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The pandemic hit on the world has impacted many sectors all around the world. The state of NBFCs are still rewarding and growing with their accessible and easy financial services. RBI played a vital role in the growth of the NBFCs with its proactive amendments. RBI has been trying to balance its guidelines with the rules of banking sector focusing on the secure and seamless service for customer’s best interest. 

Following are the developments made by RBI to improvise the system of NBFCs

  1. NBFC cannot lend more than 20% to one company vs 15% earlier
    Earlier NBFCs could lend 15% to a single entity, recently, RBI issued scale-based regulations where NBFCs can’t lend more than 20% to a single entity. With group entity, they can lend 25% versus 40% that was issued earlier. In the infrastructure finance rules are a bit relaxed where NBFCs can lend a little higher by 5% also, and if the board approves, they can increase additional exposure to single or group entities by 5% (under specific reasons).
  2. RBI brings more bank-like rules for NBFC loans to employees and directors
    There have been a few changes and more alikeness with bank rules in lending the company employees and directors. This will synchronize the working of both sectors, said RBI authorities.
  3. Relaxations are announced with respect to NBFC capital
    There are relaxations on the NBFC capital, so the revaluation reserves after a 55% discount can be included in tier 1 v/s tier 2 capital. If the company is audited, then its quarterly profit can also be counted as capital.
  4. Upgradation only if all arrears are paid
    Earlier, the loan could be updated from NPA to standard if the borrower pays off all the outstanding debts. Banks used to abide by the rule, but NBFCs didn’t.
    The rules are:
    – Upgrade loans to standard only after outstanding debts are paid including EMIs.
    – Provisions for ‘expected credit loss’ under IND- AS.
    – Gross NPAs may rise at once but not necessarily provisions. No hit to Net profit will be seen.
    – Classify as SMA-1 one month after month on which interest is due.
    – Classify as NPA 3 months after a month on which interest is due.

    As the deadline has been increased, NPA provisioning is less required than earlier. Along with the changes, all these rules have had a positive impact on NBFCs with more relaxation and flexibility.
  5. NPA classification should be at the end of the day on the due date
    Whether the loan is NPA or standard, the decision will be made on the date when the interest amount is due. According to RBI, some loan contracts just list the month as the repayment date, which needs to be changed.
  6. Rules for issuing Debit & Credit cards
    In order the NBFCs wants to issue Debit or Credit cards, they have to follow few rules:
    – Permission has to be taken from RBI and must implement the same regulations.
    – NBFC has to get the registration certificate with special permission to issue cards from the RBI authorities.
    – An NBFC must hold 100 Cr INR of capital to issue cards.
    – Rural district banks can collaborate with a sponsor card provider and issue cards stand-alone.
    Card holders must be informed about the interest rate prior to issue of the card. 

NBFCs are flexible and accessible in many ways. RBI is growing their market while balancing the banking sector simultaneously.

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