1. NBFCs

2. RBI Act Framework
• The RBI regulates different types of NBFCs
under the provisions of Chapter IIIB and IIIC of
the RBI Act.

3. NBFC means
• A financial institution that is a company
• A non banking institution that is a company
whose principal business is the receiving of
deposits under any scheme/arrangement or
lending in any manner.
• Such other non banking institutions or class of
institutions that the RBI may specify

4. Registration
• With effect from January, 1997, an NBFC must
obtain a certificate of registration from the
RBI.
• Its minimum net owned funds must be Rs 25
lakhs and it must satisfy other conditions
stipulated by the RBI Act.

5. Regulation
• NBFCs are regulated by the RBI
• Which has the power to issue directions,
prohibit any issue soliciting deposits from the
Public
• To collect or call for information
• Inspection of books and documents
• Impose penalty etc.

6. Activities that NBFCs are generally
engaged in
• Hire Purchase Finance
• Investment
• Loan
• Mutual Benefit Finance
• Equipment Leasing etc.

7. Important Provisions of the RBI Act
• NBFCs that have minimum net owned funds of
Rs 25 lakhs can accept public deposits
provided minimum Net owned funds of Rs 25
lakhs and
• They obtain minimum investment grade or
other specified credit rating for their fixed
deposits from one of the approved rating
agencies, at least once a year.

8. Important Provisions of the RBI Act
• NBFCs cannot accept deposits payable on
demand. This differentiates them from banking
companies.
• They can accept/renew deposits for a minimum
period of 12 months and a maximum period of 60
months from the date of acceptance/renewal.
• They are permitted to accept/renew deposits
upto maximum 1.5 times their net owned funds
(NOF).

9. Asset Classification
• NBFCs are required to classify their assets into
four categories:

10. Standard Assets
• A standard Asset is one with respect to 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.

11. Sub-standard Asset
• That has been classified as a non performing
asset for a period not exceeding 18 months.

12. Doubtful Asset
• That remains a sub standard asset for a period
exceeding 18 months.

13. Loss Assets
• Where loss has been identified by the NBFC –
non recoverability.

14. Provisioning requirements
• Provisions have to be made as per RBI’s
prudential norms direction as a percentage
depending on the category of the assets.

15. Capital Adequacy Requirements
• All NBFCs are required to maintain a minimum
capital ratio of Tier – I and Tier – II capital
equal to 12 per cent of their Risk weighted
assets
• and risk adjusted value of off balance sheet
items eg. Guarantees, Underwriting
obligations etc.

16. Concentration of Credit/Investments
• The NBFCs cannot lend to any single borrower
or single group of borrowers in excess of 15
and 25 per cent respectively, of their owned
funds.

17. Asset Liability Management systems
• The focus of the RBI Guidelines on ALM
system is to enforce Risk Management
Discipline.
• It rests on three pillars:

18. ALM Information Systems
• Management Information Systems
• Availability, accuracy and adequacy of
information

19. ALM Organization
• Structure and Responsibilities
• Levels of Top Management Involvement.

20. ALM Process
• Risk Identification
• Risk measurement
• Risk management
• Risk policies and Tolerance Levels.

21. Questions for Revision
• Discuss the regulatory framework and the
important provisions relating to NBFCs?

22. Thank You