02.02 / 2006-07

2006control / management

14 DNBS (PD) CC No.

December 04, Issue of Co-branded Credit Cards

2006

83/03.10.27/2006-07

15 DNBS (PD) CC No.

December 4, Distribution of Mutual Fund products

2006by NBFCs

84/03.10.27/2006-07

16 DNBS.PD/ CC.

December 12, Financial Regulation of Systemically

2006ImportantNBFCsandBanks’

No.86/03.02.089/2006-07

Relationship with them – for NBFCs’

17 DNBS.PD/ CC. No.

February 22, Prudential Norms Directions –

89/03.05.002 /2006

-07

2007Deposit taking and Non-deposit

takingNon-BankingFinancial

Companies (NBFCs)

18 DNBS.PD/CC.No.95/03.05.0

May 24, 2007 Complaints about excessive interest

02/2006-07

charged by NBFCs

19 DNBS.PD/CC.104/03.10.042/

July 11, 2007 Guidelines on Corporate Governance

2007-08

20 DNBS.PD/ C.C. No. 96/

July 31, 2007 NBFCs - FIMMDA Reporting

03.10.001/2007-08

PlatformforCorporateBond

Transactions

21 DNBS.PD/CC.No.107/03.10.

October 10, Guidelines on Fair Practices Code

042/2007-08

2007forNon-BankingFinancial

Companies

22 DNBS.PD/ C.C

November 26, Unsolicited Commercial

2007Communications - National Do Not

No.109/03.10.001/2007-08

Call Registry

23 DNBS (PD) C.C. No. 124/

July 31, 2008 Accounting for taxes on income-

03.05.002/ 2008-09

Accounting Standard 22- Treatment

of deferred tax assets (DTA) and

deferred tax liabilities (DTL) for

computation of capital

24 DNBS (PD). CC.

August 1, Guidelines for NBFC-ND-SI as

2008regardscapitaladequacy,liquidity

No.125/03.05.002/2008-2009

and disclosure norms

25 DNBS.PD. CC No. 128 /

SeptemberReclassification of NBFCs

03.02.059 /2008-09

15, 2008

26 DNBS (PD)

January 2, Regulation of excessive interest

2009charged by NBFCs

C.C.No.133/03.10.001/2008-

27 DNBS (PD) CC.

February 04,Ratings of NBFCs

2009

No.134/03.10.001/2008-2009

28 DNBS (PD)

April 24, 2009 Clarification regarding repossession

of vehicles financed by NBFCs

CC.No.139/03.10.001/2008-

29 DNBS (PD) CC.

June 4, 2009 Applicability of NBFCs-ND-SI

regulations

No.141/03.10.001/2008-09

Sr.Circular No.DateSubject

No.

30 DNBS.PD/ CC.No. 142 /

June 9, 2009NBFCs - Treatment of Deferred Tax

03.05.002 /2008-09

Assets/Deferred TaxLiabilitiesfor

Computation of Capital

31 DNBS.PD.CC.No.161/3.10.0

SeptemberIntroduction of Interest Rate Futures-

1/ 2009-10

18, 2009NBFCs

32 DNBS.PD/CC.No.165/03.05.

December 1,Capital Adequacy - Risk weightage

002/2009-10

2009on LendingthroughCollateralized

BorrowingandLendingObligation

(CBLO)

33 DNBS.PD. CC

February 12,Infrastructure Finance Companies

No.168/03.02.089

/2009-10

2010

34 DNBS (PD).CC.

May 03, 2010Overseas Investment by NBFCs- No

No.173/03.10.01

/2009-10

Objection (NoC) from DNBS, RBI

35 DNBS (PD) C.C No. 174

May 6, 2010Finance for Housing Projects –

/03.10.001/2009-10

Incorporating clause in the terms and

conditionstodisclosein

pamphlets/brochures/advertisements

, information regarding mortgage of

property to the NBFC

36 DNBS.CC.PD.No.

July 27, 2010Loan facilities to the physically /

191/03.10.01/2010

-11

visually challenged by NBFCs

37 DNBS (PD) CC No. 195 /

August 9,Participation in Currency Futures

03.10.001/ 2010-11

2010

38 DNBS.(PD).CC. No. 200

SeptemberSubmission of data to Credit

/03.10.001/2010-11

17, 2010InformationCompaniesFormatof

data to be submitted by Credit

Institutions

39 Notification No.

January 5,Non-Banking Financial (Non-Deposit

DNBS.(PD).219/CGM(US)-

2011AcceptingorHolding)Companies

2011

PrudentialNorms (Reserve Bank)

Directions, 2007

40 DNBS.CC.PD.No.208/03.10.

January 27,Services to Persons with Disability -

01/2010-11

2011Training Programme for Employees

41 DNBS (PD) CC.

March 16,AmendmenttoDefinitionof

2011Infrastructure Loan

No.213/03.10.001/2010-2011

42 DNBS.PD/ CC.NO.

March 30,NBFCs not to be Partners in

214/03.02.002/2010

-11

2011Partnership firms

43 DNBS.PD.CC.No.221/03.02.

May 27, 2011Review of Guidelines on entry of

002/2010-11

NBFCs into Insurance Business

44 DNBS (PD) CC.No.

June 14,OpeningofBranch/Subsidiary/Joint

222/03.10.001/2010

-11

2011Venture/RepresentativeOfficeor

UndertakingInvestmentAbroadby

NBFCs

45 DNBS(PD).CC. No.245

September 27Attempt to defraud using fake bank

/03.10.42 /2011-12

, 2011guarantee-modus operandi

46 DNBS(PD).CC. No

October 28 ,Implementation of Green Initiative of

248/03.10.01 /2011

-12

2011the Government

Sr.Circular No.DateSubject

No.

47 DNBS.CC.PD.No.

December 02, Introduction of New Category of

250/03.10.01/2011

-12

2011NBFCs - ‘Non Banking Financial

Company-Micro Finance Institutions’

(NBFC-MFIs) - Directions

48 DNBS.CC.PD.No.255/03.10.

December 30, Issuance of Non-Convertible

01/2011-12

2011Debentures (NCDs)

49 DNBS (PD)CC.No.259

March 15, Non- Reckoning Fixed Deposits with

/03.02.59/2011-12

2012Banks as Financial Assets

50 DNBS.PD/

March 20, Non Banking Financial Company-

2012Micro Finance Institutions (NBFC-

CC.No.263/03.10.038 /2011-

MFIs) - Provisioning Norms-

Extension of time

51 DNBS.CC.PD.No.265/03.10.

March 21, NBFCs - Lending Against Security of

01/2011-12

2012Single Product – Gold Jewellery

52 DNBS.CC.PD.No266/03.10.0

March 26, Guidelines on Fair Practices Code

1/2011-12

2012for NBFCs

53 DNBS.PD.CC.No.273/03.10.

May 11, 2012 Prudential Norms Directions, 2007 -

01/2011-12

Infrastructure Finance Companies -

Eligible Credit Rating Agencies -

Brickwork Ratings India Pvt. Ltd.

(Brickwork)

54 DNBS.PD.CC.No.276/03.02.

May 30, 2012 Uniformity in Risk weight for Assets

089/2011-12

Covering PPP and Post COD

Projects

55 DNBS(PD)CC.No.297/Factor/

July 23, 2012 The Non-Banking Financial

22.10.91/2012-13

Company–Factors(Reserve Bank)

Directions, 2012

56 Notification

August 1, Revised Capital Adequacy

No.DNBS(PD)

.249/CGM

2012 Framework for Off-Balance sheet

(US) -2012

items for NBFCs - Clarifications

57 DNBS (PD)

August 03 , Non Banking Financial Company-

2012Micro Finance Institutions (NBFC-

CC.No.300/03.10.038/2012-

MFIs) – Directions – Modifications

58 DNBS. PD. No.

August 21, Revisions to the Guidelines on

301/3.10.01/2012

-13

2012Securitisation Transactions

59 DNBS (PD) CC. No.303/

September The Non-Banking Financial

Factor / 22.10.91/ 2012-

14, 2012Company–Factors(Reserve Bank)

Directions, 2012

60 DNBS.PD/CC.NO.308/03.10.

November 06, Standardisation and Enhancement of

001/2012-13

2012Security Features in Cheque Forms -

Migrating to CTS 2010 Standards

61 DNBS(Inf.).CC. No

November 08, Readiness of major service providers

309/24.01.022/2012

-13

2012to migrate from IPv4 to IPv6

62 DNBS.CC.PD.No.

December 07, Checklist for NBFCs, Non Banking

312/03.10.01/2012

-13

2012Financial Company-Micro Finance

Institutions, Non BankingFinancial

Company-Factoring Institutions and

Core Investment Companies

63 DNBS.PD.CC.No.

December 28, Definition of 'Infrastructure Loan' of

317/03.10.001/2012

-13

2012NBFCs - Harmonisation

Sr.Circular No.DateSubject

No.

64 DNBS.CC.PD.No.320/03.10.

February 18, Guidelines on Fair Practices Code

01/2012-13

2013for NBFCs – Grievance Redressal

Mechanism - Nodal Officer

65 DNBS.CC.PD.No.326/03.10.

May 27, 2013 NBFCs finance for Purchase of Gold

01/2012-13

66 DNBS.(PD).CC.No.327/03.10

May 31, 2013 ‘Non Banking Financial Company-

.038/2012-13

Micro Finance Institutions’ (NBFC-

MFIs) – Directions – Modifications in

Pricing of Credit - Margin cap

67 DNBS.PD/CC.No.

June 11, NBFCs not to be Partners in

328/03.02.002/2012

-13

2013Partnership Firms - Clarifications

68 DNBS (PD) CC No. 353/

July 26, 2013 Unsolicited Commercial

03.10.042/2013-14

Communication- National Do Not

Call Registry

69 DNBS.PD.CC.No.354/03.10.

August 2, Financing of Infrastructure -

001/2013-14

2013Definition of 'Infrastructure Lending'

70 DNBS.CC.PD.No.356

September Lending Against Security of Single

/03.10.01/2013-14

16, 2013Product – Gold Jewellery

71 DNBS.PD/CC.No

November 06, Migration of Post-dated cheques

359/03.10.001/2013

-14

2013(PDC)/EquatedMonthlyInstalment

(EMI) Cheques to Electronic Clearing

Service (Debit)

72 DNBS.(PD).CC.No

November 12, Filing of records of equitable

360/03.10.001/2013

-14

2013mortgages with the Central Registry

73 DNBS.PD.CC.No

November 28, Participation of NBFCs in Insurance

361/03.02.002/2013

-14

2013sector

74 DNBS.PD.CC.No.

November 29, Financing of Infrastructure -

362/03.10.001/2013

-14

2013Definition of 'Infrastructure Lending'

75 DNBS.PD.363/03.10.38/2013

January 1, Advances guaranteed by Credit Risk

-14

2014Guarantee Fund Trust for Low

Income Housing (CRGFTLIH) – Risk

Weights and Provisioning

76 DNBS.CC.PD.No.

January 08, Lending Against Security of Single

365/03.10.01/2013

-14

2014Product – Gold Jewellery

77 DNBS.CO.PD.No

January 23, Review of Guidelines on

367/03.10.01/2013

-14

2014Restructuring of Advances by NBFCs

78 DNBS (PD)

February 07, ‘Non-Banking Financial Company-

2014Micro Finance Institutions’ (NBFC-

CC.No.369/03.10.038/2012-

MFIs) – Directions – Modifications in

“Pricing of Credit”

79 DNBS (PD)

March 21, Early Recognition of Financial

2014Distress,PromptStepsfor

CC.No.371/03.05.02/2013-14

Resolution and Fair Recovery for

Lenders: Framework for Revitalising

Distressed Assets in the Economy

80 DNBS. PD. No.

March 24, Revision to the Guidelines on

372/3.10.01/2013

-14

2014Securitisation Transactions - Reset

of Credit Enhancement

Sr.Circular No.DateSubject

No.

81 DNBS (PD)

April 07, 2014InvestmentthroughAlternative

CC.No.373/03.10.01/2013-14

Investment Funds – Clarification on

Calculation of NOF of an NBFC

82 DNBS (PD).CC.No.

April 07, 2014 Registration of Non-Operative

374/03.10.001/2013

-14

FinancialHoldingCompanies

(NOFHCs)

83 DNBS (PD)

May 26, 2014Requirementforobtainingprior

CC.No.376/03.10.001/2013-

approval of RBI in cases of

acquisition/ transfer of control of

NBFCs

84 DNBS.CC.PD.No.377/03.10.

May 27, 2014 Rounding off transactions to the

01/2013-14

Nearest Rupee by NBFCs

85 DNBS(PD).CC.No.399/03.10.

July 14, 2014 Levy of foreclosure charges/pre-

42/2014-15

payment penalty on Floating Rate

Loans

86 DNBS.CC.PD.No.

August 12, Appointment of Non-Deposit

405/03.10.01/2014

-15

2014Accepting NBFCs with asset size of

₹100 crore and above as sub -

agentsunderMoney Transfer

Service Schemes (MTSS)

87 DNBS.CC.PD.No.406/03.10.

August 12,Interest Rate Futures - NBFCs

01/2014-15

2014

88 DNBS (PD).CC. No

August 20, Data Format for Furnishing of Credit

407/03.10.42 /2014

-15

2014InformationtoCreditInformation

Companies(CICs)andother

Regulatory Measures

89 DNBS (PD).CC.No. 408

August 21, NBFCs- Lending against Shares

/03.10.001/2014-15

2014

90 DNBR (PD) CC.

November 10,RevisedRegulatory Framework for

No.002/03.10.001/2014-15

2014NBFC

91 DNBR (PD) CC.No.

November 10, Review of the Non-Banking Financial

003/22.10.91/2014-

2014Company – Factors (Reserve Bank)

Directions, 2012

92 DNBR.CO.PD.No.011/03.10.

January 16, Review of Guidelines on

01/2014-15

2015Restructuring of Advances by NBFCs

93 DNBR.PD.CC.No.012/03.10.

January 19, Flexible Structuring of Long Term

001/2014-15

2015Project Loans to Infrastructure and

Core Industries

94 DNBR.(PD).CC.No.015/03.10

January 28, Submission of Data to Credit

.001/2014-15

2015Information Companies - Format of

Data to be submitted by Credit

Institutions

95 DNBR.(PD).CC.No.019/03.10

February 06, Membership of Credit Information

.001/2014-15

2015Companies (CICs)

96 DNBR (PD) CC

February 20,RaisingMoneythroughPrivate

No.021/03.10.001/2014-15

2015 Placement of Non-Convertible

Debentures (NCDs) by NBFCs

97 Notification

MarchNon-Systemically Important Non-

No.DNBR.008/CGM.(CDS)-

27,2015 Banking Financial (Non-Deposit

2015

Acceptingor Holding)Companies

PrudentialNorms(ReserveBank)

Directions, 2015

Sr.Circular No.DateSubject

No.

98 DNBR.012/CGM.(CDS)-2015

March Non-Banking Financial Company -

27,2015Factor(ReserveBank)Directions,

2012 (Amendment)

99 DNBR.CC.PD.No.027/03.10.

April 08, 2015 Non-Banking Financial Company-

01/2014-15

Micro Finance Institutions (NBFC-

MFIs) – Directions – Modifications

100 DNBR

April 10, 2015 NBFCs- Lending against Shares –

(PD)

.CC.No.028/03.10.001/2

Clarification

014-15

101 DNBR. (PD).CC.No.

April 30, 2015 Distribution of Mutual Fund products

by NBFCs

033/03.10.001/2014-15

102 DNBR.CC.PD.No.036/03.10.

May 21, 2015 Lending against security of single

01/2014-15

product - Gold Jewellery

103 DNBR.CC.PD.No.041/03.10.

June 25, Appointment of Non-Deposit

01/2014-15

2015Accepting NBFCs with asset size of

₹ 100 crore and above as sub-

agentsunderMoneyTransfer

Service Schemes (MTSS)

104 DNBR (PD) CC.No.

July 09, 2015 Requirement for obtaining prior

065/03.10.001/2015

-16

approval of RBI in cases of

acquisition/transferofcontrol of

Non-Banking Financial Companies

(NBFCs)

105 DNBR.CC.PD.No.066/03.10.

July 23, 2015 Early Recognition of Financial

01/2015-16

Distress,PromptStepsfor

Resolution and Fair Recovery for

Lenders: Framework for Revitalising

Distressed Assets in the Economy -

Review of the Guidelines on Joint

Lenders' Forum (JLF) and Corrective

Action Plan (CAP)

106 DNBR.CO.PD.No.

July 30, 2015 Review of Guidelines on

067/03.10.01/2015

-16

Restructuring of Advances by NBFCs

107 DNBR.CC.PD.No. 069/

October 01, Non Banking Financial Company-

03.10.01/ 2015-16

2015Micro Finance Institutions (NBFC-

MFIs) – Directions – Modifications

108 DNBR.CC.PD.No.

October 29, Early Recognition of Financial

070/03.10.01/2015

-16

2015Distress,PromptStepsfor

Resolution and Fair Recovery for

Lenders: Framework for Revitalising

Distressed Assets in the Economy -

Review of the Guidelines on Joint

Lenders' Forum (JLF) and Corrective

Action Plan (CAP)

109 DNBR.CC.PD.No.

November 26, Non-Banking Financial Company-

071/03.10.038/2015

-16

2015Micro Finance Institutions (NBFC-

MFIs)– DirectionsDNBS.PD.No.

234/CGM(US)-2011dated

December2,2011and

DNBR.CC.PD.No.

027/03.10.01/2014-15 dated April 08,

2015 – Revision of the loan amount

Sr.Circular No.DateSubject

No.

with tenure not less than 24

110 DNBR(PD).CC.No.

January 28, Provision of Safe Deposit Locker

072/03.10.001/2015

-16

2016facility by NBFCs

111 DNBR (PD)CC.No.

February 18, Undertaking of Point of Presence

073/03.10.001/2015

-16

2016(PoP) Services under Pension Fund

RegulatoryandDevelopment

Authority forNationalPension

System (NPS)

112 DNBR.CC.PD.No.074/03.10.

February 18, NBFC – Factors (Reserve Bank)

01/2015-16

2016Directions, 2012 – Review

113 DNBR.(PD).CC.No.076/03.10

March 10, Review of risk weights assigned to

.001/2015-16

2016sovereign debt

114 DNBR.CC.PD.No.078/03.10.

April 13, 2016 Non-Banking Financial Company-

038/2015-16

MicroFinanceInstitutions(Reserve

Bank) Directions, 2011 – Acting as

Channelizing AgentsforSchemes

operatedbyCentral/State

Government Agencies

115 DNBR.CC.PD.No.081/03.10.

May 26, 2016 Review of Framework for Revitalising

01/2015-16

Distressed Assets in the Economy

andStrategicDebtRestructuring

Mechanism

116 DNBR.CC.PD.No.082/03.10.

June 2, 2016 Refinancing of Project Loans

001/2015-16

117 DNBR(PD)CC.No.083/03.10.

July 28, 2016 Guidelines for Relief Measures by

001/2016-17

NBFCs in areas affected by Natural

Calamities

Annex I

Timeline for Government NBFCs

NormExtant Provisions forGovt. NBFCs Timeline

other NBFCs

Prudential Regulation

Income recognitionAs prescribedBalance Sheet dated March 31, 2019

Asset ClassificationNBFC-NDSI andNBFC-ND-SI and NBFCs-D

NBFCs-D – 90 days120 days – March 31, 2019

norm90 days – March 31, 2020

NBFCs-ND – 180 daysNBFCs-ND

norm180 day norm – March 31, 2019

ProvisioningFor NPAs – AsAs on March 31, 2019 – 100% of

requirementspecified in theprescribed requirement

Directions.

For Standard Assets

NBFC-NDSIand

NBFCs-D- 0.40%

NBFCs-ND – 0.25%

Capital AdequacyCRAR – 15%

10% (min Tier I –March31,

Applicable toNDSITier I – 10%

7%;2019

and NBFC –D

12% (min Tier I –March31,

8%)2020

13% (min Tier I –March31,

9%)2021

15% (min Tier I –March31,

10%)2022

Leverage RatioApplicable toNBFC–A roadmap for adherence by March

ND31, 2022 to be prepared by the Govt.

NBFC - ND

ConcentrationofAs prescribedGovt. companies set up to serve

credit/ investmentspecific sectors may approach the

Reserve Bank for exemptions, if any.

For others, the timeline will be up to

balance Sheet dated March 31, 2022.

Others

CorporateAs prescribedBalance Sheet dated March 31, 2019

Governance etc.

Conduct ofAs prescribedBalance Sheet dated March 31, 2019

Business

Regulations (Fair

Practices Code)

Norm

Extant Provisions forGovt. NBFCs Timeline

other NBFCs

Acceptance of Deposit Directions

Deposit Directions As prescribed for • Investment Grade Credit rating for

NBFC-Dacceptance of public deposits-

March 31, 2019.

•AGovt.NBFC-Dhaving

investment grade credit rating can

accept deposits only upto 1.5

times of its NOF. Govt. NBFCs

holding deposits in excess of the

limit shall not access fresh

deposits or renew existing ones till

they conform to the limit, the

existing deposits will be allowed to

run off till maturity.

•All other directions shall apply

from Balance Sheet dated March

31, 2019.

Statutory Provisions

Sec 45 IB Maintenance of March 31, 2019–5% of outstanding

percentage of assets –deposits

15% of the outstandingMarch 31, 2020 – 10% of outstanding

depositsdeposits

March 31, 2021 – 12% of outstanding

deposits

March 31, 2022 – 15% of outstanding

deposits

Sec 45 IC Reserve Fund March 31, 2019

Annex II

Guidelines on Liquidity Risk13 Management Framework

Non-deposit taking NBFCs with asset size of ₹100 crore and above, systemically important Core Investment Companies and all deposit taking NBFCs (except Type I NBFC-ND14, Non-Operating Financial Holding Company and Standalone Primary Dealer) shall adhere to the guidelines as mentioned herein below. It will be the responsibility of the Board to ensure that the guidelines are adhered to. The internal controls required to be put in place by NBFCs as per these guidelines shall be subject to supervisory review. Further, as a matter of prudence, all other NBFCs are also encouraged to adopt these guidelines on liquidity risk management on voluntary basis. The guidelines deal with following aspects of Liquidity Risk Management framework.

Liquidity Risk Management Policy, Strategies and Practices

Management Information System (MIS)

Internal Controls

Maturity profiling

Liquidity Risk Measurement – Stock Approach

Currency Risk

Managing Interest Rate Risk

Liquidity Risk Monitoring Tools

A. Liquidity Risk Management Policy, Strategies and Practices

In order to ensure a sound and robust liquidity risk management system, the Board of the NBFC shall frame a liquidity risk management framework which ensures that it maintains sufficient liquidity15, including a cushion of unencumbered, high quality liquid assets to withstand a range of stress events, including those involving the loss or impairment of both unsecured and secured funding sources. It shall spell out the entity-level liquidity risk tolerance; funding strategies; prudential limits; system for measuring, assessing and reporting/ reviewing liquidity; framework for stress testing; liquidity planning under alternative scenarios/formal contingent funding plan; nature and frequency of management reporting; periodical review of assumptions used in liquidity projection; etc.

Key elements of the liquidity risk management framework are as under:

Governance of Liquidity Risk Management

Successful implementation of any risk management process has to emanate from the top management in the NBFC with the demonstration of its strong commitment

13“Liquidity Risk” means inability of an NBFC to meet such obligations as they become due without adversely affecting the NBFC’s financial condition. Effective liquidity risk management helps ensure an NBFC’s ability to meet its obligations as and when they fall due and reduces the probability of an adverse situation developing.

Type I NBFC-ND as defined in RBI press release dated June 17, 2016.

15“Liquidity” means NBFC’s capacity to fund the increase in assets and meet both expected and unexpected cash and collateral obligations at reasonable cost and without incurring unacceptable losses.

to integrate basic operations and strategic decision-making with risk management. The Chief Risk Officer appointed by the NBFC in terms of our circular DNBR (PD)

No.099/03.10.001/2018-19 dated May 16, 2019 shall be involved in the process of identification, measurement and mitigation of liquidity risks. A desirable organisational set up for liquidity risk management should be as under:

a) Board of Directors

The Board shall have the overall responsibility for management of liquidity risk. The Board shall decide the strategy, policies and procedures of the NBFC to manage liquidity risk in accordance with the liquidity risk tolerance/limits decided by it.

b) Risk Management Committee

The Risk Management Committee, which reports to the Board and consisting of Chief Executive Officer (CEO)/ Managing Director and heads of various risk verticals shall be responsible for evaluating the overall risks faced by the NBFC including liquidity risk.

c) Asset-Liability Management Committee (ALCO)

The ALCO consisting of the NBFC’s top management shall be responsible for ensuring adherence to the risk tolerance/limits set by the Board as well as implementing the liquidity risk management strategy of the NBFC. The CEO/ MD or the Executive Director (ED) should head the Committee. The Chiefs of Investment, Credit, Resource Management or Planning, Funds Management/ Treasury (forex and domestic), Economic Research may be members of the Committee. The role of the ALCO with respect to liquidity risk should include, inter alia, decision on desired maturity profile and mix of incremental assets and liabilities, sale of assets as a source of funding, the structure, responsibilities and controls for managing liquidity risk, and overseeing the liquidity positions of all branches.

d) Asset Liability Management (ALM) Support Group

The ALM Support Group consisting of the operating staff shall be responsible for analysing, monitoring and reporting the liquidity risk profile to the ALCO. Such support groups will be constituted depending on the size and complexity of liquidity risk management in an NBFC.

Liquidity risk Tolerance

An NBFC shall have a sound process for identifying, measuring, monitoring and controlling liquidity risk. It should clearly articulate a liquidity risk tolerance that is appropriate for its business strategy and its role in the financial system. Senior management should develop the strategy to manage liquidity risk in accordance with such risk tolerance and ensure that the NBFC maintains sufficient liquidity.

Liquidity Costs, Benefits and Risks in the Internal Pricing

NBFCs should endeavour to develop a process to quantify liquidity costs and benefits so that the same may be incorporated in the internal product pricing,

performance measurement and new product approval process for all material business lines, products and activities.

Off-balance Sheet Exposures and Contingent Liabilities

The process of identifying, measuring, monitoring and controlling liquidity risk should include a robust framework for comprehensively projecting cash flows arising from assets, liabilities and off-balance sheet items over an appropriate set of time horizons. The management of liquidity risks relating to certain off-balance sheet exposures on account of special purpose vehicles, financial derivatives, and, guarantees and commitments may be given particular importance due to the difficulties that many NBFCs have in assessing the related liquidity risks that could materialise in times of stress.

Funding Strategy- Diversified Funding

An NBFC shall establish a funding strategy that provides effective diversification in the sources and tenor of funding. It should maintain an ongoing presence in its chosen funding markets and strong relationships with fund providers to promote effective diversification of funding sources. An NBFC should regularly gauge its capacity to raise funds quickly from each source. There should not be over-reliance on a single source of funding. Funding strategy should also take into account the qualitative dimension of the concentrated behaviour of deposit withdrawal (for deposit taking NBFCs) in typical market conditions and over-reliance on other funding sources arising out of unique business model.

Collateral Position Management

An NBFC shall actively manage its collateral positions, differentiating between encumbered and unencumbered assets. It should monitor the legal entity and physical location where collateral is held and how it may be mobilised in a timely manner. Further, an NBFC should have sufficient collateral to meet expected and unexpected borrowing needs and potential increases in margin requirements over different timeframes.

Stress Testing

Stress testing shall form an integral part of the overall governance and liquidity risk management culture in NBFCs. An NBFC should conduct stress tests on a regular basis for a variety of short-term and protracted NBFC-specific and market-wide stress scenarios (individually and in combination). In designing liquidity stress scenarios, the nature of the NBFC’s business, activities and vulnerabilities should be taken into consideration so that the scenarios incorporate the major funding and market liquidity risks to which the NBFC is exposed.

Contingency Funding Plan

An NBFC shall formulate a contingency funding plan (CFP) for responding to severe disruptions which might affect the NBFC’s ability to fund some or all of its activities in a timely manner and at a reasonable cost. Contingency plans should contain details of available/ potential contingency funding sources and the amount/ estimated

amount which can be drawn from these sources, clear escalation/ prioritisation procedures detailing when and how each of the actions can and should be activated, and the lead time needed to tap additional funds from each of the contingency sources.

Public disclosure

An NBFC shall publicly disclose information (Appendix I) on a quarterly basis on the official website of the company and in the annual financial statement as notes to account that enables market participants to make an informed judgment about the soundness of its liquidity risk management framework and liquidity position.

Intra Group transfers

With a view to recognizing the likely increased risk arising due to Intra-Group transactions and exposures (ITEs), the Group Chief Financial officer (CFO) is expected to develop and maintain liquidity management processes and funding programmes that are consistent with the complexity, risk profile, and scope of operations of the companies in the Group16. The Group liquidity risk management processes and funding programmes are expected to take into account lending, investment, and other activities, and ensure that adequate liquidity is maintained at the head and each constituent entity within the group. Processes and programmes should fully incorporate real and potential constraints, including legal and regulatory restrictions, on the transfer of funds among these entities and between these entities and the principal.

B. Management Information System (MIS)

An NBFC shall have a reliable MIS designed to provide timely and forward-looking information on the liquidity position of the NBFC and the Group to the Board and ALCO, both under normal and stress situations. It should capture all sources of liquidity risk, including contingent risks and those arising from new activities, and have the ability to furnish more granular and time-sensitive information during stress events.

C. Internal Controls

An NBFC shall have appropriate internal controls, systems and procedures to ensure adherence to liquidity risk management policies and procedure. Management should ensure that an independent party regularly reviews and evaluates the various components of the NBFC’s liquidity risk management process.

D. Maturity Profiling

For measuring and managing net funding requirements, the use of a maturity ladder and calculation of cumulative surplus or deficit of funds at selected maturity dates is adopted as a standard tool. The Maturity Profile should be used

16As defined in the Master Direction - Non-Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016

for measuring the future cash flows of NBFCs in different time buckets. The Maturity Profile as given in Appendix I could be used for measuring the future cash flows of NBFCs in different time buckets. The time buckets shall be distributed as under:

1 day to 7 days

8 days to 14 days

15 days to 30/31 days (one month)

Over one month and upto 2 months

Over two months and upto 3 months

Over 3 months and upto 6 months

Over 6 months and upto 1 year

Over 1 year and upto 3 years

Over 3 years and upto 5 years

Over 5 years

NBFCs would be holding in their investment portfolio, securities which could be broadly classifiable as 'mandatory securities' (under obligation of law) and other 'non-mandatory securities'. In case of NBFCs not holding public deposits, all investments in securities, and in case of NBFCs holding public deposits, the surplus securities (held over and above the requirement), shall fall in the category of 'non-mandatory securities'. Alternatively, the NBFCs may also follow the concept of Trading Book as per the extant prescriptions for NBFCs.

The NBFCs holding public deposits may be given freedom to place the mandatory securities in any time buckets as suitable for them. The listed non-mandatory securities may be placed in any of the "1 day to 7 days, 8 days to 14 days, 15 days to 30/31 days (One month)", Over one month and upto 2 months" and "Over two months and upto 3 months" buckets depending upon the defeasance period proposed by NBFCs. The unlisted non-mandatory securities (e.g., equity shares, securities without a fixed term of maturity etc.) may be placed in the "Over 5 years" buckets, whereas unlisted non-mandatory securities having a fixed term of maturity may be placed in the relevant time bucket as per residual maturity. The mandatory securities and listed securities may be marked to market for the purpose of the ALM system. Unlisted securities may be valued as per Prudential Norms Directions.

Alternatively, the NBFCs may also follow the concept of Trading Book which is as follows:

The composition and volume are clearly defined;

Maximum maturity/duration of the portfolio is restricted;

The holding period not to exceed 90 days;

Cut-loss limit prescribed;

Defeasance periods (product-wise) i.e., time taken to liquidate the position on the basis of liquidity in the secondary market are prescribed;

NBFCs which maintain such ‘Trading Books’ and complying with the above standards shall show the trading securities under "1 day to 30/ 31 days (One month)", Over one month and upto 2 months" and "Over two months and upto 3 months" buckets on the basis of the defeasance periods. The Board/ ALCO of the NBFCs shall approve the volume, composition, holding/ defeasance period, cut loss, etc. of the ‘Trading Book'. The remaining investments shall also be classified as short term and long term investments as required under Prudential Norms.

The policy note recorded by the NBFCs on treatment of the investment portfolio for the purpose of ALM and approved by their Board/ ALCO shall be forwarded to the Regional Office of the Department of Supervision of RBI under whose jurisdiction the registered office of the company is located.

Within each time bucket, there could be mismatches depending on cash inflows and outflows. While the mismatches up to one year would be relevant since these provide early warning signals of impending liquidity problems, the main focus shall be on the short-term mismatches, viz., 1-30/ 31 days. The net cumulative negative mismatches in the Statement of Structural Liquidity in the maturity buckets 1-7 days, 8-14 days, and 15-30 days shall not exceed 10 per cent, 10 per cent and 20 per cent of the cumulative cash outflows in the respective time buckets. NBFCs, however, are expected to monitor their cumulative mismatches (running total) across all other time buckets upto 1 year by establishing internal prudential limits with the approval of the Board. NBFCs shall also adopt the above cumulative mismatch limits for their structural liquidity statement for consolidated operations.

The Statement of Structural Liquidity may be prepared by placing all cash inflows and outflows in the maturity ladder according to the expected timing of cash flows. A maturing liability shall be a cash outflow while a maturing asset shall be a cash inflow.

In order to enable the NBFCs to monitor their short-term liquidity on a dynamic basis over a time horizon spanning from 1 day to 6 months, NBFCs shall estimate their short-term liquidity profiles on the basis of business projections and other commitments for planning purposes.

E. Liquidity Risk Measurement – Stock Approach

NBFCs shall adopt a “stock” approach to liquidity risk measurement and monitor certain critical ratios in this regard by putting in place internally defined limits as approved by their Board. The ratios and the internal limits shall be based on an NBFC’s liquidity risk management capabilities, experience and profile. An indicative list of certain critical ratios to monitor re short-term17 liability to total assets; short-term liability to long term assets; commercial papers to total assets; non- convertible debentures (NCDs)(original maturity of less than one year) to total assets; short-term liabilities to total liabilities; long-term assets to total assets; etc.

Less than one year

F. Currency Risk

Exchange rate volatility imparts a new dimension to the risk profile of an NBFC’s balance sheets having foreign assets or liabilities. The Board of NBFCs should recognise the liquidity risk arising out of such exposures and develop suitable preparedness for managing the risk.

Managing Interest Rate Risk (IRR)

The operational flexibility given to NBFCs in pricing most of the assets and liabilities imply the need for the financial system to hedge the Interest Rate Risk. Interest rate risk is the risk where changes in market interest rates might adversely affect an NBFC's financial condition. The changes in interest rates affect NBFCs in a larger way. The immediate impact of changes in interest rates is on NBFC's earnings (i.e. reported profits) by changing its Net Interest Income (NII). A long-term impact of changing interest rates is on NBFC's Market Value of Equity (MVE) or Net Worth as the economic value of NBFC's assets, liabilities and off-balance sheet positions get affected due to variation in market interest rates. The interest rate risk when viewed from these two perspectives is known as ‘earnings perspective’ and ‘economic value perspective', respectively. The risk from the earnings perspective can be measured as changes in the Net Interest Income (NII) or Net Interest Margin (NIM). There are many analytical techniques for measurement and management of Interest Rate Risk. To begin with, the traditional Gap analysis is considered as a suitable method to measure the Interest Rate Risk in the first place. It is the intention of RBI to move over to the modern techniques of Interest Rate Risk measurement like Duration Gap Analysis, Simulation and Value at Risk over time when NBFCs acquire sufficient expertise and sophistication in acquiring and handling MIS.

The Gap or Mismatch risk can be measured by calculating Gaps over different time intervals as at a given date. Gap analysis measures mismatches between rate sensitive liabilities and rate sensitive assets (including off-balance sheet positions). An asset or liability is normally classified as rate sensitive if:

within the time interval under consideration, there is a cash flow;

the interest rate resets/ reprices contractually during the interval;

dependent on RBI changes in the interest rates/ Bank Rate;

it is contractually pre-payable or withdrawal before the stated maturities.

The Gap Report shall be generated by grouping rate sensitive liabilities, assets and off-balance sheet positions into time buckets according to residual maturity or next repricing period, whichever is earlier. The difficult task in Gap analysis is determining rate sensitivity. All investments, advances, deposits, borrowings, purchased funds, etc. that mature/ reprice within a specified timeframe are interest rate sensitive. Similarly, any principal repayment of loan is also rate sensitive if the NBFC expects to receive it within the time horizon. This includes final principal payment and interim instalments. Certain assets and liabilities to receive/ pay rates

that vary with a reference rate. These assets and liabilities are repriced at pre-determined intervals and are rate sensitive at the time of repricing. While the interest rates on term deposits are fixed during their currency, the tranches of advances portfolio is basically floating. The interest rates on advances received could be repriced any number of occasions, corresponding to the changes in PLR.

The Gaps may be identified in the following time buckets:

1 day to 7 days

8 days to 14 days

15 days -30/ 31 days (One month)

Over one month to 2 months

Over two months to 3 months

Over 3 months to 6 months

Over 6 months to 1 year

Over 1 year to 3 years

Over 3 years to 5 years

Over 5 years

Non-sensitive

The various items of rate sensitive assets and liabilities and off-balance sheet items shall be classified as explained in Appendix - III.

The Gap is the difference between Rate Sensitive Assets (RSA) and Rate Sensitive Liabilities (RSL) for each time bucket. The positive Gap indicates that it has more RSAs than RSLs whereas the negative Gap indicates that it has more RSLs than RLAs. The Gap reports indicate whether the institution is in a position to benefit from rising interest rates by having a positive Gap (RSA > RSL) or whether it is in a position to benefit from declining interest rates by a negative Gap (RSL > RSA). The Gap can, therefore, be used as a measure of interest rate sensitivity.

Each NBFC shall set prudential limits on individual Gaps with the approval of the Board/Management Committee. The prudential limits shall have a relationship with the Total Assets, Earning Assets or Equity. The NBFCs may work out Earnings at Risk (EaR) or Net Interest Margin (NIM) based on their views on interest rate movements and fix a prudent level with the approval of the Board/Management Committee. For working out EaR or NIM any of the current models may be used.

The classification of various components of assets and liabilities into different time buckets for preparation of Gap reports (Liquidity and Interest Rate Sensitivity) as indicated in Appendices I & II is the benchmark. NBFCs which are better equipped to reasonably estimate the behavioural pattern of various components of assets and liabilities on the basis of past data / empirical studies could classify them in the appropriate time buckets, subject to approval from the ALCO / Board. A copy of the

note approved by the ALCO / Board shall be sent to the Regional Office of the Department of Supervision of RBI under whose jurisdiction the registered office of the company is located. These notes may contain 'what if scenario' analysis under various assumed conditions and the contingency plans to face various adverse developments.

The present framework does not capture the impact of premature closure of deposits and prepayment of loans and advances on the liquidity and interest rate risks profile of NBFCs. The magnitude of premature withdrawal of deposits at times of volatility in market interest rates is quite substantial. NBFCs shall, therefore, evolve suitable mechanism, supported by empirical studies and behavioral analysis to estimate the future behavior of assets, liabilities and off-balance sheet items to changes in market variables and estimate the probabilities of options.

A scientifically evolved internal transfer pricing model by assigning values on the basis of current market rates to funds provided and funds used is an important component for effective implementation of ALM System. The transfer price mechanism can enhance the management of margin i.e. lending or credit spread, the funding or liability spread and mismatch spread. It also helps centralising interest rate risk at one place which facilitates effective control and management of interest rate risk. A well-defined transfer pricing system also provides a rational framework for pricing of assets and liabilities.

Appendix I

Public disclosure on liquidity risk

(i) Funding Concentration based on significant counterparty (both deposits and

borrowings)

Sr Number of Amount % of Total % of Total

No. Significant (₹ crore) deposits Liabilities

Counterparties

(ii) Top 20 large deposits (amount in ₹ crore and % of total deposits) (iii) Top 10 borrowings (amount in ₹ crore and % of total borrowings) (iv) Funding Concentration based on significant instrument/product

Sr Name of the Amount % of Total

No. instrument/product (₹ crore) Liabilities

(v) Stock Ratios:

(a) Commercial papers as a % of total public funds, total liabilities and total assets

(b) Non-convertible debentures (original maturity of less than one year) as a % of total public funds, total liabilities and total assets

(vi) Institutional set-up for liquidity risk management

Appendix - II

Maturity Profile - Liquidity

Heads of AccountsTime-bucket category

A. Outflows

1. Capital funds

a) Equity capital, Non-redeemable orIn the 'over 5 years' time-bucket.

perpetual preference capital, Reserves, Funds

and Surplus

b) Preference capital - redeemable/non-As per the residual maturity of the shares.

perpetual

2. Gifts, grants, donations and benefactionsThe 'over 5 years' time-bucket. However, if

such gifts, grants, etc. are tied to specific

end-use, then these may be slotted in the

time- bucket as per purpose/end-use

specified.

3. Notes, Bonds and debentures

a) Plain vanilla bonds/debenturesAs per the residual maturity of the

instruments

b) Bonds/debentures with embedded call/putAs per the residual period for the earliest

options (including zero-coupon/deep discountexercise date for the embedded option.

bonds)

c) Fixed rate notesAs per the residual maturity

4. Deposits:

a) Public depositsAs per the residual maturity.

b) Inter Corporate DepositsThese,beinginstitutional/wholesale

deposits, shall be slotted as per their

residual maturity

c) Commercial PapersAs per the residual maturity

5. Borrowings

a) Term money borrowingsAs per the residual maturity

b) From RBI, Govt. & others-do-

c) Bank borrowings in the nature of WCDL,Over six months and up to one year

CC etc

6) Current liabilities and provisions:

a) Sundry creditorsAs per the due date or likely timing of cash

outflows. Abehavioral analysis could also

be made to assess the trend of outflows and

the amounts slotted accordingly.

b) Expenses payable (other than interest)As per the likely time of cash outflow.

c) Advance income received, receipts fromIn the 'over 5 years' time-bucket as these do

borrowers pending adjustmentnot involve any cash outflow.

d) Interest payable on bonds/depositsIn respective time buckets as per the due

date of payment.

e) Provisions for NPAsThe amount of provision may be netted out

from the gross amount of the NPA portfolio

and the net amount of NPAs be shown as

an item under inflows in stipulated time-

buckets.

f) Provision for Investments portfolioThe amount may be netted from the gross

value of investments portfolio and the net

investments be shown as inflow in the

prescribed time-slots. In case provisions are

not held security-wise, the provision may be

shown on "over 5 years" time bucket.

g) Other provisionsTo be bucketed as per the purpose/nature

of the underlying transaction.

B. Inflows

1. CashIn 1 to 7 day time-bucket.

2. Remittance in transit---do---

3. Balances with banks (in India only)

a) Current accountThe stipulated minimum balance be shown

in 6 months to 1 year bucket. The balance in

excess of the minimum balance be shown

under Day 1-7 bucket.

b) Deposit accounts/short term depositsAs per residual maturity.

4. Investments (net of provisions)

a)Mandatory investmentsAs suitable to the NBFC

b)Non Mandatory Listed"1 day to 30/31 days (One month)" Over

one month and upto 2 months" and "Over

two months and upto 3 months" buckets

depending upon the defeasance period

proposed by the NBFCs

c) Non Mandatory unlisted securities (e.g."Over 5 years"

shares, etc.)

d) Non-mandatory unlisted securities having aAs per residual maturity

fixed term maturity

e) Venture capital unitsIn the 'over 5 year' time bucket.

5. In case Trading book is followed

Equity shares, convertible preference shares, (i) Shares classified as "current"

non-redeemable/perpetual preference shares, investments representing trading book of

shares of subsidiaries/joint ventures and units the NBFC may be shown in time buckets of

in open ended mutual funds and other "1 day 7 days, 8 days to 14 days , 15 days

investments . to 30 days (One month)""Over one month

and upto 2 months" and "Over two months

and upto 3 months" buckets depending

upon the defeasance period proposed by

the NBFCs .

(ii) Shares classified as "long term"

investments may be kept in over "5 years’

time" bucket. However, the shares of the

assisted units/companies acquired as part

of the initial financing package, may be

slotted in the relative time bucket keeping in

viewthepaceofproject

implementation/time-overrun, etc., and the

resultant likely timeframe for divesting such

shares.

6. Advances (performing)

a) Bill of Exchange and promissory notes As per the residual usance of the underlying

discounted and rediscountedbills.

b) Term loans (rupee loans only) The cash inflows on account of the interest

and principal of the loan may be slotted in

respective time buckets as per the timing of

the cash flows as stipulated in the

original/revised repayment schedule.

c) Corporate loans/short term loansAs per the residual maturity

7. Non-performing loans

(May be shown net of the provisions, interest

suspense held )

a) Sub-standard

i) All overdues and instalments of principalIn the 3 to 5 year time-bucket.

falling due during the next three years

ii) Entire principal amount due beyond theIn the over 5 years’ time-bucket

next three years

b) Doubtful and loss

i) All instalments of principal falling due duringIn the over 5 year time-bucket

the next five years as also all overdues

ii) Entire principal amount due beyond theIn the over 5 year time-bucket

next five years

8. Assets on lease Cash flows from the lease transaction may

be slotted in respective time buckets as per

the timing of the cash flow.

9. Fixed assets (excluding leased assets)In the 'over 5 year' time-bucket.

10. Other assets

(a) Intangible assets and items notIn the 'over 5 year' time-bucket.

representing cash inflows.

(b)Other items (such as accrued income,In respective maturity buckets as per the

other receivables, staff loans, etc.)timing of the cashflows.

C. Contingent liabilities

(a) Letters of credit/guarantees (outflowBased on the past trend analysis of the

through devolvement)devolvements vis-à-vis the outstanding

amount of guarantees (net of margins held),

the likely devolvements shall be estimated

and this amount could be distributed in

various time buckets on judgmental basis.

The assets created out of devolvements

may be shown under respective maturity

buckets on the basis of probable recovery

dates.

(b) Loan commitments pending disbursalIn the respective time buckets as per the

(outflow)sanctioned disbursement schedule.

Institutions (outflow/inflow)under the lines of credit.

Note:

Any event-specific cash flows (e.g. outflow due to wage settlement arrears, capital expenses, income tax refunds, etc.) shall be shown in a time bucket corresponding to timing of such cash flows.

All overdue liabilities be shown in the 1 to 7 days and 8-14 days time buckets based on behavioural estimates

Overdue receivables on account of interest and instalments of standard loans / hire purchase assets / leased rentals shall be slotted as below:

(i) Overdue for less than one month. In the 3 to 6 month bucket.

(ii) Interest overdue for more than one month In the 6 to 12 month bucket without

but less than seven months (i.e. before thereckoning the grace period of one

relative amount becomes past due for sixmonth.

months)

(iii) Principal instalments overdue for 7 months In 1 to 3 year bucket.

but less than one year

Appendix III

Interest Rate Sensitivity

Heads of accountsRate sensitivity of time bucket

LIABILITIES

1. Capital, Reserves & SurplusNon-sensitive

2. Gifts, grants & benefactions-do-

3. Notes, bonds & debentures :

a) Floating rateSensitive; reprice on the roll- over/repricing

date, shall be slotted in respective time buckets

as per the repricing dates.

b) Fixed rate (plain vanilla) including zeroSensitive; reprice on maturity. To be placed in

couponsrespective time buckets as per the residual

maturity of such instruments.

c) Instruments with embedded optionsSensitive; could reprice on the exercise date of

the option particularly in rising interest rate

scenario. To be placed in respective time

buckets as per the next exercise date.

4. Deposits

a) Deposits/Borrowings

i) Fixed rateSensitive; could reprice on maturity or in case of

premature withdrawal being permitted, after the

lock-in period, if any, stipulated for such

withdrawal. To be slotted in respective time

buckets as per residual maturity or as per

residual lock-in period, as the case may be. The

prematurely withdrawable deposits with no lock-

in period or past such lock-in period, shall be

slotted in the earliest /shortest time bucket.

ii) Floating rateSensitive; reprice on the contractual roll-over

date. To be slotted in the respective time-

buckets as per the next repricing date.

b) ICDsSensitive; reprice on maturity. To be slotted as

per the residual maturity in the respective time

buckets.

5. Borrowings:

a) Term-money borrowingSensitive; reprices on maturity. To be placed as

per residual maturity in the relative time bucket.

b) Borrowings from others

i) Fixed rateSensitive; reprice on maturity. To be placed as

per residual maturity in the relative time bucket.

ii) Floating rateSensitive; reprice on the roll-over/ repricing

date. To be placed as per residual period to the

repricing date in the relative time bucket.

6. Current liabilities & provisions

a.Sundry creditors)

b.Expenses payable)

c.Swap adjustment a/c.)

d.Advance income received/receipts)Non-sensitive

fromborrowerspending)

adjustment)

e. Interest payable on bonds/deposits)

f.Provisions)

7. Repos/ bills rediscounted/forex swapsSensitive; reprices on maturity. To be placed as

(Sell / Buy)per the residual maturity in respective buckets.

ASSETS:

1. CashNon-sensitive.

2. Remittance in transitNon-sensitive.

3. Balances with banks in India

a) In current a/c.Non-sensitive.

b) In deposit accounts, Money at call andSensitive; reprices on maturity. To be placed as

short notice and other placementsper residual maturity in respective time-buckets.

4. Investments

a) Fixed income securities (e.g. govt.Sensitive on maturity. To be slotted as per

securities, zero coupon bonds, bonds,residual maturity.

debentures, cumulative, non-cumulative,

redeemable preference shares, etc.)However, the bonds/debentures valued by

applying NPA norms due to non-servicing of

interest, shall be shown, net of provisions made,

in:

i) 3-5 year bucket - if sub-std. norms

applied.

ii)Over 5 year bucket - if doubtful norms

applied.

b) Floating rate securitiesSensitive; reprice on the next repricing date. To

be slotted as per residual time to the repricing

date.

c) Equity shares, convertible preferenceNon-sensitive.

shares,sharesofsubsidiaries/joint

ventures, venture capital units.

5. Advances (performing)

a) Billsof exchange,promissory notesSensitive on maturity. To be slotted as per the

100

discounted & rediscounted residual usance of the underlying bills.

b) Term loans/corporate loans / Short

Term Loans (rupee loans only)

i) Fixed Rate Sensitive on cash flow/ maturity.

ii) Floating Rate Sensitive only when PLR or risk premium is

changed by the NBFCs.

The amount of term loans shall be slotted in

time buckets which correspond to the time

taken by NBFCs to effect changes in their PLR

in response to market interest rates.

6. Non-performing loans:

(net of provisions, interest suspense and

claims received from ECGC)

a. Sub-standard )To be slotted as indicated at item B.7

b. Doubtful and loss )of Appendix I.

7. Assets on lease The cash flows on lease assets are sensitive to

changes in interest rates. The leased asset

cash flows be slotted in the time-buckets as per

timing of the cash flows.

8. Fixed assets (excluding assets on Non-sensitive.

lease)

9. Other assets

a) Intangible assets and items not Non-sensitive.

representing cash flows.

b) Other items (e.g. accrued income, other Non-sensitive.

receivables, staff loans, etc.)

10. Reverse Repos/Swaps (Buy /Sell) and Sensitive on maturity. To be slotted as per

Bills rediscounted (DUPN) residual maturity.

11. Other (interest rate) products

a) Interest rate swaps Sensitive; to be slotted as per residual maturity

in respective time buckets.

b) Other Derivatives To be classified suitably as per the residual

maturity in respective time buckets

101

Annex III

Schedule to the Balance Sheet of a NBFC

(₹ in lakh)

Particulars

Liabilities sideAmountAmount

outstandingoverdue

(1)Loans and advances availed by the non-

banking financial company inclusive of

interest accrued thereon but not paid :

(a)Debentures : Secured

: Unsecured

(other than falling within

the meaning of public

deposits*)

(b)Deferred Credits

(c)Term Loans

(d)Inter-corporate loans and borrowing

(e)Commercial Paper

(f)Public Deposits*

(g)Other Loans (specify nature)

* Please see Note 1 below

(2)Break-up of (1)(f) above (Outstanding

public deposits inclusive of interest

accrued thereon but not paid) :

(a)In the form of Unsecured debentures

(b)In the form of partly secured

debentures i.e. debentures where

there is a shortfall in the value of

security

(c)Other public deposits

* Please see Note 1 below

Assets sideAmountoutstanding

(3)Break-up of Loans and Advances

including bills receivables [other than

those included in (4) below] :

(a)Secured

(b)Unsecured

(4)Break up of Leased Assets and stock on

hire and other assets counting towards

asset financing activities

(i)Lease assets including lease rentals

under sundry debtors :

(a)Financial lease

(b)Operating lease

(ii)Stockon hire including hire charges

under sundry debtors :

(a)Assets on hire

(b)Repossessed Assets

(iii)Otherloans counting towards asset

financing activities

(a)Loans where assets have been

repossessed

(b)Loans other than (a) above

(5)Break-upof Investments

Current Investments

1.Quoted

(i)Shares

(a) Equity

(b) Preference

(ii)Debentures and Bonds

(iii)Units of mutual funds

(iv)Government Securities

(v)Others (please specify)

102

2.Unquoted

(i)Shares

(a) Equity

(b) Preference

(ii)Debentures and Bonds

(iii)Units of mutual funds

(iv)Government Securities

(v)Others (please specify)

LongTerm investments

1.Quoted

(i)Share

(a) Equity

(b) Preference

(ii)Debentures and Bonds

(iii)Units of mutual funds

(iv)Government Securities

(v)Others (please specify)

2.Unquoted

(i)Shares

(a) Equity

(b) Preference

(ii)Debentures and Bonds

(iii)Units of mutual funds

(iv)Government Securities

(v)Others (please specify)

(vi)

(6) Borrower group-wise classification of assets financed as in (3) and (4)

above :

Please see Note 2 below

CategoryAmount net of provisions

SecuredUnsecuredTotal

1.Related Parties **

(a)Subsidiaries

(b)Companies in the

same group

(c)Other related parties

2.Otherthan related parties

Total

(7) Investor group-wise classification of all investments (current and long

term) in shares and securities (both quoted and unquoted) :

Please see note 3 below

CategoryMarketBook Value

Value /(Net of

Break up orProvisions)

fair value or

NAV

1.Related Parties **

(a)Subsidiaries

(b)Companies in the same group

(c)Other related parties

2.Otherthan related parties

Total

** As per Accounting Standard of ICAI (Pleasesee Note 3)

(8)Other information

ParticularsAmount

(i)Gross Non-Performing Assets

(a)Related parties

(b)Other than related parties

(ii)NetNon-Performing Assets

(a)Related parties

(b)Other than related parties

(iii)Assets acquired in satisfaction of debt

Notes:

1. As defined in point xxv of paragraph 3 of Chapter -II of these Directions.

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Provisioning norms shall be applicable as prescribed in these Directions.

All notified Accounting Standards and Guidance Notes issued by ICAI are applicable including for valuation of investments and other assets as also assets acquired in satisfaction of debt. However, market value in respect of quoted investments and break up/ fair value/ NAV in respect of unquoted investments shall be disclosed irrespective of whether they are classified as long term (amortised cost in the case of Ind AS) or current (fair value in the case of Ind AS) in (5) above.

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Annex IV

Data on Pledged Securities

Name of the

NBFC Lender

PAN

Date of

Reporting

Share-holding

Information

Name ofNo ofType of theName of

Shares heldBorrowerPAN of the

theISINthe

Company against (Promoter/Non Borrower Borrower

loansPromoter)

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Annex V

Guidelines for Licensing of New Banks in the Private Sector

Definitions

I. Promoter

Promoter means, the person who together with his relatives (as defined in section 6 of the Companies Act, 1956), by virtue of his ownership of voting equity shares, is in effective control of the NOFHC, and includes, wherever applicable, all entities which form part of the Promoter Group.

Promoter Group "Promoter Group" includes:

(i) the promoter;

(ii) relatives of the promoter as defined in Section 6 of Companies Act 1956; and (iii) in case promoter is a body corporate:

(A) a subsidiary or holding company of such body corporate;

(B) any body corporate in which the promoter holds ten per cent or more of the equity share capital or which holds ten per cent or more of the equity share capital of the promoter;

(C) any body corporate in which a group of individuals or companies or combinations thereof which hold twenty per cent or more of the equity share capital in that body corporate also holds twenty per cent or more of the equity share capital of the promoter;

(D) Joint venture (as defined in terms of AS 23) with the promoter;

(E) Associate (as defined in terms of AS 27) of the promoter;

(F) Related party (as defined in terms of AS 18) of the promoter; and (iv) in case the promoter is an individual:

(A) any body corporate in which ten per cent or more of the equity share capital is held by the promoter or a relative of the promoter or a firm or Hindu Undivided Family in which the promoter or any one or more of his immediate relative is a member;

(B) any body corporate in which a body corporate as provided in (A) above holds ten per cent or more, of the equity share capital;

(C) any Hindu Undivided Family or firm in which the aggregate shareholding of the promoter and his immediate relatives is equal to or more than ten per cent of the total; and

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all persons whose shareholding is aggregated for the purpose of disclosing in the prospectus under the heading "shareholding of the promoter group";

Entities sharing a common brand name with entities discussed in A, B, C, D E, F where the promoter is a body corporate and A, B, C where the promoter is an individual;

Provided that a financial institution, scheduled bank, foreign institutional investor or mutual fund shall not be deemed to be promoter group merely by virtue of the fact that ten per cent or more of the equity share capital of the promoter is held by such institution.

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Annex VI

Norms on Restructuring of Advances by NBFC

These prudential norms shall be applicable to all restructurings including those under CDR Mechanism. The institutional/ organizational framework for CDR Mechanism and SME Debt Restructuring Mechanism shall be as per Annex-4 of DBOD.No.BP.BC.1/21.04.048/2013-14 dated July 1, 2013. The same is given in Appendix-3.

Key Concepts

Key concepts used in these norms are defined in Appendix-2.

Projects under implementation

3.1 For all projects financed by the NBFCs, the 'Date of Completion' and the 'Date of Commencement of Commercial Operations' (DCCO), of the project shall be clearly spelt out at the time of financial closure of the project and the same shall be formally documented. These shall also be documented in the appraisal note by the NBFCs during sanction of the loan.

3.2 Project Loans

There are occasions when the completion of projects is delayed for legal and other extraneous reasons like delays in Government approvals etc. All these factors, which are beyond the control of the promoters, may lead to delay in project implementation and involve restructuring / reschedulement of loans by NBFCs. Accordingly, the following asset classification norms shall apply to the project loans before commencement of commercial operations.

For this purpose, all project loans have been divided into the following two categories:

Project Loans for infrastructure sector

Project Loans for non-infrastructure sector

For the purpose of these Directions, 'Project Loan' shall mean any term loan which has been extended for the purpose of setting up of an economic venture. Further, Infrastructure Sector is as defined in the extant Prudential Norms Directions for NBFCs.

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3.3. Project Loans for Infrastructure Sector

A loan for an infrastructure project shall be classified as NPA during any time before commencement of commercial operations as per record of recovery, unless it is restructured and becomes eligible for classification as 'standard asset' in terms of paras (iii) to (v) below.

A loan for an infrastructure project shall be classified as NPA if it fails to commence commercial operations within two years from the original DCCO, even if it is regular as per record of recovery, unless it is restructured and becomes eligible for classification as 'standard asset' in terms of paras (iii) to (v) below.

If a project loan classified as 'standard asset' is restructured any time during the period up to two years from the original DCCO, it shall be retained as a standard asset if the fresh DCCO is fixed within the following limits, and further provided the

account continues to be serviced as per the restructured terms.

Infrastructure Projects involving court cases

Up to another 2 years (beyond the existing extended period of 2 years, as prescribed in para 3.3 (ii), i.e. total extension of 4 years), in case the reason for extension of date of commencement of production is arbitration proceedings or a court case.

Infrastructure Projects delayed for other reasons beyond the control of promoters

Up to another 1 year (beyond the existing extended period of 2 years, as prescribed in para 3.3 (ii), i.e. total extension of 3 years), in other than court cases.

It is re-iterated that the dispensation in para 3.3 (iii) is subject to adherence to the provisions regarding restructuring of accounts which shall inter alia require that the application for restructuring shall be received before the expiry of period of two years from the original DCCO and when the account is still standard as per record of recovery. The other conditions applicable shall be:

In cases where there is moratorium for payment of interest, NBFCs shall not book income on accrual basis beyond two years from the original DCCO, considering the high risk involved in such restructured accounts.

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NBFCs shall maintain following provisions on such accounts as long as these are classified as standard assets in addition to provision for diminution in fair value :

Particulars Provisioning Requirement

If the revised DCCO is * 0.25 percent

within two years from the

original DCCO prescribed

at the time of financial

closure

If the DCCO is extended Project loans restructured with effect from

beyond two years and January 24, 2014 :

upto four years or three

*5.00 per cent - From the date of such

years from the original restructuring till the revised DCCO or 2

DCCO, as the case may years from the- date of restructuring,

be, depending upon the whichever is later.

reasons for such delay

Stock of project loans classified as

restructured as on January 23, 2014 :

-2.75 percent - with effect from March

31, 2014

-3.50 percent - with effect from March

31, 2015(spread over the four quarters

of 2014-15)

-4.25 percent - with effect from March

31, 2016(spread over the four quarters

of 2015-16)

-5 percent - with effect from March 31,

2017 (spread over the four quarters of

2016-17)

*Theabove provisions shall be applicable

from the date of restructuring till the revised

DCCO or 2 years from the date of

restructuring, whichever is later.

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For the purpose of these Directions, mere extension of DCCO shall not be considered as restructuring, if the revised DCCO falls within the period of two years from the original DCCO. In such cases the consequential shift in repayment period by equal or shorter duration (including the start date and end date of revised repayment schedule) than the extension of DCCO shall also not be considered as restructuring provided all other terms and conditions of the loan remain unchanged. As such project loans shall be treated as standard assets in all respects, they shall attract standard asset provision of 0.25 per cent.

(a) Multiple revisions of the DCCO and consequential shift in repayment schedule for equal or shorter duration (including the start date and end date of revised repayment schedule) shall be treated as a single event of restructuring provided that the revised DCCO is fixed within the respective time limits as stated in above points and all other terms and conditions of the loan remained unchanged.

If deemed fit, NBFCs may extend DCCO beyond the respective time limits quoted at (iii)(a) to (b) above; however, in that case, NBFCs shall not be able to retain the ‘standard’ asset classification status of such loan accounts.

(v)(b) In cases where NBFCs have specifically sanctioned a ‘standby facility’ at the time of initial financial closure to fund cost overruns, they may fund cost overruns as per the agreed terms and conditions.

In cases where the initial financial closure does not envisage such financing of cost overruns, NBFCs have been allowed to fund cost overruns, which may arise on account of extension of DCCO within the time limits quoted at (iii)(a) to (b) above, without treating the loans as ‘restructured asset’ subject to the following conditions:

NBFCs may fund additional ‘Interest During Construction’, which may arise on account of delay in completion of a project;

Other cost overruns (excluding Interest During Construction) up to a maximum of 10% of the original project cost. This ceiling is applicable to financing of all other cost overruns (excluding interest during construction), including cost overruns on account of fluctuations in the value of Indian Rupee against other currencies, arising out of extension of date of commencement of commercial operations;

The Debt Equity Ratio as agreed at the time of initial financial closure shall remain unchanged subsequent to funding cost overruns or

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improve in favour of the lenders and the revised Debt Service Coverage Ratio shall be acceptable to the lenders;

Disbursement of funds for cost overruns shall start only after the Sponsors/Promoters bring in their share of funding of the cost overruns; and

All other terms and conditions of the loan shall remain unchanged or enhanced in favour of the lenders.

(v)(c)(a) In order to facilitate revival of the projects stalled primarily due to inadequacies of the current promoters, it is advised that if a change in ownership takes place any time during the periods quoted in paragraphs 3(3.3)(iii) and 3(3.3)(v) above or before the original DCCO, NBFCs may permit extension of the DCCO of the project up to two years in addition to the periods quoted at paragraph 3(3.3)(iii) and 3(3.3)(v) above, as the case may be, without any change in asset classification of the account subject to the conditions stipulated in the following paragraphs. NBFCs may also consequentially shift/extend repayment schedule, if required, by an equal or shorter duration.

It is clarified that in cases where change in ownership and extension of DCCO (as indicated in paragraph 3(3.3)(v)(c)(a) above) takes place before the original DCCO, and if the project fails to commence commercial operations by the extended DCCO, the project shall be eligible for further extension of DCCO in terms of guidelines quoted at paragraph 3(3.3)(iii) and 3(3.3)(v) above. Similarly, where change in ownership and extension of DCCO takes place during the period quoted in paragraph 3(3.3)(v) above, the account may still be restructured by extension of DCCO in terms of guidelines quoted at paragraph 3(3.3)(iii) above, without classifying the account as non-performing asset.

The provisions contained in sub para (a) and (b) above are subject to the following conditions:

NBFCs shall establish that implementation of the project is stalled/affected primarily due to inadequacies of the current promoters/management and with a change in ownership there is a very high probability of commencement of commercial operations by the project within the extended period;

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The project in consideration shall be taken-over/acquired by a new promoter/promoter group with sufficient expertise in the field of operation. If the acquisition is being carried out by a special purpose vehicle (domestic or overseas), the NBFC shall be able to clearly demonstrate that the acquiring entity is part of a new promoter group with sufficient expertise in the field of operation;

The new promoters shall own at least 51 per cent of the paid up equity capital of stake in the acquired project. If the new promoter is a non-resident, and in sectors where the ceiling on foreign investment is less than 51 per cent, the new promoter shall own at least 26 per cent of the paid-up equity capital or up to applicable foreign investment limit, whichever is higher, provided NBFCs are satisfied that with this equity stake the new non-resident promoter controls the management of the project;

Viability of the project shall be established to the satisfaction of the NBFCs.

Intra-group business restructuring/ mergers/ acquisitions and/ or takeover/ acquisition of the project by other entities/ subsidiaries/ associates etc. (domestic as well as overseas), belonging to the existing promoter/ promoter group shall not qualify for this facility. The NBFCs shall clearly establish that the acquirer does not belong to the existing promoter group;

Asset classification of the account as on the ‘reference date’ shall continue during the extended period. For this purpose, the ‘reference date’ shall be the date of execution of preliminary binding agreement between the parties to the transaction, provided that the acquisition/ takeover of ownership as per the provisions of law/regulations governing such acquisition/takeover is completed within a period of 90 days from the date of execution of preliminary binding agreement. During the intervening period, the usual asset classification norms shall continue to apply. If the change in ownership is not completed within 90 days from the preliminary binding agreement, the ‘reference date’ shall be the effective date of acquisition/ takeover as per the provisions of law/regulations governing such acquisition/ takeover;

The new owners/ promoters are expected to demonstrate their commitment by bringing in substantial portion of additional monies required to complete the

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project within the extended time period. As such, treatment of financing of cost overruns for the project shall continue to be subject to the guidelines prescribed in these Directions. Financing of cost overrun beyond the ceiling prescribed in the circular dated January 16, 2015 shall be treated as an event of restructuring even if the extension of DCCO is within the limits prescribed above;

While considering the extension of DCCO (up to an additional period of 2 years) for the benefits envisaged hereinabove, NBFCs shall make sure that the repayment schedule does not extend beyond 85 per cent of the economic life/concession period of the project; and

This facility shall be available to a project only once and will not be available during subsequent change in ownership, if any.

Loans covered under this guideline shall attract provisioning as per the extant provisioning norms depending upon their asset classification status.

In case of infrastructure projects under implementation, where Appointed Date (as defined in the concession agreement) is shifted due to the inability of the Concession Authority to comply with the requisite conditions, change in date of commencement of commercial operations (DCCO) shall not be treated as 'restructuring', subject to following conditions :

The project is an infrastructure project under public private partnership model awarded by a public authority;

The loan disbursement is yet to begin;

The revised date of commencement of commercial operations is documented by way of a supplementary agreement between the borrower and lender and;

Project viability has been reassessed and sanction from appropriate authority has been obtained at the time of supplementary agreement.

3.4. Project Loans for Non-Infrastructure Sector (Other than Commercial Real Estate Exposures)

A loan for a non-infrastructure project shall be classified as NPA during any time before commencement of commercial operations as per record of recovery, unless it

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is restructured and becomes eligible for classification as 'standard asset' in terms of paras (iii) to (iv) below.

A loan for a non-infrastructure project shall be classified as NPA if it fails to commence commercial operations within one year from the original DCCO, even if is regular as per record of recovery, unless it is restructured and becomes eligible for classification as 'standard asset' in terms of paras (iii) to (iv) below.

In case of non-infrastructure projects, if the delay in commencement of commercial operations extends beyond the period of one year from the date of completion as determined at the time of financial closure, NBFCs can prescribe a fresh DCCO, and retain the "standard" classification by undertaking restructuring of accounts, provided the fresh DCCO does not extend beyond a period of two years from the original DCCO. This among others shall also imply that the restructuring application is received before the expiry of one year from the original DCCO, and when the account is still "standard" as per the record of recovery.

The other conditions applicable shall be:

In cases where there is moratorium for payment of interest, NBFCs shall not book income on accrual basis beyond one year from the original DCCO, considering the high risk involved in such restructured accounts.

NBFCs shall maintain following provisions on such accounts as long as these are classified as standard assets apart from provision for diminution in fair value due to extension of DCCO:

Particulars Provisioning Requirement

If the revised DCCO is * 0.25 percent

within one year from the

original DCCO prescribed

at the time of financial

closure

If the DCCO is extended Project loans restructured with effect from

beyond one year and January 24, 2014 :

upto two years from the

*5.00 per cent –From the date of

original DCCO prescribed restructuring for 2 years

at the time of financial

Stock of Project loans classified as

closure restructured as on January 23, 2014 :

-2.75 per cent - with effect from March

31, 2014

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3.50 per cent - with effect from March 31, 2015 (spread over the four quarters of 2014- 15)

4.25 per cent - with effect from March 31, 2016 (spread over the four quarters of 2015- 16)

5 percent - with effect from March 31,

2017 (spread over the four quarters of

2016-17).

The above provisions will be applicable from the date of restructuring for 2 years.

For the purpose of these guidelines, mere extension of DCCO shall not be considered as restructuring, if the revised DCCO falls within the period of one year from the original DCCO. In such cases the consequential shift in repayment period by equal or shorter duration (including the start date and end date of revised repayment schedule) than the extension of DCCO shall also not be considered as restructuring provided all other terms and conditions of the loan remain unchanged. As such project loans shall be treated as standard assets in all respects, they shall attract standard asset provision of 0.25 per cent.

(iv)(a) Multiple revisions of the DCCO and consequential shift in repayment schedule for equal or shorter duration (including the start date and end date of revised repayment schedule) shall be treated as a single event of restructuring provided that the revised DCCO is fixed within the respective time limits as stated in above points and all other terms and conditions of the loan remained unchanged.

(iv)(b) In cases where NBFCs have specifically sanctioned a ‘standby facility’ at the time of initial financial closure to fund cost overruns, they may fund cost overruns as per the agreed terms and conditions.

In cases where the initial financial closure does not envisage such financing of cost overruns, NBFCs have been allowed to fund cost overruns, which may arise on

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account of extension of DCCO within the time limits quoted at (iii)(a) to (b) above, without treating the loans as ‘restructured asset’ subject to the following conditions:

NBFCs may fund additional ‘Interest During Construction’, which may arise on account of delay in completion of a project;

The Debt Equity Ratio as agreed at the time of initial financial closure shall remain unchanged subsequent to funding cost overruns or improve in favour of the lenders and the revised Debt Service Coverage Ratio shall be acceptable to the lenders;

Disbursement of funds for cost overruns shall start only after the Sponsors/Promoters bring in their share of funding of the cost overruns; and

All other terms and conditions of the loan shall remain unchanged or enhanced in favour of the lenders.

(iv)(c)(a) In order to facilitate revival of the projects stalled primarily due to inadequacies of the current promoters, it is advised that if a change in ownership takes place any time during the periods quoted in paragraphs 3(3.4)(iii) and 3(3.4)(iv) above or before the original DCCO, NBFCs may permit extension of the DCCO of the project up to two years in addition to the periods quoted at paragraph 3(3.4)(iii) and 3(3.4)(iv) above, as the case may be, without any change in asset classification of the account subject to the conditions stipulated in the following paragraphs. NBFCs may also consequentially shift/extend repayment schedule, if required, by an equal or shorter duration.

It is clarified that in cases where change in ownership and extension of DCCO (as indicated in paragraph 3(3.4)(iv)(c)(a) above) takes place before the original DCCO, and if the project fails to commence commercial operations by the extended DCCO, the project will be eligible for further extension of DCCO in terms of guidelines quoted at paragraph 3(3.4)(iii) and 3(3.4)(iv) above. Similarly, where

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change in ownership and extension of DCCO takes place during the period quoted in paragraph 3(3.4)(iv) above, the account may still be restructured by extension of DCCO in terms of guidelines quoted at paragraph 3(3.4)(iii) above, without classifying the account as non-performing asset.

The provisions contained in sub para (a) and (b) above are subject to the following conditions:

NBFCs shall establish that implementation of the project is stalled/ affected primarily due to inadequacies of the current promoters/ management and with a change in ownership there is a very high probability of commencement of commercial operations by the project within the extended period;

The project in consideration shall be taken-over/ acquired by a new promoter/promoter group with sufficient expertise in the field of operation. If the acquisition is being carried out by a special purpose vehicle (domestic or overseas), the NBFC shall be able to clearly demonstrate that the acquiring entity is part of a new promoter group with sufficient expertise in the field of operation;

Viability of the project shall be established to the satisfaction of the NBFCs.

Intra-group business restructuring/ mergers/ acquisitions and/ or takeover/ acquisition of the project by other entities/ subsidiaries/ associates etc. (domestic as well as overseas), belonging to the existing promoter/promoter group shall not qualify for this facility. The NBFCs shall clearly establish that the acquirer does not belong to the existing promoter group;

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Asset classification of the account as on the ‘reference date’ would continue during the extended period. For this purpose, the ‘reference date’ would be the date of execution of preliminary binding agreement between the parties to the transaction, provided that the acquisition/ takeover of ownership as per the provisions of law/regulations governing such acquisition/ takeover is completed within a period of 90 days from the date of execution of preliminary binding agreement. During the intervening period, the usual asset classification norms would continue to apply. If the change in ownership is not completed within 90 days from the preliminary binding agreement, the ‘reference date’ shall be the effective date of acquisition/ takeover as per the provisions of law/regulations governing such acquisition/ takeover;

The new owners/ promoters are expected to demonstrate their commitment by bringing in substantial portion of additional monies required to complete the project within the extended time period. As such, treatment of financing of cost overruns for the project shall continue to be subject to the guidelines prescribed in these Directions. Financing of cost overrun beyond the ceiling prescribed in the circular dated January 16, 2015 shall be treated as an event of restructuring even if the extension of DCCO is within the limits prescribed above;

This facility shall be available to a project only once and shall not be available during subsequent change in ownership, if any.

Loans covered under this guideline shall attract provisioning as per the extant provisioning norms depending upon their asset classification status.

3.5. Other Issues

Any change in the repayment schedule of a project loan caused due to an increase in the project outlay on account of increase in scope and size of the project, shall not be treated as restructuring if:

The increase in scope and size of the project takes place before commencement of commercial operations of the existing project.

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The rise in cost excluding any cost-overrun in respect of the original project is 25 per cent or more of the original outlay.

The NBFC re-assesses the viability of the project before approving the enhancement of scope and fixing a fresh DCCO.

On re-rating, (if already rated) the new rating is not below the previous rating by more than one notch.

Project Loans for Commercial Real Estate

For CRE projects mere extension of DCCO shall not be considered as restructuring, if the revised DCCO falls within the period of one year from the original DCCO and there is no change in other terms and conditions except possible shift of the repayment schedule and servicing of the loan by equal or shorter duration compared to the period by which DCCO has been extended. Such CRE project loans shall be treated as standard assets in all respects for this purpose without attracting the higher provisioning applicable for restructured standard assets. However, the asset classification benefit shall not be available to CRE projects if they are restructured.

In all the above cases of restructuring where regulatory forbearance has been extended, the Boards of NBFCs shall satisfy themselves about the viability of the project and the restructuring plan.

3.6. Income recognition

NBFCs shall recognise income on accrual basis in respect of the projects under implementation, which are classified as 'standard'.

NBFCs shall not recognise income on accrual basis in respect of the projects under implementation which are classified as a 'substandard' asset. NBFCs shall recognise income in such accounts only on realisation on cash basis.

Consequently, NBFCs which have wrongly recognised income in the past shall reverse the interest if it was recognised as income during the current year or make a provision for an equivalent amount if it was recognised as income in the previous year(s). As regards the regulatory treatment of 'funded interest' recognised as income and 'conversion into equity, debentures or any other instrument' NBFCs shall adopt the following:

Funded Interest: Income recognition in respect of the NPAs, regardless of whether these are or are not subjected to restructuring / rescheduling / renegotiation of terms of the loan agreement, shall be done strictly on cash

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basis, only on realisation and not if the amount of interest overdue has been funded. If, however, the amount of funded interest is recognised as income, a provision for an equal amount shall also be made simultaneously. In other words, any funding of interest in respect of NPAs, if recognized as income, shall be fully provided for.

Conversion into equity, debentures or any other instrument: The amount outstanding converted into other instruments shall normally comprise principal and the interest components. If the amount of interest dues is converted into equity or any other instrument, and income is recognised in consequence, full provision shall be made for the amount of income so recognised to offset the effect of such income recognition. Such provision shall be in addition to the amount of provision that may be necessary for the depreciation in the value of the equity or other instruments as per the valuation norms. However, if the conversion of interest is into equity which is quoted, interest income can be recognised at market value of equity, as on the date of conversion, not exceeding the amount of interest converted to equity. Such equity must thereafter be classified ''current investment" category and valued at lower of cost or market value. In case of conversion of principal and /or interest in respect of NPAs into debentures, such debentures shall be treated as NPA, ab initio, in the same asset classification as was applicable to loan just before conversion and provision made as per norms. This norm shall also apply to zero coupon bonds or other instruments which seek to defer the liability of the issuer. On such debentures, income shall be recognised only on realisation basis. The income in respect of unrealised interest which is converted into debentures or any other fixed maturity instrument shall be recognised only on redemption of such instrument. Subject to the above, the equity shares or other instruments arising from conversion of the principal amount of loan shall also be subject to the usual prudential valuation norms as applicable to such instruments.

General Principles and Prudential Norms for Restructured Advances

The principles and prudential norms laid down in this paragraph shall be applicable to all advances.

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4.1 Eligibility criteria for restructuring of advances

4.1.1 NBFCs may restructure the accounts classified under 'standard', 'substandard' and 'doubtful' categories.

4.1.2 NBFCs cannot reschedule/ restructure/ renegotiate borrowal accounts with retrospective effect. While a restructuring proposal is under consideration, the usual asset classification norms shall continue to apply. The process of re- classification of an asset shall not stop merely because restructuring proposal is under consideration. The asset classification status as on the date of approval of the restructured package by the competent authority shall be relevant to decide the asset classification status of the account after restructuring / rescheduling / renegotiation. In case there is undue delay in sanctioning a restructuring package and in the meantime the asset classification status of the account undergoes deterioration, it shall be a matter of supervisory concern.

4.1.3 Normally, restructuring cannot take place unless alteration / changes in the original loan agreement are made with the formal consent / application of the debtor. However, the process of restructuring can be initiated by the NBFC in deserving cases subject to customer agreeing to the terms and conditions.

4.1.4 No account shall be taken up for restructuring by the NBFCs unless the financial viability is established and there is a reasonable certainty of repayment from the borrower, as per the terms of restructuring package. Any restructuring done without looking into cash flows of the borrower and assessing the viability of the projects / activity financed by NBFCs shall be treated as an attempt at ever greening a weak credit facility and shall invite supervisory concerns / action. NBFCs shall accelerate the recovery measures in respect of such accounts. The viability shall be determined by the NBFCs based on the acceptable viability benchmarks determined by them, which may be applied on a case-by-case basis, depending on merits of each case. Illustratively, the parameters can include the Return on Capital Employed, Debt Service Coverage Ratio, Gap between the Internal Rate of Return and Cost of Funds and the amount of provision required in lieu of the diminution in the fair value of the restructured advance. As different sectors of economy have different performance indicators, it shall be desirable that NBFCs adopt these broad benchmarks with suitable modifications. Therefore, it has been decided that the viability shall be determined by the NBFCs based on the acceptable viability parameters and benchmarks for each parameter determined by them. The

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benchmarks for the viability parameters adopted by the CDR Mechanism are given in the Appendix-1. NBFCs shall suitably adopt them with appropriate adjustments, if any, for specific sectors while restructuring of accounts in non-CDR cases.

4.1.5 Borrowers indulging in frauds and malfeasance shall continue to remain ineligible for restructuring.

4.1.6 BIFR cases are not eligible for restructuring without their express approval. CDR Core Group in the case of advances restructured under CDR Mechanism, the lead bank in the case of SME Debt Restructuring Mechanism and the individual NBFCs in other cases, may consider the proposals for restructuring in such cases, after ensuring that all the formalities in seeking the approval from BIFR are completed before implementing the package.

4.2 Asset classification norms

Restructuring of advances shall take place in the following stages:

before commencement of commercial production/ operation;

after commencement of commercial production/ operation but before the asset has been classified as 'sub-standard';

after commencement of commercial production/ operation and the

asset has been classified as 'sub-standard' or 'doubtful'.

4.2.1 The accounts classified as 'standard assets' shall be immediately reclassified as 'sub-standard assets' upon restructuring.

4.2.2 The non-performing assets, upon restructuring, shall continue to have the same asset classification as prior to restructuring and slip into further lower asset classification categories as per extant asset classification norms with reference to the pre-restructuring repayment schedule.

4.2.3 Standard accounts classified as NPA and NPA accounts retained in the same category on restructuring by the NBFC shall be upgraded only when all the outstanding loan/ facilities in the account perform satisfactorily during the 'specified period' (Appendix - 2), i.e. principal and interest on all facilities in the account are serviced as per terms of payment during that period.

4.2.4 In case, however, satisfactory performance after the specified period is not evidenced, the asset classification of the restructured account shall be governed as

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per the applicable prudential norms with reference to the pre-restructuring payment schedule.

4.2.5 Any additional finance shall be treated as 'standard asset' during the specified period (Appendix - 2) under the approved restructuring package. However, in the case of accounts where the pre-restructuring facilities were classified as 'substandard' and 'doubtful', interest income on the additional finance shall be recognised only on cash basis. If the restructured asset does not qualify for upgradation at the end of the above specified period, the additional finance shall be placed in the same asset classification category as the restructured debt.

4.2.6 If a restructured asset, which is a standard asset on restructuring is subjected to restructuring on a subsequent occasion, it shall be classified as substandard. If the restructured asset is a sub-standard or a doubtful asset and is subjected to restructuring, on a subsequent occasion, its asset classification will be reckoned from the date when it became NPA on the first occasion. However, such advances restructured on second or more occasion shall be allowed to be upgraded to standard category after the specified period (Appendix - 2) in terms of the current restructuring package, subject to satisfactory performance.

4.3 Income recognition norms

Subject to provisions of paragraphs 4.2.5, 5.2 and 6.2, interest income in respect of restructured accounts classified as 'standard assets' shall be recognized on accrual basis and that in respect of the accounts classified as 'non-performing assets' shall be recognized on cash basis.

4.4 Provisioning norms

4.4.1 Provision on restructured advances

NBFCs shall hold provision against the restructured advances as per the extant provisioning norms.

Restructured accounts classified as standard advances shall attract a higher provision (as prescribed from time to time) in the first two years from the date of restructuring. In cases of moratorium on payment of interest/ principal after restructuring, such advances shall attract the prescribed higher provision for the period covering moratorium and two years thereafter.

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Restructured accounts classified as non-performing advances, when upgraded to standard category shall attract a higher provision (as prescribed from time to time) in the first year from the date of upgradation.

The above-mentioned higher provision on restructured standard advances shall be 5 per cent in respect of new restructured standard accounts (flow) with effect from January 24, 2014 and 5 per cent for the stock of restructured standard accounts as on January 23, 2014 with effect from March 31, 2017 (spread over the four quarters of 2016-17

4.4.2 Provision for diminution in the fair value of restructured advances

Reduction in the rate of interest and / or reschedulement of the repayment of principal amount, as part of the restructuring, shall result in diminution in the fair value of the advance. Such diminution in value is an economic loss for the NBFC and shall have impact on the NBFC's market value. It is, therefore, necessary for NBFCs to measure such diminution in the fair value of the advance and make provisions for it by debit to Profit & Loss Account. Such provision shall be held in addition to the provisions as per existing provisioning norms as indicated in para 4.4.1 above, and in an account distinct from that for normal provisions.

For this purpose, the erosion in the fair value of the advance shall be computed as the difference between the fair value of the loan before and after restructuring. Fair value of the loan before restructuring will be computed as the present value of cash flows representing the interest at the existing rate charged on the advance before restructuring and the principal, discounted at a rate equal to the NBFC's bare lending rate i.e. the interest rate applicable to the borrower as per the loan agreement had the loan been serviced without any default, as applicable to the concerned borrower, as on the date of restructuring. Fair value of the loan after restructuring shall be computed as the present value of cash flows representing the interest at the rate charged on the advance on restructuring and the principal, discounted at a rate equal to the NBFC's bare lending rate as applicable to the borrower as on the date of restructuring.

The above formula moderates the swing in the diminution of present value of loans with the interest rate cycle and shall have to be followed consistently by NBFCs in future. Further, it is reiterated that the provisions required as above arise due to the action of the NBFCs resulting in change in contractual terms of the loan upon

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restructuring which are in the nature of financial concessions. These provisions are distinct from the provisions which are linked to the asset classification of the account classified as NPA and reflect the impairment due to deterioration in the credit quality of the loan. Thus, the two types of the provisions are not substitute for each other.

The amount of principal converted into debt/ equity instruments on restructuring shall be held under 'current investments' and valued as per usual valuation norms. Therefore, for the purpose of arriving at the erosion in the fair value, the NPV calculation of the portion of principal not converted into debt/ equity has to be carried out separately. However, the total sacrifice involved for the NBFC would be NPV of the above portion plus valuation loss on account of conversion into debt / equity instruments.

NBFCs are therefore advised that they shall correctly capture the diminution in fair value of restructured accounts as it shall have a bearing not only on the provisioning required to be made by them but also on the amount of sacrifice required from the promoters (Ref. para 7.6). Further, there must not be any effort on the part of NBFCs to artificially reduce the net present value of cash flows by resorting to any sort of financial engineering. NBFCs shall put in place a proper mechanism of checks and balances to ensure accurate calculation of erosion in the fair value of restructured accounts.

In the event any security is taken in lieu of the diminution in the fair value of the advance, it shall be valued at Re.1/- till maturity of the security. This will ensure that the effect of charging off the economic sacrifice to the Profit & Loss account is not negated.

The diminution in the fair value shall be re-computed on each balance sheet date till satisfactory completion of all repayment obligations and full repayment of the outstanding in the account, so as to capture the changes in the fair value on account of changes in the bare lending rate as applicable to the borrower. Consequently, NBFCs shall provide for the shortfall in provision or reverse the amount of excess provision held in the distinct account.

If due to lack of expertise / appropriate infrastructure, an NBFC finds it difficult to ensure computation of diminution in the fair value of advances, as an alternative to

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the methodology prescribed above for computing the amount of diminution in the fair value, NBFCs shall have the option of notionally computing the amount of diminution in the fair value and providing therefor, at five percent of the total exposure, in respect of all restructured accounts where the total dues to NBFC(s) are less than rupees one crore.

4.4.3 The total provisions required against an account (normal provisions plus provisions in lieu of diminution in the fair value of the advance) are capped at 100 per cent of the outstanding debt amount.

Prudential Norms for Conversion of Principal into Debt / Equity

1 Asset classification norms

A part of the outstanding principal amount can be converted into debt or equity instruments as part of restructuring. The debt / equity instruments so created shall be classified in the same asset classification category in which the restructured advance has been classified. Further movement in the asset classification of these instruments shall also be determined based on the subsequent asset classification of the restructured advance.

5.2 Income recognition norms

5.2.1 Standard Accounts

In the case of restructured accounts classified as 'standard', the income, if any, generated by these instruments shall be recognised on accrual basis.

5.2.2 Non- Performing Accounts

In the case of restructured accounts classified as non-performing assets, the income, if any, generated by these instruments shall be recognised only on cash basis.

5.3 Valuation and provisioning norms

These instruments shall be held under 'current investments' and valued as per usual valuation norms. Equity classified as standard asset shall be valued either at market value, if quoted, or at break-up value, if not quoted (without considering the revaluation reserve, if any) which is to be ascertained from the company's latest balance sheet. In case the latest balance sheet is not available, the shares are to be valued at Re.1. Equity instrument classified as NPA shall be valued at market value, if quoted, and in case where equity is not quoted, it shall be valued at Re.1.

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Depreciation on these instruments shall not be offset against the appreciation in any other securities held under the 'current investment' category.

Prudential Norms for Conversion of Unpaid Interest into 'Funded Interest Term Loan' (FITL), Debt or Equity Instruments

1 Asset classification norms

The FITL / debt or equity instrument created by conversion of unpaid interest shall be classified in the same asset classification category in which the restructured advance has been classified. Further movement in the asset classification of FITL / debt or equity instruments shall also be determined based on the subsequent asset classification of the restructured advance.

6.2 Income recognition norms

6.2.1 The income, if any, generated by these instruments shall be recognised on accrual basis, if these instruments are classified as 'standard', and on cash basis in the cases where these have been classified as a non-performing asset.

6.2.2 The unrealised income represented by FITL / Debt or equity instrument shall have a corresponding credit in an account styled as "Sundry Liabilities Account (Interest Capitalisation)".

6.2.3 In the case of conversion of unrealised interest income into equity, which is quoted, interest income can be recognized after the account is upgraded to standard category at market value of equity, on the date of such upgradation, not exceeding the amount of interest converted into equity.

6.2.4 Only on repayment in case of FITL or sale / redemption proceeds of the debt

equity instruments, the amount received shall be recognised in the P&L Account, while simultaneously reducing the balance in the "Sundry Liabilities Account (Interest Capitalisation)".

6.3 Valuation & Provisioning norms

Valuation and provisioning norms shall be as per para 5.3 above. The depreciation, if any, on valuation shall be charged to the Sundry Liabilities (Interest Capitalisation) Account.

7. Miscellaneous

Following general conditions shall be applicable in all cases of restructuring:

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7.1 The NBFCs shall decide on the issue regarding convertibility (into equity) option as a part of restructuring exercise whereby the NBFCs shall have the right to convert a portion of the restructured amount into equity, keeping in view the relevant SEBI regulations.

7.2 Conversion of debt into preference shares shall be done only as a last resort and such conversion of debt into equity / preference shares shall, in any case, be restricted to a cap (say 10 per cent of the restructured debt). Further, any conversion of debt into equity shall be done only in the case of listed companies.

7.3 NBFCs may consider incorporating in the approved restructuring packages creditor's rights to accelerate repayment and the borrower's right to pre pay. Further, all restructuring packages must incorporate 'Right to recompense' clause and it shall be based on certain performance criteria of the borrower. In any case, minimum 75 per cent of the recompense amount shall be recovered by the lenders and in cases where some facility under restructuring has been extended below bare lending rate, 100 per cent of the recompense amount shall be recovered.

7.4 As stipulating personal guarantee will ensure promoters' "skin in the game" or commitment to the restructuring package, promoters' personal guarantee shall be obtained in all cases of restructuring and corporate guarantee cannot be accepted as a substitute for personal guarantee. However, corporate guarantee can be accepted in those cases where the promoters of a company are not individuals but other corporate bodies or where the individual promoters cannot be clearly identified.

7.5 All restructuring packages shall be required to be implemented in a time bound manner. All restructuring packages under CDR / JLF / Consortium / MBA arrangement shall be implemented within 90 days from the date of approval. Other restructuring packages shall be implemented within 120 days from the date of receipt of application by the NBFC.

7.6 Promoters must bring additional funds in all cases of restructuring. Additional funds brought by promoters shall be a minimum of 20 per cent of NBFCs' sacrifice or 2 per cent of the restructured debt, whichever is higher. The promoters' contribution shall invariably be brought upfront while extending the restructuring benefits to the borrowers. Promoter's contribution need not necessarily be brought in cash and can be brought in the form of conversion of unsecured loan from the promoters into equity;

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7.7 NBFCs shall determine a reasonable time period during which the account is likely to become viable, based on the cash flow and the Techno Economic Viability (TEV) study;

7.8 NBFCs shall be satisfied that the post restructuring repayment period is reasonable, and commensurate with the estimated cash flows and required DSCR in the account as per their own Board approved policy.

7.9 Each NBFC shall clearly document its own due diligence done in assessing the TEV and the viability of the assumptions underlying the restructured repayment terms.

Disclosures

With effect from the financial year ending March 2014, NBFCs shall disclose in their published annual Balance Sheets, under "Notes on Accounts", information relating to number and amount of advances restructured, and the amount of diminution in the fair value of the restructured advances as per the format given in Appendix - 4. The information shall be required for advances restructured under CDR Mechanism, SME Debt Restructuring Mechanism and other categories separately. NBFCs must disclose the total amount outstanding in all the accounts / facilities of borrowers whose accounts have been restructured along with the restructured part or facility. This means even if only one of the facilities / accounts of a borrower has been restructured, the NBFC shall also disclose the entire outstanding amount pertaining to all the facilities / accounts of that particular borrower. The disclosure format prescribed in Appendix - 4, inter-alia, includes the following:

details of accounts restructured on a cumulative basis excluding the standard restructured accounts which cease to attract higher provision and risk weight (if applicable);

provisions made on restructured accounts under various categories; and

details of movement of restructured accounts.

This implies that once the higher provisions on restructured advances (classified as standard either ab initio or on upgradation from NPA category) revert to the normal level on account of satisfactory performance during the prescribed period, such advances shall no longer be required to be disclosed by NBFCs as restructured accounts in the "Notes on Accounts" in their Annual Balance Sheets. However, the provision for diminution in the fair value of restructured accounts on such

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restructured accounts shall continue to be maintained by NBFCs as per the existing instructions.

9. The CDR Mechanism will also be available to the corporates engaged in nonindustrial activities, if they are otherwise eligible for restructuring as per the criteria laid down for this purpose. Further, NBFCs are also encouraged to strengthen the coordination among themselves / creditors in the matter of restructuring of consortium / multiple lending accounts, which are not covered under the CDR Mechanism.

It has been reiterated that the basic objective of restructuring is to preserve economic value of units, not ever-greening of problem accounts. This can be achieved by NBFCs and the borrowers only by careful assessment of the viability, quick detection of weaknesses in accounts and a time-bound implementation of restructuring packages.

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Appendix -1

Broad Benchmarks for the Viability Parameters

i. Return on capital employed shall be at least equivalent to 5 year Government security yield plus 2 per cent.

The debt service coverage ratio shall be greater than 1.25 within the 5 years period in which the unit shall become viable and on year to year basis the ratio shall be above 1. The normal debt service coverage ratio for 10 years repayment period shall be around 1.33.

The benchmark gap between internal rate of return and cost of capital shall be at least 1per cent.

Operating and cash break even points shall be worked out and they shall be comparable with the industry norms.

Trends of the company based on historical data and future projections shall be comparable with the industry. Thus behaviour of past and future EBIDTA shall be studied and compared with industry average.

Loan life ratio (LLR), as defined below shall be 1.4, which would give a cushion of 40 per cent to the amount of loan to be serviced.

Present value of total available cash flow (ACF)

LLR = during the loan life period (including interest and principal)

Maximum amount of loan

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Appendix-2

Key Concepts

Advances

The term 'Advances' shall mean all kinds of credit facilities including, term loans, bills discounted / purchased, factored receivables, etc. and investments other than that in the nature of equity.

(ii) Fully Secured

When the amounts due to an NBFC (present value of principal and interest receivable as per restructured loan terms) are fully covered by the value of security, duly charged in its favour in respect of those dues, the NBFC's dues are considered to be fully secured. While assessing the realisable value of security, primary as well as collateral securities shall be reckoned, provided such securities are tangible securities and are not in intangible form like guarantee etc., of the promoter / others. However, for this purpose the bank guarantees, State Government Guarantees and Central Government Guarantees shall be treated on par with tangible security.

(iii) Restructured Accounts

A restructured account is one where the NBFC, for economic or legal reasons relating to the borrower's financial difficulty, grants to the borrower concessions that the NBFC would not otherwise consider. Restructuring shall normally involve modification of terms of the advances/ securities, which shall generally include, among others, alteration of repayment period/ repayable amount/ the amount of instalments/ rate of interest (due to reasons other than competitive reasons). However, extension in repayment tenor of a floating rate loan on reset of interest rate, so as to keep the EMI unchanged provided it is applied to a class of accounts uniformly shall not render the account to be classified as 'Restructured account'. In other words, extension or deferment of EMIs to individual borrowers as against to an entire class, shall render the accounts to be classified as 'restructured accounts'.

In the cases of roll-over of short term loans, where proper pre-sanction assessment has been made, and the roll-over is allowed based on the actual requirement of the borrower and no concession has been provided due to credit weakness of the borrower, then these shall not be considered as restructured

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accounts. However, if such accounts are rolled-over more than two times, then third roll-over onwards the account shall be treated as a restructured account. Besides, NBFCs must be circumspect while granting such facilities as the borrower may be availing similar facilities from other banks/ creditors in the consortium or under multiple banking. Further, Short Term Loans for the purpose of this provision do not include properly assessed regular Working Capital Loans like revolving Cash Credit or Working Capital Demand Loans.

(iv) Repeatedly Restructured Accounts

When an NBFC restructures an account a second (or more) time(s), the account will be considered as a 'repeatedly restructured account'. However, if the second restructuring takes place after the period upto which the concessions were extended under the terms of the first restructuring, that account shall not be reckoned as a 'repeatedly restructured account'.

SMEs

Small and Medium Enterprise (SME) is an undertaking defined in circular RPCD.PLNFS.BC.No.63.06.02/2006-07 dated April 4, 2007 amended from time to time.

(vi) Specified Period

Specified Period means a period of one year from the commencement of the first payment of interest or principal, whichever is later, on the credit facility with longest period of moratorium under the terms of restructuring package.

(vii) Satisfactory Performance

Satisfactory performance during the specified period means adherence to the following conditions during that period.

Non-Agricultural Term Loan Accounts

In the case of non-agricultural term loan accounts, no payment shall remain overdue for a period of more than the number of days after which it would be classified as NPA. In addition there shall not be any overdues at the end of the specified period.

Note

While extending repayment period in respect of housing loans to keep the EMI unchanged, NBFCs shall satisfy themselves about the revenue generation/ repaying capacity of the borrower during the entire repayment period including the extended repayment period.

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NBFCs shall not extend the repayment period of such borrowers where they have concerns regarding the repaying capacity over the extended period, even if the borrowers want to extend the tenor to keep the EMI unchanged.

NBFCs shall provide the option of higher EMI to such borrowers who want to repay the housing loan as per the original repayment period.

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Appendix-3

Organisational Framework for Restructuring of Advances Under

Consortium/ Multiple Banking/ Syndication Arrangements

Corporate Debt Restructuring (CDR) Mechanism 1.1 Objective

The objective of the Corporate Debt Restructuring (CDR) framework is to ensure timely and transparent mechanism for restructuring the corporate debts of viable entities facing problems, outside the purview of BIFR, DRT and other legal proceedings, for the benefit of all concerned. In particular, the framework shall aim at preserving viable corporates that are affected by certain internal and external factors and minimize the losses to the creditors and other stakeholders through an orderly and coordinated restructuring programme.

1.2 Scope

The CDR Mechanism has been designed to facilitate restructuring of advances of borrowers enjoying credit facilities from more than one bank/ Financial Institution (FI) in a coordinated manner. The CDR Mechanism is an organizational framework institutionalized for speedy disposal of restructuring proposals of large borrowers availing finance from more than one bank/ FI. This mechanism shall be available to all borrowers engaged in any type of activity subject to the following conditions:

The borrowers enjoy credit facilities from more than one bank/ FI under multiple banking/ syndication/ consortium system of lending.

The total outstanding (fund-based and non-fund based) exposure is ₹ 10 crore or above.

CDR system in the country shall have a three tier structure:

CDR Standing Forum and its Core Group

CDR Empowered Group

CDR Cell

CDR Standing Forum

2.1 The CDR Standing Forum shall be the representative general body of all financial institutions and banks participating in CDR system. All financial institutions and banks shall participate in the system in their own interest. CDR Standing Forum shall be a self-empowered body, which shall lay down policies and guidelines, and monitor the progress of corporate debt restructuring.

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2.2 The Forum shall also provide an official platform for both the creditors and borrowers (by consultation) to amicably and collectively evolve policies and guidelines for working out debt restructuring plans in the interests of all concerned.

2.3 The CDR Standing Forum shall comprise of Chairman & Managing Director, Industrial Development Bank of India Ltd; Chairman, State Bank of India; Managing Director & CEO, ICICI Bank Limited; Chairman, Indian Banks' Association as well as Chairman and Managing Directors of all banks and financial institutions participating as permanent members in the system. Since institutions like Unit Trust of India, General Insurance Corporation, Life Insurance Corporation may have assumed exposures on certain borrowers, these institutions may participate in the CDR system. The Forum will elect its Chairman for a period of one year and the principle of rotation shall be followed in the subsequent years. However, the Forum may decide to have a Working Chairman as a whole-time officer to guide and carry out the decisions of the CDR Standing Forum. The RBI shall not be a member of the CDR Standing Forum and Core Group. Its role shall be confined to providing broad guidelines.

2.4 The CDR Standing Forum shall meet at least once every six months and would review and monitor the progress of corporate debt restructuring system. The Forum shall also lay down the policies and guidelines including those relating to the critical parameters for restructuring (for example, maximum period for a unit to become viable under a restructuring package, minimum level of promoters' sacrifice etc.) to be followed by the CDR Empowered Group and CDR Cell for debt restructuring and shall ensure their smooth functioning and adherence to the prescribed time schedules for debt restructuring. It can also review any individual decisions of the CDR Empowered Group and CDR Cell. The CDR Standing Forum shall also formulate guidelines for dispensing special treatment to those cases, which are complicated and are likely to be delayed beyond the time frame prescribed for processing.

2.5 A CDR Core Group shall be carved out of the CDR Standing Forum to assist the Standing Forum in convening the meetings and taking decisions relating to policy, on behalf of the Standing Forum. The Core Group shall consist of Chief Executives of Industrial Development Bank of India Ltd., State Bank of India, ICICI Bank Ltd, Bank of Baroda, Bank of India, Punjab National Bank, Indian Banks' Association and Deputy Chairman of Indian Banks' Association representing foreign banks in India.

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2.6 The CDR Core Group shall lay down the policies and guidelines to be followed by the CDR Empowered Group and CDR Cell for debt restructuring. These guidelines shall also suitably address the operational difficulties experienced in the functioning of the CDR Empowered Group. The CDR Core Group shall also prescribe the PERT chart for processing of cases referred to the CDR system and decide on the modalities for enforcement of the time frame. The CDR Core Group shall also lay down guidelines to ensure that over-optimistic projections are not assumed while preparing/ approving restructuring proposals especially with regard to capacity utilization, price of products, profit margin, demand, availability of raw materials, input-output ratio and likely impact of imports/ international cost competitiveness.

CDR Empowered Group

3.1 The individual cases of corporate debt restructuring shall be decided by the CDR Empowered Group, consisting of ED level representatives of Industrial Development Bank of India Ltd., ICICI Bank Ltd. and State Bank of India as standing members, in addition to ED level representatives of financial institutions and banks who have an exposure to the concerned company. While the standing members shall facilitate the conduct of the Group's meetings, voting shall be in proportion to the exposure of the creditors only. In order to make the CDR Empowered Group effective and broad based and operate efficiently and smoothly, it shall have to be ensured that participating institutions / banks approve a panel of senior officers to represent them in the CDR Empowered Group and ensure that they depute officials only from among the panel to attend the meetings of CDR Empowered Group. Further, nominees who attend the meeting pertaining to one account shall invariably attend all the meetings pertaining to that account instead of deputing their representatives.

3.2 The level of representation of banks/ financial institutions on the CDR Empowered Group shall be at a sufficiently senior level to ensure that concerned bank / FI abides by the necessary commitments including sacrifices, made towards debt restructuring. There shall be a general authorisation by the respective Boards of the participating institutions/ banks in favour of their representatives on the CDR Empowered Group, authorising them to take decisions on behalf of their organization, regarding restructuring of debts of individual corporates.

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3.3 The CDR Empowered Group shall consider the preliminary report of all cases of requests of restructuring, submitted to it by the CDR Cell. After the Empowered Group decides that restructuring of the company is prima-facie feasible and the enterprise is potentially viable in terms of the policies and guidelines evolved by Standing Forum, the detailed restructuring package shall be worked out by the CDR Cell in conjunction with the Lead Institution. However, if the lead institution faces difficulties in working out the detailed restructuring package, the participating banks/ financial institutions shall decide upon the alternate institution/ bank which shall work out the detailed restructuring package at the first meeting of the Empowered Group when the preliminary report of the CDR Cell comes up for consideration.

3.4 The CDR Empowered Group shall be mandated to look into each case of debt restructuring, examine the viability and rehabilitation potential of the Company and approve the restructuring package within a specified time frame of 90 days, or at best within 180 days of reference to the Empowered Group. The CDR Empowered Group shall decide on the acceptable viability benchmark levels on the following illustrative parameters, which shall be applied on a case-by-case basis, based on the merits of each case :

Return on Capital Employed (ROCE),

Debt Service Coverage Ratio (DSCR),

Gap between the Internal Rate of Return (IRR) and the Cost of Fund (CoF),

Extent of sacrifice.

3.5 The Board of each bank/ FI shall authorise its Chief Executive Officer (CEO) and/ or Executive Director (ED) to decide on the restructuring package in respect of cases referred to the CDR system, with the requisite requirements to meet the control needs. CDR Empowered Group shall meet on two or three occasions in respect of each borrowal account. This shall provide an opportunity to the participating members to seek proper authorisations from their CEO / ED, in case of need, in respect of those cases where the critical parameters of restructuring are beyond the authority delegated to him / her.

3.6 The decisions of the CDR Empowered Group shall be final. If restructuring of debt is found to be viable and feasible and approved by the Empowered Group, the company shall be put on the restructuring mode. If restructuring is not found viable, the creditors shall then be free to take necessary steps for immediate recovery of dues and / or liquidation or winding up of the company, collectively or individually.

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CDR Cell

4.1 The CDR Standing Forum and the CDR Empowered Group shall be assisted by a CDR Cell in all their functions. The CDR Cell shall make the initial scrutiny of the proposals received from borrowers/ creditors, by calling for proposed rehabilitation plan and other information and put up the matter before the CDR Empowered Group, within one month to decide whether rehabilitation is prima facie feasible. If found feasible, the CDR Cell shall proceed to prepare detailed Rehabilitation Plan with the help of creditors and, if necessary, experts to be engaged from outside. If not found prima facie feasible, the creditors may start action for recovery of their dues.

4.2 All references for corporate debt restructuring by creditors or borrowers shall be made to the CDR Cell. It shall be the responsibility of the lead institution/ major stakeholder to the corporate, to work out a preliminary restructuring plan in consultation with other stakeholders and submit to the CDR Cell within one month. The CDR Cell shall prepare the restructuring plan in terms of the general policies and guidelines approved by the CDR Standing Forum and place for consideration of the Empowered Group within 30 days for decision. The Empowered Group can approve or suggest modifications but ensure that a final decision is taken within a total period of 90 days. However, for sufficient reasons the period can be extended up to a maximum of 180 days from the date of reference to the CDR Cell.

4.3 The CDR Standing Forum, the CDR Empowered Group and CDR Cell is at present housed in Industrial Development Bank of India Ltd. However, it may be shifted to another place if considered necessary, as shall be decided by the Standing Forum. The administrative and other costs shall be shared by all financial institutions and banks. The sharing pattern shall be as determined by the Standing Forum.

4.4 CDR Cell shall have adequate members of staff deputed from banks and financial institutions. The CDR Cell may also take outside professional help. The cost in operating the CDR mechanism including CDR Cell shall be met from contribution of the financial institutions and banks in the Core Group at the rate of ₹50 lakh each and contribution from other institutions and banks at the rate of ₹5 lakh each.

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Other features

1 Eligibility criteria

1.1 The scheme shall not apply to accounts involving only one financial institution or one bank. The CDR mechanism shall cover only multiple banking accounts / syndication / consortium accounts of corporate borrowers engaged in any type of activity with outstanding fund-based and non-fund based exposure of ₹10 crore and above by banks and institutions.

1.2 The Category 1 CDR system shall be applicable only to accounts classified as 'standard' and 'sub-standard'. There may be a situation where a small portion of debt by a bank might be classified as doubtful. In that situation, if the account has been classified as 'standard' / 'substandard' in the books of at least 90 per cent of creditors (by value), the same shall be treated as standard / substandard, only for the purpose of judging the account as eligible for CDR, in the books of the remaining

per cent of creditors. There shall be no requirement of the account / company being sick, NPA or being in default for a specified period before reference to the CDR system. However, potentially viable cases of NPAs will get priority. This approach shall provide the necessary flexibility and facilitate timely intervention for debt restructuring. Prescribing any milestone(s) may not be necessary, since the debt restructuring exercise is being triggered by banks and financial institutions or with their consent.

1.3 While corporates indulging in frauds and malfeasance even in a single bank shall continue to remain ineligible for restructuring under CDR mechanism as hitherto, the Core group shall review the reasons for classification of the borrower as wilful defaulter specially in old cases where the manner of classification of a borrower as a wilful defaulter was not transparent and satisfy itself that the borrower is in a position to rectify the wilful default provided he is granted an opportunity under the CDR mechanism. Such exceptional cases shall be admitted for restructuring with the approval of the Core Group only. The Core Group shall ensure that cases involving frauds or diversion of funds with malafide intent are not covered.

With a view to preserve the economic value of viable accounts, it has been decided that in cases of fraud / malfeasance where the existing promoters are replaced by new promoters and the borrower company is totally delinked from such erstwhile promoters / management, NBFCs and JLF shall take a view on restructuring of such accounts based on their viability, without prejudice to the continuance of criminal

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action against the erstwhile promoters / management. Further, such accounts shall also be eligible for asset classification benefits available on refinancing after change in ownership, if such change in ownership is carried out under guidelines contained in Circular DBR.BP.BC.No.41/21.04.048/2015-16 dated September 24, 2015 on "Prudential Norms on Change in Ownership of Borrowing Entities (Outside Strategic Debt Restructuring Scheme)". Each NBFC shall formulate its policy and requirements as approved by the Board, on restructuring of such assets.

5.1.4 The accounts where recovery suits have been filed by the creditors against the company, shall be eligible for consideration under the CDR system provided, the initiative to resolve the case under the CDR system is taken by at least 75 per cent of the creditors (by value) and 60 per cent of creditors (by number).

5.1.5 BIFR cases are not eligible for restructuring under the CDR system. However, large value BIFR cases shall be eligible for restructuring under the CDR system if specifically recommended by the CDR Core Group. The Core Group shall recommend exceptional BIFR cases on a case-to-case basis for consideration under the CDR system. It shall be ensured that the lending institutions complete all the formalities in seeking the approval from BIFR before implementing the package.

5.2 Reference to CDR system

5.2.1 Reference to Corporate Debt Restructuring System could be triggered by (i) any or more of the creditor who have minimum 20 per cent share in either working capital or term finance, or (ii) by the concerned corporate, if supported by a bank or financial institution having stake as in (i) above.

5.2.2 Though flexibility is available whereby the creditors could either consider restructuring outside the purview of the CDR system or even initiate legal proceedings where warranted, banks/ FIs shall review all eligible cases where the exposure of the financial system is more than ₹100 crore and decide about referring the case to CDR system or to proceed under the new Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 or to file a suit in DRT etc.

5.3 Legal Basis

5.3.1 CDR is a non-statutory mechanism which is a voluntary system based on Debtor- Creditor Agreement (DCA) and Inter-Creditor Agreement (ICA). The Debtor-Creditor Agreement (DCA) and the Inter-Creditor Agreement (ICA) shall provide the

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legal basis to the CDR mechanism. The debtors shall have to accede to the DCA, either at the time of original loan documentation (for future cases) or at the time of reference to Corporate Debt Restructuring Cell. Similarly, all participants in the CDR mechanism through their membership of the Standing Forum shall have to enter into a legally binding agreement, with necessary enforcement and penal clauses, to operate the System through laid-down policies and guidelines. The ICA signed by the creditors shall be initially valid for a period of 3 years and subject to renewal for further periods of 3 years thereafter. The lenders in foreign currency outside the country are not a part of CDR system. Such creditors and also creditors like GIC, LIC, UTI, etc., who have not joined the CDR system, could join CDR mechanism of a particular corporate by signing transaction to transaction ICA, wherever they have exposure to such corporate.

5.3.2 The Inter-Creditor Agreement shall be a legally binding agreement amongst the creditors, with necessary enforcement and penal clauses, wherein the creditors shall commit themselves to abide by the various elements of CDR system. Further, the creditors shall agree that if 75 per cent of creditors by value and 60 per cent of the creditors by number, agree to a restructuring package of an existing debt (i.e., debt outstanding), the same shall be binding on the remaining creditors. Since Category 1 CDR Scheme covers only standard and substandard accounts, which in the opinion of 75 per cent of the creditors by value and 60 per cent of creditors by number, are likely to become performing after introduction of the CDR package, it is expected that all other creditors (i.e., those outside the minimum 75 per cent by value and 60 per cent by number) shall be willing to participate in the entire CDR package, including the agreed additional financing.

5.3.3 In order to improve effectiveness of the CDR mechanism a clause shall be incorporated in the loan agreements involving consortium/ syndicate accounts whereby all creditors, including those which are not members of the CDR mechanism, agree to be bound by the terms of the restructuring package that shall be approved under the CDR mechanism, as and when restructuring may become necessary.

5.3.4 One of the most important elements of Debtor-Creditor Agreement shall be 'stand still' agreement binding for 90 days, or 180 days by both sides. Under this clause, both the debtor and creditor(s) shall agree to a legally binding 'stand-still' whereby both the parties commit themselves not to take recourse to any other legal action during the 'stand-still' period, this shall be necessary for enabling the CDR

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System to undertake the necessary debt restructuring exercise without any outside intervention, judicial or otherwise. However, the stand-still clause shall be applicable only to any civil action either by the borrower or any lender against the other party and shall not cover any criminal action. Further, during the stand-still period, outstanding foreign exchange forward contracts, derivative products, etc., shall be crystallised, provided the borrower is agreeable to such crystallisation. The borrower shall additionally undertake that during the stand-still period the documents shall stand extended for the purpose of limitation and also that it shall not approach any other authority for any relief and the directors of the borrowing company shall not resign from the Board of Directors during the stand-still period.

5.4 Sharing of Additional finance

5.4.1 Additional finance, if any, is to be provided by all creditors of a 'standard' or 'substandard account' irrespective of whether they are working capital or term creditors, on a pro-rata basis. In case for any internal reason, any creditor (outside the minimum 75 per cent and 60 per cent) does not wish to commit additional financing, that creditor shall have an option in accordance with the provisions of para 5.6.

5.4.2 The providers of additional finance, whether existing creditors or new creditors, shall have a preferential claim, to be worked out under the restructuring package, over the providers of existing finance with respect to the cash flows out of recoveries, in respect of the additional exposure

5.5 Exit Option

5.5.1 As stated in para 5.4.1 a creditor (outside the minimum 75 per cent and 60 per cent) who for any internal reason does not wish to commit additional finance shall have an option. At the same time, in order to avoid the "free rider" problem, it is necessary to provide some disincentive to the creditor who wishes to exercise this option. Such creditors can either (a) arrange for its share of additional finance to be provided by a new or existing creditor, or (b) agree to the deferment of the first year's interest due to it after the CDR package becomes effective. The first year's deferred interest as mentioned above, without compounding, shall be payable along with the last instalment of the principal due to the creditor.

5.5.2 In addition, the exit option shall also be available to all lenders within the minimum 75 percent and 60 percent provided the purchaser agrees to abide by

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restructuring package approved by the Empowered Group. The exiting lenders shall be allowed to continue with their existing level of exposure to the borrower provided they tie up with either the existing lenders or fresh lenders taking up their share of additional finance.

5.5.3 The lenders who wish to exit from the package shall have the option to sell their existing share to either the existing lenders or fresh lenders, at an appropriate price, which shall be decided mutually between the exiting lender and the taking over lender. The new lenders shall rank on par with the existing lenders for repayment and servicing of the dues since they have taken over the existing dues to the exiting lender.

5.5.4 In order to bring more flexibility in the exit option, One Time Settlement can also be considered, wherever necessary, as a part of the restructuring package. If an account with any creditor is subjected to One Time Settlement (OTS) by a borrower before its reference to the CDR mechanism, any fulfilled commitments under such OTS shall not be reversed under the restructured package. Further payment commitments of the borrower arising out of such OTS shall be factored into the restructuring package.

5.6 Category 2 CDR System

5.6.1 There have been instances where the projects have been found to be viable by the creditors but the accounts could not be taken up for restructuring under the CDR system as they fell under 'doubtful' category. Hence, a second category of CDR is introduced for cases where the accounts have been classified as 'doubtful' in the books of creditors, and if a minimum of 75 per cent of creditors (by value) and 60 per cent creditors (by number) satisfy themselves of the viability of the account and consent for such restructuring, subject to the following conditions :

It shall not be binding on the creditors to take up additional financing worked out under the debt restructuring package and the decision to lend or not to lend shall depend on each creditor bank / FI separately. In other words, under the proposed second category of the CDR mechanism, the existing loans shall only be restructured and it shall be up to the promoter to firm up additional financing arrangement with new or existing creditors individually.

All other norms under the CDR mechanism such as the standstill clause, asset classification status during the pendency of restructuring under CDR, etc., shall continue to be applicable to this category also.

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5.6.2 No individual case shall be referred to RBI. CDR Core Group shall take a final decision whether a particular case falls under the CDR guidelines or it does not. 5.6.3 All the other features of the CDR system as applicable to the First Category shall also be applicable to cases restructured under the Second Category.

5.7 Incorporation of 'right to recompense' clause

All CDR approved packages must incorporate creditors' right to accelerate repayment and borrowers' right to pre-pay. All restructuring packages must incorporate 'Right to recompense' clause and it shall be based on certain performance criteria of the borrower. In any case, minimum 75 per cent of the recompense amount shall be recovered by the lenders and in cases where some facility under restructuring has been extended below base rate, 100 per cent of the recompense amount shall be recovered.

B SME Debt Restructuring Mechanism

Apart from CDR Mechanism, there exists a much simpler mechanism for restructuring of loans availed by Small and Medium Enterprises (SMEs). Unlike in the case of CDR Mechanism, the operational rules of the mechanism have been left to be formulated by the lender concerned. This mechanism shall be applicable to all the borrowers which have funded and non-funded outstanding up to ₹10 crore under multiple / consortium banking arrangement. Major elements of this arrangements are as under:

Under this mechanism, the lender shall formulate, with the approval of their Board of Directors, a debt restructuring scheme for SMEs within the prudential norms laid down by RBI. The lender shall frame different sets of policies for borrowers belonging to different sectors within the SME if they so desire.

While framing the scheme, the lender shall ensure that the scheme is simple to comprehend and shall, at the minimum, include parameters indicated in these guidelines.

The main plank of the scheme is that the lender with the maximum outstanding shall work out the restructuring package, along with the lender having the second largest share.

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The lender shall work out the restructuring package and implement the same within a maximum period of 90 days from date of receipt of requests.

The SME Debt Restructuring Mechanism shall be available to all borrowers engaged in any type of activity.

Lenders shall review the progress in rehabilitation and restructuring of SMEs accounts on a quarterly basis and keep the Board informed.

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Appendix 4

Disclosure of Restructured Accounts

Under SME

Under CDRDebt

Type of RestructuringRestructuriOthersTotal

Mechanismng

Mechanism

Asset ClassificationSSSS

SuDSuDSuDSuD

Sl.bbbb

t-ot-ot-ot-o

No. T T T T

aSuLoaSuLoaSuLoaSuLo

ntbotntbotntbotntbot

Detailsdatsadatsadatsadatsa

anfslanfslanfslanfsl

rdurdurdurdu

daldaldaldal

rrrr

dddd

1RestructuredNo. of

Accounts asborrowers

on April

Amount

1 of the FYoutstanding

(opening

Provision

figures)*thereon

2FreshNo. of

restructuringborrowers

during the year

Amount

outstanding

Provision

thereon

3UpgradationsNo. of

toborrowers

148

restructuredAmount

standardoutstanding