Taxmann's Statutory Guide for NBFCs with Law Relating to Securitisation and Reconstruction of Financial Assets

PAGE
CONTENTS
List of Basic Notifications I-11
List of Master Directions I-13
List of Circulars I-15
Overview of Law relating to NBFCs & Securitisation I-19
DIVISION 1
LAW RELATING TO NON-BANKING
FINANCIAL COMPANIES
1.1 : Non-Banking Financial Companies Acceptance of Public
Deposits (Reserve Bank) Directions, 2016 3
1.2 : Non-Banking Financial Company - Systemically Important
Non-Deposit taking Company and Deposit taking Company
(Reserve Bank) Directions, 2016 38
1.3 : Non-Banking Financial Company - Non-Systemically
Important Non-Deposit taking Company (Reserve Bank)
Directions, 2016 260
1.4 : Core Investment Companies (Reserve Bank) Directions,
2016 441
1.5 : Non-Banking Financial Companies (Opening of Branch/
Subsidiary/Joint Venture/Representative Office or
Undertaking Investment Abroad by NBFCs) Directions,
2011 516
1.6 : Requirement of minimum NOF of Rs. 200 lakh for all
deposit taking NBFCs 528
1.7 : Non-Banking Financial Companies Auditor’s Report
1.8 : Guidelines for percentage of assets to be maintained 536
1.9 : Guidelines for investment in unencumbered approved
securities 537
1.10 : Notified Institutions under section 45-I(bb)(iv)(d) of
RBI Act 539
1.11 : Notified ‘Net owned fund’ under section 45-IA of
RBI Act 540
1.12 : Exemptions from the provisions of RBI Act, 1934 541
I-5
PAGE

13 : Exemption from application of the provisions of the
RBI Act, 1934 in case of Non-Banking Institution
authorised to operate under Payment and Settlement
Systems Act, 2007 545
1.13A : Exemptions to NBFC which is a Housing Finance
Institution 546
1.14 : Monitoring of Frauds in NBFCs (Reserve Bank) Directions,
2016 547
1.15 : Know Your Customer (KYC) Directions, 2016 568
1.16 : Fair Practices Code 619
1.17 : Allied activities - Entry into insurance business, issue of
credit card and marketing and distribution of certain
products 627
1.18 : Non-Banking Financial Companies - Corporate Gover-
nance (Reserve Bank) Directions, 2015 631
1.19 : Miscellaneous Instructions to NBFC-ND-SI 656
1.20 : Miscellaneous Instructions to all Non-Banking Financial
Companies 662
1.21 : Non-Banking Financial Companies (Approval of
Acquisition or Transfer of Control) Directions, 2015 746
1.22 : Regulation of excessive interest charged by NBFCs 752
1.23 : Core Investment Companies - Overseas Investment
1.24 : Prudential Guidelines for the Primary Dealers in
Government Securities Market 758
1.25 : Capital Adequacy Standards and Risk Management
Guidelines for Standalone Primary Dealers 786
1.26 : Standalone Primary Dealers (Reserve Bank) Directions,
2016 836
1.27 : Non-Banking Financial Company - Account Aggregator
1.28 : Non-Banking Financial Company - Peer to Peer Lending
Platform (Reserve Bank) Directions, 2017 965
1.29 : Information Technology Framework for the NBFC Sector 999
1.30 : Fit and Proper Criteria for Sponsors - Asset Reconstruction
Companies (Reserve Bank) Directions, 2018 1017
1.31 : Ombudsman Scheme for Non-Banking Financial
Companies, 2018 1025
1.32 : Liquidity Risk Management Framework for Non-Banking
Financial Companies and Core Investment Companies 1040
CONTENTS I-6

PAGE
DIVISION 2
CLARIFICATIONS FROM RESERVE
BANK OF INDIA
2.1 : Clarifications from Reserve Bank of India [2016-2020] 1059
DIVISION 3
LAW RELATING TO RESIDUARY
NON-BANKING COMPANIES
3.1 : Residuary Non-Banking Companies (Reserve Bank)
DIVISION 4
LAW RELATING TO MISCELLANEOUS
NON-BANKING COMPANIES
(RESERVE BANK) DIRECTIONS, 2016
4.1 : Miscellaneous Non-Banking Companies (Reserve Bank)
DIVISION 5
LAW RELATING TO MORTGAGE
GUARANTEE COMPANIES
5.1 : Mortgage Guarantee Companies (Reserve Bank) Directions,
2016 1247
DIVISION 6
FOREIGN DIRECT INVESTMENTS
IN NBFCs SECTOR
6.1 : Foreign Direct Investments in Non-Banking Financial
Companies/Asset Reconstruction Company 1273
I-7 CONTENTS

PAGE
DIVISION 7
FOREIGN EXCHANGE MANAGEMENT
(DEPOSIT) REGULATIONS
7.1 : Foreign Exchange Management (Deposit) Regulations, 2016 1277
DIVISION 8
LENDING TO NON-BANKING
FINANCIAL COMPANIES (NBFCs) &
OTHER MATTERS
8.1 : Bank Finance to Non-Banking Financial Companies (NBFCs) 1303
8.2 : Amalgamation/Merger of Non-Banking Financial Companies
with Banks 1311
8.3 : Credit card, debit card and rupee denominated co-branded
pre-paid card operations of banks and credit card issuing
NBFCs 1312
DIVISION 9
PRESCRIBED RETURNS
9.1 : Non-Banking Financial Company Returns (Reserve Bank)
9.2 : Submission of Returns by Government-Owned Non-Banking
Financial Companies 1351
DIVISION 10
LAW RELATING TO SECURITISATION
10.1 : Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002 1355
10.2 : Security Interest (Enforcement) Rules, 2002 1402
10.3 : Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest (Central Registry)
Rules, 2011 1432
10.4 : Securitisation Companies and Reconstruction Companies
(Reserve Bank) Guidelines and Directions, 2003 1438
10.5 : Change in or takeover of the management of the business
of the borrower by Securitisation Companies and Recons-
truction Companies (Reserve Bank) Guidelines, 2010 1463
CONTENTS I-8

6 : Fair Practices Code for Asset Reconstruction Companies 1468
10.7 : Circulars and Notifications issued under Securitisation
and Reconstruction of Financial Assets and Enforcement
of Security Interest Act, 2002 1471
10.8 : Removal of Difficulty Order of 2002 1485
10.9 : Removal of Difficulty Order of 2004 1487
DIVISION 11
LAW RELATING TO RECOVERY OF
DEBTS AND BANKRUPTCY
11.1 : Recovery of Debts and Bankruptcy Act, 1993 1491
11.2 : Debts Recovery Tribunal (Financial and Administrative
Power) Rules, 1997 1521
11.3 : Debts Recovery Tribunal (Procedure) Rules, 1993 1522
11.4 : Debts Recovery Tribunal (Procedure for Appointment as
Presiding Officer of the Tribunal) Rules, 1998 1540
11.5 : Debts Recovery Tribunal (Procedure for Investigation of
Misbehaviour or Incapacity of Presiding Officer)
Rules, 2010 1543
11.6 : Debts Recovery Appellate Tribunal (Procedure) Rules, 1994 1548
11.7 : Debts Recovery Appellate Tribunal (Procedure for
Appointment as Chairperson of the Appellate
Tribunal) Rules, 1998 1558
11.8 : Debts Recovery Appellate Tribunal (Financial and
Administrative Power) Rules, 1997 1561
11.9 : Debts Recovery Tribunals (Refund of Court Fee) Rules,
2013 1563
11.10 : Debts Recovery Tribunals and Debts Recovery Appellate
Tribunals Electronic Filing Rules, 2020 1565
DIVISION 12
INSOLVENCY & BANKRUPTCY CODE
PROVISIONS FOR NBFCs
12.1 : Insolvency & Bankruptcy Code Provisions for NBFCs 1569
I-9 CONTENTS

PAGE
DIVISION 13
COVID-19 RELIEF
13.1 : Schemeforgrantofex-gratia paymentofdifferencebetween
compound interest and simple interest for six months to
borrowers in specified loan accounts (1-3-2020 to
31-8-2020) 1581
SUBJECT INDEX i
CONTENTS I-10

1.19
MISCELLANEOUS INSTRUCTIONS TO
NBFC-ND-SI
MASTER CIRCULAR DNBR(PD) CC.NO.055/03.10.119/2015-16,
DATED 1-7-2015
As you are aware, in order to have all current instructions on the subject at
one place, the Reserve Bank of India issues updated circulars/notifications.
The instructions related to the captioned subject contained in various circulars
issued by RBI updated as on June 30, 2015 are reproduced below. The updated
circular has also been placed on the RBI web-site (https://www.rbi.org.in).
1. Financial Regulation of Systemically Important NBFCs and Banks’
Relationship with them
The Reserve Bank of India had set up an Internal Group to examine the
issues relating to level playing field, regulatory convergence and regulatory
arbitrage in the financial sector. Based on the recommendations of the
Internal Group and on the basis of the feedback received, final guidelines
were issued for implementation on December 12, 2006.
1
Modifications to the Regulatory Framework
In the light of the concerns that arise out of the divergent regulatory
requirements for various aspects of functioning of banks and NBFCs and
keeping in view the broad principles for the proposed revision, the following
modifications were made in the regulatory framework for NBFCs.
656
1. DNBS.PD/CC.No.86/03.02.089/2006-07 dated December 12, 2006.

A. Regulatory Framework for Systemically Important NBFCs - ND (NBFCs-
ND-SI)
(i) Determination of NBFC-ND-SI
All NBFCs - ND with an asset size of Rs. 500 crore and more as per the last
audited balance sheet will be considered as a systemically important NBFC-
ND (NBFC-ND-SI).
(ii) Capital Adequacy Ratio for NBFCs-ND-SI
NBFCs-ND-SI shall maintain a minimum Capital to Risk-weighted Assets
Ratio (CRAR) of 10% which was changed to 2
12% as on March 31, 2010 and
15% as on March 31, 2011.
(iii) Single/Group Exposure norms for NBFCs-ND-SI
Exposure norms were laid down for NBFCs-ND-SI.
Further, the NBFCs-ND-SI were advised to have a policy in respect of expo-
sures to a single entity/group. NBFCs-ND-SI not accessing public funds both
directly and indirectly can apply to the Reserve Bank for an appropriate
dispensation consistent with the spirit of the exposure limits.
B. Additional Single Exposure norms for Asset Finance Companies
(iv) 3
Deleted
C. Expansion of activities of NBFCs through automatic route
(v) NBFCs set up under the automatic route will be permitted to undertake
only those 18 activities4
which are permitted under the automatic route.
Diversification into any other activity would require the prior approval of
FIPB. Similarly 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 capi-
talization norms and other regulations as applicable.
D. Effective date and transition
Taking into account the likelihood that some of the NBFCs may not be in
compliance with some of the elements of the revised regulatory framework
a transition period up to end March 2007 was provided. Accordingly, NBFCs
had to comply with all elements of the revised framework with effect from
April 1, 2007. In case any NBFC-ND-SI needed more time for compliance, it
had to apply to DNBS before the close of business on January 31, 2007
clearly indicating the reasons for which it is not able to ensure compliance
within the above period and the time frame within which it would be able to
comply with all the relevant elements.
657 MISCELLANEOUS INSTRUCTIONS TO NBFC-ND-SI
2. Amended vide CC 138 dated April 24, 2009 and Notification No. 206 dated May 26, 2009.
3. Guideline issued vide DNBR (PD) CC.No.002/03.10.001/2014-15 dated November 10,
2014.
4. Changed vide Press Note No. 1 dated March 12, 2008.

E. Scope of application to certain categories
The guidelines contained in this circular are applicable to the NBFCs as
specified in the relevant paragraphs except the categories mentioned
below:
(i) The Residuary Non-Banking Companies (RNBCs) and Primary Deal-
ers (PDs) as they are subjected to a separate set of regulations.
(ii) Government owned companies, as defined under section 617 of the
Companies Act, which are registered with the Reserve Bank of India
as NBFCs, are exempted from certain provisions of Non-Banking
Financial Companies Prudential Norms (Reserve Bank) Directions,
1998, at present. It is proposed to bring all deposit taking and systemi-
cally important government owned companies under the provisions
of the said Directions which will be in conformity with the existing
guidelines, including those contained in this circular. However, the
date from which they are to fully comply with the regulatory frame-
work will be decided later. These companies, were therefore, required
to prepare a roadmap for compliance with the various elements of the
NBFC regulations, in consultation with the Government, and submit
the same to the Reserve Bank (Department of Non-Banking Supervi-
sion - (DNBS)), by March 31, 20075
.
2. Supervisory Framework for NBFC-ND-SI
6
To ensure adherence to compliance with the regulatory framework for
NBFCs-ND-SI, such companies were advised to put in place a system for
submission of an annual statement of capital funds, risk asset ratio etc., as
at end of March every year in form NBS-7 as per prescribed format. The
first such return was to be submitted for the year ending March 31, 2007.
The return shall be submitted within a period of three months from the
close of the financial year, every year. Such returns are to be submitted
electronically and for the purpose, an NBFC-ND-SI has to approach the In-
formation Division of Central Office of this Department for assignment of
user-id and password for web-enabled submission of the return. A hard
copy of the return duly signed by the designated authority may be filed
with the Regional Office of the Department of Non-Banking Supervision in
whose jurisdiction the company is registered.
3. Guidelines for NBFC-ND-SI as regards capital adequacy, liquidity and
disclosure norms
7
On a review of the experience with the regulatory framework since April
2007, it was felt desirable to enhance the capital adequacy requirement and
put in place guidelines for liquidity management and reporting, as also norms
MISCELLANEOUS INSTRUCTIONS TO NBFC-ND-SI 658
5. For details please refer to DNBS.PD/CC No.86/03.02.089/2006-07 dated December 12,
2006.
6. (Details are in DNBS.PD/CC.No.93/03.05.002/2006-07 dated April 27, 2007).
7. (Notification No. DNBS.200/CGM(PK)-2008 dated August 1, 2008).

for disclosures. Accordingly, the Bank placed on its web-site revised regula-
tory framework for NBFC vide DNBR (PD) CC. No. 002/03.10.001/2014-15
dated November 10, 2014.
4. Asset Liability Management (ALM) - Reporting
NBFCs-ND-SI are required to submit three ALM returns i.e. ALM 1, ALM-2
and ALM 3-The periodicity of the Statement of short term dynamic liquid-
ity [NBS-ALM1] shall be monthly and that of Statement of structural liquid-
ity [NBS-ALM2] half-yearly. The frequency of Statement of Interest Rate
Sensitivity [NBS-ALM3] would be half yearly. 8
The format of the ALM Re-
turns (I, II and III) are available on the Bank’s following website (https://
cosmos.rbi.org.in).
5. Enhancement of NBFCs’ capital raising option for capital adequacy pur-
poses
Taking into consideration, the need for enhanced funds for increasing busi-
ness and meeting regulatory requirements, NBFCs-ND-SI are permitted to
augment their capital funds by issue of Perpetual Debt Instruments (PDI) in
accordance with the guidelines contained in the circular DNBS (PD)
CC.No.131/03.05.002/2008-2009 dated October 29, 2008. Such PDI shall be
eligible for inclusion as Tier I Capital to the extent of 15% of total Tier I
capital as on March 31 of the previous accounting year.
6. 9
Ratings of NBFCs
NBFCs also issue financial products like Commercial Paper, Debentures etc.
to which rating is assigned by rating agencies. The ratings assigned to such
products may undergo changes for various reasons ascribed to by the rat-
ing agencies. All NBFCs (both deposit taking and non-deposit taking) with
asset size of Rs. 100 crore and above shall furnish the 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 func-
tioning.
7. 10
Criteria for deciding NBFC-ND-SI status
A non-deposit taking NBFC with an asset size of less than Rs. 500 crore as
on balance sheet date might subsequently add on assets before the next
balance sheet date due to several reasons including business expansion plan.
It is clarified that once an NBFC reaches an asset size of Rs. 500 crore or
above, it shall come under the regulatory requirement for NBFCs-ND-SI as
stated above, despite not having such assets as on the date of last balance
sheet. Therefore, it is advised that all such non-deposit taking NBFCs may
comply with RBI regulations issued to NBFC-ND-SI from time to time, as
8. DNBS.PD.CC.No.169/22.05.02/2009-10 dated April 22, 2010.
9. DNBS (PD) CC. No.134/03.10.001/2008-2009 dated February 4, 2009.
10. DNBS (PD) CC. No.141/03.10.001/2008-09 dated June 4, 2009.

and when they attain an asset size of Rs. 500 crore, irrespective of the date
on which such size is attained.
It is further observed that in a dynamic environment, the asset size of a
company can fall below Rs. 500 crore in a given month, which may be due
to temporary fluctuations and not due to actual downsizing. It is clarified
that in such a case the company may continue to submit the monthly re-
turn on Important Financial Parameters to Reserve Bank of India and to
comply with the extant directions as applicable to NBFC-ND-SI, till the sub-
mission of their next audited balance sheet to Reserve Bank of India and a
specific dispensation is received from the Bank in this regard.
8. 11
Ready Forward Contracts in Corporate Debt Securities
In terms of ‘Repo in Corporate Debt Securities (Reserve Bank) Directions,
2010’ dated January 8, 2010 issued by Internal Debt Management Depart-
ment (IDMD) of RBI, NBFCs registered with RBI (other than Govt compa-
nies as defined in section 617 of the Companies Act, 1956) are eligible to
participate in repo transactions in corporate debt securities. IDMD has also
issued revised guidelines on uniform accounting for repo/reverse repo trans-
actions on March 23, 2010.
NBFCs participating in such repo transactions shall comply with the Direc-
tions and accounting guidelines issued by IDMD. Certain clarifications are
being made in this regard as given below.
A. Eligible participants
(i) NBFCs-ND with asset size of Rs. 500 crore and above (i.e. NBFCs-ND-SI).
B. Capital Adequacy
(ii) Risk weights for credit risk for assets that are the collateral for such
transactions as well as risk weights for the counterparty credit risk shall be
as applicable to the issuer/counterparty in the NBFC (non-deposit accept-
ing or holding) Prudential Norms Directions, 2007 (since repealed by Pru-
dential Norms Directions dated March 27, 2015) as amended from time to
time.
C. Classification of balances in the accounts
(iii) Classification of balances in the various accounts viz. repo account, re-
verse repo account etc. shall be done in the relevant schedules similar to
that of banks.
In all other matters related to such repo transactions, NBFCs-ND-SI shall
follow the Directions and accounting guidelines issued by IDMD viz. Repo
in Corporate Debt Securities (Reserve Bank) Directions, 2010 dated Janu-
ary 08, 2010 and Revised Guidelines on Uniform Accounting for Repo/
Reverse repo transactions on March 23, 2010 respectively.
MISCELLANEOUS INSTRUCTIONS TO NBFC-ND-SI 660
11. DNBS.PD/CC.No.196/03.05.002/2010-11 dated August 11, 2010.

9. 12
Participation in Currency Options
NBFCs may participate in the designated currency options exchanges rec-
ognized by SEBI as clients, subject to RBI (Foreign Exchange Department)
guidelines in the matter, only for the purpose of hedging their underlying
forex exposures. Appropriate disclosures may be made regarding transac-
tions undertaken in the Balance sheet.
APPENDIX
LIST OF CIRCULARS
Sl. No. Circular No. Date
1. DNBS (PD) CC. No. 86/03.02.089/2006-07 December 12, 2006
2. DNBS (PD) CC. No. 93/03.05.002/2006-07 April 27, 2007
3. DNBS (PD) CC. No. 125/03.05.002/2008-2009 August 1, 2008
4. DNBS (PD) CC. No. 131/03.05.002/2008-09 October 29, 2008
5. DNBS (PD) CC. No. 134/03.10.001/2008-2009 February 4, 2009
6. DNBS (PD) CC. No. 141/03.10.001/2008-09 June 4, 2009
7. DNBS (PD) CC. No. 169/22.05.02/2009-10 April 22, 2010
8. DNBS (PD) CC. No. 196/03.05.002/2010-11 August 11, 2010
9. DNBS (PD) CC. No. 199/03.10.001/2010-11 September 16, 2010
10. DNBR (PD) CC. No. 002/03.10.001/2014-15 November 10, 2014
12. DNBS (PD) CC No.199/03.10.001/2010-11 dated September 16, 2010.
The Reference to Companies Act, 1956 in the Master Circular will be changed as and when
change is effected in the original circulars/notifications.

Statutory Guide for
NBFCs
with Law Relating to Securitisation
and Reconstruction of Financial Assets
Author : Taxmann
Edition : 25th Edition 2021
Rs. 3595
ISBN No : 9788194939764
Date of Publication : December 2020
This book provides a comprehensive coverage on Non-Banking Financial
Companies ('NBFCs') and Securitisation and Reconstruction of Financial
Assets. It covers updated, amended & annotated Bare Acts, Directions, RBI
Guidelines, Rules, Regulations, Master Directions, Orders, Circulars, and
Notiﬁcations on NBFCs. The book comprises of overview of 'Law relating to
NBFCs & Securitisation' to have a better understanding of the laws governing
NBFCs, Securitisation in India.
The Present Publication is the 25th Edition incorporating all the amendments
made up to 10th December, 2020, with the following coverage:
u Law Relating to Non-Banking Financial Companies
u Clariﬁcations from the Reserve Bank of India
u Law Relating to Miscellaneous Non-Banking Companies (Reserve Bank)
Directions, 2016
u Law relating to Mortgage Guarantee Companies
u Foreign Direct Investments in NBFC Sector
u Foreign Exchange Management (Deposit) Regulations
u Lending to Non-Banking Financial Companies (NBFCs) and Other Matters
u Prescribed Returns
u Law relating to Securitisation
u Law relating to Recovery of Debts and Bankruptcy
u Insolvency & Bankruptcy Code Provisions for NBFCs
u COVID-19 Relief
Description :
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Taxmann's Statutory Guide for NBFCs with Law Relating to Securitisation and Reconstruction of Financial Assets

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