RBI Guidelines and Rules for NBFC
The Reserve Bank of India (RBI) has established a comprehensive regulatory framework for Non-Banking Financial Companies (NBFCs), addressing their registration, capital requirements, prudential norms, governance, and operations. The latest guidelines are detailed in the RBI Master Direction – Non-Banking Financial Company – Scale Based Regulation, 2023.
Key RBI Guidelines and Rules for NBFCs:
1. Registration and Net Owned Fund (NOF) Requirements
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Registration: No company can operate as an NBFC without a Certificate of Registration (CoR) from the RBI and must meet the prescribed NOF criteria.
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NOF Thresholds:
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NBFC-ICC, NBFC-MFI, NBFC-Factor: ₹10 crore (with a phased glide path for existing NBFCs to reach this by March 31, 2027).
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NBFC-P2P, NBFC-AA, NBFCs without public funds and customer interface: ₹2 crore.
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NBFC-IFC and IDF-NBFC: ₹300 crore.
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2. Prudential Regulations
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Leverage Ratio: Maximum leverage ratio of 7 for most NBFCs, except NBFC-MFIs and those in the Middle Layer or above.
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Capital Adequacy: Systemically Important NBFCs (asset size ≥ ₹100 crore) must maintain a minimum Capital to Risk-weighted Assets Ratio (CRAR) of 10%. For NBFCs primarily lending against gold, a minimum Tier 1 capital of 12% of risk-weighted assets is required.
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Exposure Norms: Limits on single/group borrower exposures are prescribed, especially for systemically important NBFCs.
3. Conduct of Business Regulations
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KYC/AML: NBFCs must comply with Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations.
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Fair Practices Code: NBFCs are required to follow fair lending practices and ensure transparency in dealings with customers.
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Interest Rates: Maximum interest rate payable to depositors is capped at 12.5%, subject to periodic revision by RBI.
4. Deposit Acceptance
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Only NBFCs specifically authorized by RBI can accept public deposits, and such authorization must be clearly displayed at their business premises.
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Public deposits are unsecured and not covered by deposit insurance.
5. Accounting and Disclosure
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NBFCs required to implement Indian Accounting Standards (Ind AS) must prepare financial statements accordingly.
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Disclosure requirements for financial statements and notes to accounts must be followed as per RBI directions.
6. Classification and Layering
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NBFCs are classified into layers (Base, Middle, Upper) based on size, activity, and risk profile, with increasing regulatory requirements for higher layers.
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NBFCs with asset size ₹1,000 crore or above are subject to enhanced regulatory norms.
7. Miscellaneous
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Statutory auditors must certify the asset size of NBFCs annually.
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Investment and exposure norms apply to group companies and investments through Alternative Investment Funds (AIFs).
These guidelines ensure that NBFCs operate in a safe, sound, and transparent manner, protecting the interests of customers and maintaining financial system stability. For the most current and detailed rules, refer to the RBI Master Directions and notifications, as they are updated periodically.
