Introduction of New Category of NBFCs - ‘Non Banking Financial Company-Micro Finance Institutions’ (NBFC-MFIs) - Directions

RBI/2011-12/290
DNBS.CC.PD.No. 250/03.10.01/2011-12

December 02, 2011

To
All NBFCs(excluding RNBCs)

Dear Sir,

Introduction of New Category of NBFCs - ‘Non Banking Financial Company-Micro Finance Institutions’ (NBFC-MFIs) - Directions

1.As indicated in the Second Quarter Review of Monetary Policy in November 2010, a Sub-Committee of the Central Board of the Reserve Bank (Chairman: Shri Y. H. Malegam) was constituted to study issues and concerns in the MFI sector. The Committee submitted its report in January 2011. In the Monetary Policy Statement 2011-12, it was announced that the broad framework of regulations recommended by the Committee has been accepted by the Bank.

2. Creation of a Separate Category of NBFC-MFI

It has been decided to create a separate category of NBFCs viz; Non Banking Financial Company-Micro Finance Institution (NBFC-MFI). Consequently there would be following categories of NBFCs:

i.Asset Finance Company (AFC)

ii.Investment Company (IC)

iii.Loan Company (LC)

iv.Infrastructure Finance Company (IFC)

v.Core Investment Company (CIC)

vi.Infrastructure Debt Fund- Non- Banking Financial Company (IDF-NBFC)

vii.Non-Banking Financial Company - Micro Finance Institution (NBFC-MFI).

3. The Sub-Committee had recommended a role for industry associations in monitoring of compliance by NBFC-MFIs with the regulations. Separate guidelines in this regard will follow.

4. The Notification DNBS.PD.No.234 CGM(US)2011 dated December 02, 2011 containing the regulatory framework for NBFC-MFIs, the amending notifications DNBS.PD.No.235/CGM(US) 2011 dated December 02, 2011 amending the Non-Banking Financial (Non-Deposit accepting or holding) Companies Prudential Norms (Reserve Bank) directions, 2007 and DNBS.PD.No.236/CGM(US)2011 dated December 02, 2011 amending the Non-Banking Financial Companies Auditor’s Report (Reserve Bank) Directions, 2008 are enclosed for meticulous compliance.

Yours faithfully

(Uma Subramaniam)

Chief General Manager in Charge

--------------------------------------------------------------------------------

RESERVE BANK OF INDIA

DEPARTMENT OF NON-BANKING SUPERVISION

CENTRAL OFFICE

CENTRE I, WORLD TRADE CENTRE,

CUFFE PARADE, COLABA,

MUMBAI 400 005

Notification DNBS. PD.No.234 / CGM(US)-2011 dated December 02, 2011

The Reserve Bank of India having considered it necessary in the public interest and being satisfied that for the purpose of enabling the Bank to regulate the credit system to the advantage of the country, it is necessary to give the directions set out below, hereby, in exercise of the powers conferred by sections 45JA, 45K, 45L and 45M of the Reserve Bank of India Act, 1934 (2 of 1934), and of all the powers enabling it in this behalf, hereby gives the Directions hereinafter specified.

PART I

PRELIMINARY

1. Short title and commencement of the Directions

i. These Directions shall be known as the Non-Banking Financial Company -Micro Finance Institutions (Reserve Bank) Directions, 2011.

ii. These Directions shall come into force with immediate effect.

2. Extent of the Directions

These Directions shall apply to every Non Banking Financial Company-Micro Finance Institution (NBFC-MFI) as defined in these Directions.

3. Definition of NBFC-MFI

An NBFC-MFI is defined as a non-deposit taking NBFC(other than a company licensed under Section 25 of the Indian Companies Act, 1956) that fulfils the following conditions:

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

ii. Not less than 85% of its net assets are in the nature of “qualifying assets.”

For the purpose of ii. above,

“Net assets” are defined as total assets other than cash and bank balances and money market instruments.

“Qualifying asset” shall mean a loan which satisfies the following criteria:-

a.loan disbursed by an NBFC-MFI to a borrower with a rural household annual income not exceeding Rs. 60,000 or urban and semi-urban household income not exceeding Rs. 1,20,000;

b.loan amount does not exceed Rs. 35,000 in the first cycle and Rs. 50,000 in subsequent cycles;

c.total indebtedness of the borrower does not exceed Rs. 50,000;

d.tenure of the loan not to be less than 24 months for loan amount in excess of Rs. 15,000 with prepayment without penalty;

e.loan to be extended without collateral;

f.aggregate amount of loans, given for income generation, is not less than 75 per cent of the total loans given by the MFIs;

g.loan is repayable on weekly, fortnightly or monthly instalments at the choice of the borrower

iii. Further the income an NBFC-MFI derives from the remaining 15 percent of assets shall be in accordance with the regulations specified in that behalf.

iv. An NBFC which does not qualify as an NBFC-MFI shall not extend loans to micro finance sector, which in aggregate exceed 10% of its total assets.

4. Regulatory Framework for NBFC-MFIs

A. Entry Point Norm

As stated above, all new NBFC-MFIs except those in the North Eastern Region of the country should have a minimum Net Owned Funds(NoF) of Rs 5 crore; those located in the North eastern region should have a minimum NoF of Rs. 2 crore for purposes of registration. The existing NBFCs to be classified as NBFC-MFIs will be required to comply with this norm w.e.f April 01, 2012.

B. Prudential Norms

a. Capital Requirement

All new 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. The total of Tier II Capital at any point of time, shall not exceed 100 percent of Tier I Capital. The risk weights for on-balance sheet assets and the credit conversion factor for off-balance sheet items will be as provided in para 16 of the Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve bank) Directions 2007.

Note:

i. Among the existing NBFCs to be classified as NBFC-MFIs, those with asset size less than Rs. 100 crore will be required to comply with this norm w.e.f April 01, 2012. Those with asset size of Rs. 100 crore and above are already required to maintain minimum CRAR of 15%.

ii. The CRAR for NBFC-MFIs which have more than 25% loan portfolio in the state of Andhra Pradesh will be at 12% for the year 2011-2012 only. Thereafter they have to maintain CRAR at 15%.

b. Asset Classification and Provisioning Norms:

With effect from April 01, 2012 all NBFC-MFIs shall adopt the following norms(till then they shall follow the asset classification and provisioning norms as given in the Non-Banking Financial (Non-Deposit accepting or holding) Companies Prudential Norms (Reserve Bank) Directions, 2007).

Asset Classification Norms:

i. 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;

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

Provisioning Norms:

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% of the outstanding loan portfolio or b) 50% of the aggregate loan instalments which are overdue for more than 90 days and less than 180 days and 100% of the aggregate loan instalments which are overdue for 180 days or more.

c. All other provisions of the Non-Banking Financial (Non-Deposit accepting or holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 will be applicable to NBFC-MFIs except as indicated therein.

C. Other Regulations

a. Pricing of Credit

i.All NBFC-MFIs shall maintain an aggregate margin cap of not more than 12%. The interest cost will be calculated on average fortnightly balances of outstanding borrowings and interest income is to be calculated on average fortnightly balances of outstanding loan portfolio of qualifying assets.

ii.Interest on individual loans will not exceed 26% per annum and calculated on a reducing balance basis.

iii.Processing charges shall not be more than 1 % of gross loan amount. Processing charges need not be included in the margin cap or the interest cap.

iv.NBFC-MFIs shall recover only the actual cost of insurance for group, or livestock, life, health for borrower and spouse. Administrative charges where recovered, shall be as per IRDA guidelines.

b. Fair Practices in Lending

I. Transparency in Interest Rates

a.There shall be only three components in the pricing of the loan viz., the interest charge, the processing charge and the insurance premium (which includes the administrative charges in respect there of).

b.There will be no penalty charged on delayed payment.

c.NBFC-MFIs shall not collect any Security Deposit/ Margin from the borrower.

d.There should be a standard form of loan agreement.

e.Every NBFC-MFI should provide to the borrower a loan card reflecting

(i) the effective rate of interest charged

(ii) all other terms and conditions attached to the loan

(iii) information which adequately identifies the borrower and

(iv) acknowledgements by the NBFC-MFI of all repayments including instalments received and the final discharge.

(v) All entries in the Loan Card should be in the vernacular language.

f.The effective rate of interest charged by the NBFC-MFI should be prominently displayed in all its offices and in the literature issued by it and on its website.

II. Multiple-lending, Over-borrowing and Ghost-borrowers

a.NBFC-MFIs can lend to individual borrowers who are not member of Joint Liability Group(JLG)/Self Help Group(SHG) or to borrowers that are members of JLG/SHG.

b. borrower cannot be a member of more than one SHG/JLG.

c.not more than two NBFC-MFIs should lend to the same borrower.

d.there must be a minimum period of moratorium between the grant of the loan and the due date of the repayment of the first instalment. The moratorium shall not be less than the frequency of repayment. For eg: in the case of weekly repayment, the moratorium shall not be less than one week.

e.recovery of loan given in violation of the regulations should be deferred till all prior existing loans are fully repaid.

f.All sanctioning and disbursement of loans should be done only at a central location and more than one individual should be involved in this function. In addition, there should be close supervision of the disbursement function.

III. Non- Coercive Methods of Recovery

• NBFC-MFIs shall ensure that a Code of Conduct and systems are in place for recruitment, training and supervision of field staff. The Code of Conduct should also incorporate the Guidelines on Fair Practices Code issued for NBFCs vide circular CC No.80 dated September 28, 2006 as amended from time to time.
• Recovery should normally be made only at a central designated place. Field staff shall be allowed to make recovery at the place of residence or work of the borrower only if borrower fails to appear at central designated place on 2 or more successive occasions.
• All other elements of the Fair Practices Code issued for NBFCs vide CC No 80 dated September 28, 2006 as amended from time to time shall be adhered to.

c. Corporate Governance

The Master Circular issued for NBFCs on Corporate Governance vide CC No. 187 dated July 01, 2011 shall be applicable to NBFC-MFIs also.

d. Improvement of Efficiency

NBFC-MFIs shall review their back office operations and make the necessary investments in Information Technology and systems to achieve better control, simplify procedures and reduce costs.

e. Others

All NBFCs may refer to the circular RPCD.CO.Plan BC. 66 /04.09.01/2010-11 dated May 3, 2011 issued by the Rural Planning and Credit Department of RBI titled “Bank loans to Micro Finance Institutions (MFIs) – Priority Sector status” issued to banks with regard to guidelines on priority sector.

5. Existing NBFCs that satisfy the above conditions may approach the Regional Office in the jurisdiction of which their Registered Office is located, along with the original Certificate of Registration (CoR) issued by the Bank for change in their classification as NBFC-MFIs. Their request must be supported by their Statutory Auditor's certificate indicating the asset (loan) pattern as on March 31, 2011. The onus of including only eligible assets for the purpose of classification as NBFC-MFI shall be that of the company concerned. The change in classification would be incorporated in the Certificate of Registration issued by the Bank as NBFC-MFI.

6. In terms of paragraph 15 of the Non-Banking Financial (Non-Deposit accepting or holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 all NBFCs are required to submit Statutory Auditors Certificate with reference to the position of the company as at end of the financial year ended March 31 every year. For an NBFC-MFI, such Certificate will also indicate that the company fulfils all conditions stipulated to be classified as an NBFC-MFI in this circular.

7. Non-compliance with these Directions shall invite penal provisions under the RBI Act, 1934.

Yours sincerely

(Uma Subramaniam)

Chief General Manager-in-Charge

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RESERVE BANK OF INDIA

DEPARTMENT OF NON-BANKING SUPERVISION

CENTRAL OFFICE

CENTRE I, WORLD TRADE CENTRE

CUFFE PARADE, COLABA

MUMBAI 400 005

Notification DNBS.PD.No.235/ CGM(US)-2011 dated December 02, 2011

In exercise of the powers conferred by Sections 45JA of the Reserve Bank of India Act, 1934 and of all the powers enabling it in this behalf, and in partial modification of Notification No. DNBS. 193 dated DG (VL)-2007 dated February 22, 2007, the Reserve Bank hereby notifies as follows, namely-

1. Amendment of paragraph 1–

i. In sub paragraph (3) clause (vii) may be inserted to read as follows:

‘The provisions of paragraph 18 of these Directions shall not apply to an NBFC-MFI as defined in the Non-Banking Financial Company- Micro Finance Institutions (Reserve Bank)Directions 2011’.

‘The provisions of paragraphs 8 and 9 will not be applicable to an NBFC-MFI w.e.f April 01, 2012.

2 Amendment of paragraph 2 –

(1) In sub-paragraph (1), after clause (viii), the following clause (viii a) shall be inserted`.

An NBFC-MFI means a non-deposit taking NBFC(other than a company licensed under Section 25 of the Indian Companies Act, 1956) that fulfils the following conditions:

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

ii. Not less than 85% of its net assets are in the nature of “qualifying assets.”

For the purpose of ii. above,

“Net assets” are defined as total assets other than cash and bank balances and money market instruments.

“Qualifying asset” shall mean a loan which satisfies the following criteria:-

i.loan disbursed by an NBFC-MFI to a borrower with a rural household annual income not exceeding Rs. 60,000 or urban and semi-urban household income not exceeding Rs. 1,20,000;

ii.loan amount does not exceed Rs. 35,000 in the first cycle and Rs. 50,000 in subsequent cycles;

iii.total indebtedness of the borrower does not exceed Rs. 50,000;

iv.tenure of the loan not to be less than 24 months for loan amount in excess of Rs. 15,000 with prepayment without penalty;

v.loan to be extended without collateral;

vi.aggregate amount of loans, given for income generation, is not less than 75 per cent of the total loans given by the MFIs;

vii.loan is repayable on weekly, fortnightly or monthly instalments at the choice of the borrower

(2) In para 15, after the last sentence the following sentence shall be added:

"For an NBFC-MFI, such Certificate will also indicate that the company fulfils all conditions stipulated to be classified as an NBFC-MFI in the notification DNBS.PD.No.234/CGM(US)-2011 dated December 02, 2011".

(Uma Subramaniam)

Chief General Manager In-Charge

--------------------------------------------------------------------------------

RESERVE BANK OF INDIA

DEPARTMENT OF NON-BANKING SUPERVISION

CENTRAL OFFICE

CENTRE I, WORLD TRADE CENTRE

CUFFE PARADE, COLABA,

MUMBAI 400 005

Notification DNBS.PD.No.236 /CGM(US)-2011 dated December 02, 2011.

The Reserve Bank of India (hereinafter referred to as "the Bank"), having considered it necessary in the public interest and for the purpose of proper assessment of books of accounts of NBFCs, in exercise of the powers conferred by Section 45MA of the Reserve Bank of India Act, 1934 (Act 2 of 1934) and of all the powers enabling it in this behalf, amend the Non-Banking Financial Companies Auditor’s Report (Reserve Bank) Directions, 2008 as specified below.

1. In paragraph 3A, the following sentence may be added as sub clause No.(IV)

“Based on the criteria set forth by the Bank in the Notification viz; Non-Banking Financial Company- Micro Finance Institutions (Reserve Bank) Directions, 2011 dated December 02, 2011 for classification of NBFCs as NBFC-MFIs, whether the non-banking financial company has been correctly classified as NBFC-MFI as defined in the said Directions with reference to the business carried on by it during the applicable financial year”.

Yours faithfully

(Uma Subramaniam)

Chief General Manager-in-Charge

Returns to be submitted by NBFCs- Revised Formats

RBI/2011-12/195

DNBS(PD).CC. No.243/03.02.02/2011-12

September 22, 2011

All Non Banking Financial Companies (excluding RNBCs)

Dear Sir,

Returns to be submitted by NBFCs- Revised Formats

1.In terms of extant instructions, NBFCs are required to file various returns related to deposit acceptance, Prudential Norms, Capital Market exposure, etc. A few of these returns are as under:

A. Returns to be submitted by deposit taking NBFCs

1.NBS-1 Annual Returns on deposits in First Schedule.1

2.NBS-2 Half-yearly returns on Prudential Norms.2

3.NBS-3 Quarterly returns on Liquid Assets.3

4.NBS-6 Monthly returns on exposure to capital market by deposit taking NBFCs with total assets of ` 100 crore and above.4

B.Returns to be submitted by NBFCs-ND-SI

i.NBS-7 An annual statement of capital funds, risk weighted assets, risk asset ratio etc., as at the end of March every year.5

ii.Monthly Returns on Important Financial Parameters.6

C.Returns on important financial parameters of non-deposit taking NBFCs having asset size of ` 50 crore and above but less than ` 100 crore

Quarterly Returns concerning basic information like name of the company, address, NOF, profit / loss during the last three years.7

2. It has been decided to rationalize the above mentioned returns to streamline the reporting system and to improve the present method of collecting data. Periodicity of submitting NBS 1 and NBS 2, which has been on annual and half yearly basis, respectively, has been made quarterly. NBS- 5 stands withdrawn as submission of NBS 1 has been made quarterly. Periodicity of submitting NBS 7 has been changed from annual to quarterly. Periodicity of submitting the remaining returns, namely, NBS 3, NBS 6, Monthly Return on Important Financial Parameters of NBFCs-ND-SI and Quarterly Return to be submitted by non-deposit taking NBFCs with asset size between ` 50 crore and ` 100 crore has not been changed. NBS-4 has also not been revised and the same format and periodicity continues. The Bank has since hosted the format of the Revised Returns viz., NBS 1, NBS 2, NBS 3, NBS 6, NBS 7 and the Monthly Return of NBFCs-ND-SI on the Bank's website, viz, https://cosmos.rbi.org.in/. NBFCs shall submit all the returns specified in Para above, online in the revised formats. The first such return in NBS 1, NBS 2 and NBS 7 may be submitted beginning from the quarter ended June 2011, NBS-3, for the quarter ending September 2011. The monthly returns viz, NBS-6 and monthly return of NBFCs-ND-SI may be submitted beginning from September 2011. NBFCs-D which have not submitted the NBS 1 for March 2011 (annual) may also submit the same in the revised format urgently.

3. Amending Notifications No. DNBS(PD) 230/CGM(US)2011 amending Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998, No. DNBS(PD) 231/CGM(US)2011 amending Non-Banking Financial (Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 and No. DNBS(PD)232/CGM(US)2011 amending Reserve Bank of India (Non-banking Financial Companies) Returns Specifications,1997 are enclosed for meticulous compliance.

4. NBFCs may acknowledge receipt and confirm compliance to these instructions to the Regional Office under the jurisdiction of which they are registered.

Yours faithfully,

(Uma Subramaniam)

CGM-I-Charge

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RESERVE BANK OF INDIA

DEPARTMENT OF NON-BANKING SUPERVISION

CENTRAL OFFICE

CENTRE 1, WORLD TRADE CENTRE

CUFFE PARADE, COLABA

MUMBAI – 400 005

NOTIFICATION NO. DNBS.230/CGM (US)-2011 Dated September 22, 2011

The Reserve Bank of India, having considered it necessary in the public interest and being satisfied that, for the purpose of enabling the Bank to regulate the credit system to the advantage of the country, it is necessary to amend the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998, in exercise of the powers conferred by Sections 45J, 45K and 45L of the Reserve Bank of India Act, 1934 (2 of 1934) and of all the powers enabling it in this behalf, hereby directs that the said directions contained in Notification No. DFC. 118/ DG (SPT)-98 dated January 31, 1998 shall stand amended, with immediate effect, as follows, namely –

(i) In Paragraph 8, sub-paragraph (3), the following shall be added, namely.,

“provided that with effect from June 30, 2011 such return shall be submitted quarterly online in the format available on https://cosmos.rbi.org.in/ , within a period of 15 days from the close of the quarter.”

(Uma Subramaniam)

Chief General Manager in Charge

--------------------------------------------------------------------------------

RESERVE BANK OF INDIA

DEPARTMENT OF NON-BANKING SUPERVISION

CENTRAL OFFICE

CENTRE I, WORLD TRADE CENTRE,

CUFFE PARADE, COLABA,

MUMBAI 400 005.

Notification No. DNBS.231/CGM(US)-2011 dated September 22, 2011

The Reserve Bank of India, having considered it necessary in the public interest and being satisfied that, for the purpose of enabling the Bank to regulate the credit system to the advantage of the country, it is necessary to amend the Non-Banking Financial (Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007, in exercise of the powers conferred by Section 45JA of the Reserve Bank of India Act, 1934 (2 of 1934) and of all the powers enabling it in this behalf, hereby directs that the said directions contained in Notification No. DNBS. 1920/DG (VL)-2007 dated February 22, 2007, shall stand amended, with immediate effect, as follows, namely –

(i) Paragraph 21 shall be modified as under:

Submission of quarterly return-NBS-2

21. With effect from June 30, 2011, all Non-banking financial companies, excluding residuary non-banking companies referred to in paragraphs 1(3)(i)(a) and (b), shall submit on line a quarterly return within fifteen days of the expiry of the relative quarter as on March 31, June 30, September 30 and December 31 every year, in the format available on https://cosmos.rbi.org.in/.”

(Uma Subramaniam)

Chief General Manager in Charge

--------------------------------------------------------------------------------

RESERVE BANK OF INDIA

DEPARTMENT OF NON-BANKING SUPERVISION

CENTRAL OFFICE

CENTRE I, WORLD TRADE CENTRE,

CUFFE PARADE, COLABA,

MUMBAI 400 005.

Notification No. DNBS. 232/CGM (US)-2011 dated September 22, 2011

In exercise of the powers conferred under Section 45-IB of the Reserve Bank of India Act, 1934 and of all the powers enabling it in this behalf, and in partial modification of the Reserve Bank of India (Non-Banking Financial Companies) Returns Specifications, 1997, issued vide Notification No.DFC (COC) No.108.ED(JRP)/97 dated April 30, 1997, the Reserve Bank hereby specifies as follows, namely-

(i) In paragraph 5 of the Specifications, the words “Department of Supervision (Financial Companies Wing)” shall be substituted by the words “Department of Non-Banking Supervision”.

(ii) 6. From June 30, 2011 NBS 3 shall be submitted online in revised format available on https://cosmos.rbi.org.in/“

(Uma Subramaniam)

Chief General Manager in Charge

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1 Inserted vide Notification No.DFC.118/DG (SPT)-98 dated January 31, 1998

2 Inserted vide Notification No. DNBS.192/DG (VL)-2007 dated February 22, 2007

3 Inserted vide Notification No DFC(COC) No.108.ED(JRP)/97 dated April 30, 1997

4 Inserted vide Notification No. DNBS. 192/ DG (VL)-2007 dated February 22, 2007

5 Inserted vide DNBS.PD/ CC.No. 93/03.05.002 /2006-07 dated April 27, 2007

6 Inserted vide DNBS (RID) C.C. No. 57/02.05.15/2005-06 dated September 6, 2005

7 Inserted vide DNBS.PD/ CC.No.130 /03.05.002 /2008-09 dated September 24, 2008

NBFCs- Amendment to Definition of Infrastructure Loan

RBI/2010-11/432

DNBS (PD) CC. No.213/03.10.001/2010-2011

March 16, 2011

All NBFCs

Dear Sir

Amendment to Definition of Infrastructure Loan

1.The term “Infrastructure Loan” has been defined in Para 2(viii) of Non-Banking Financial (Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 and Non-Banking Financial (Non - Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007, respectively. It has now been decided to include “Telecom Towers” also as an infrastructure facility for availing credit facility.

2. It may further be clarified that only Credit Rating Agencies(CRAs) approved by the Reserve Bank can give the rating to Infrastructure Finance Companies(IFCs) in terms of DNBS.PD.CC.No.168/03.02.089/2009-10 dated February 12, 2010. Accordingly it has been decided to substitute “credit rating agency accredited by RBI” in place of “accredited CRAs” in Paragraph19A (iii) of the Non-Banking Financial (Non- Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007, issued vide Notification No. DNBS.193/DG (VL)-2007 dated February 22, 2007 and amended from time to time.

3. Amending Notifications No.DNBS(PD)226/CGM(US)2011 amending Non-Banking Financial (Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 and No.DNBS(PD)225/CGM(US)2011 amending Non-Banking Financial (Non- Deposit Accepting or Holding) Companies

Prudential Norms (Reserve Bank) Directions, 2007 are enclosed for meticulous compliance.

Yours faithfully

(Uma Subramaniam)

Chief General Manager-In-Charge

---------------------------------------------------------------

RESERVE BANK OF INDIA

DEPARTMENT OF NON-BANKING SUPERVISION

CENTRAL OFFICE

CENTRE I, WORLD TRADE CENTRE,

CUFFE PARADE, COLABA,

MUMBAI 400 005.

Notification No.DNBS(PD).225/CGM(US)-2011 dated March 16, 2011

The Reserve Bank of India, having considered it necessary in public interest and being satisfied that, for the purpose of enabling the Bank to regulate the credit system to the advantage of the country, it is necessary to amend the Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007(hereinafter referred to as the said Directions), contained in Notification No. DNBS. 193/DG(VL)-2007 dated February 22, 2007, in exercise of the powers conferred by section 45JA of the Reserve Bank of India Act, 1934 (2 of 1934) and of all the powers enabling it in this behalf, hereby directs that the said Directions shall be amended with immediate effect as follows, namely -

1. Amendment of paragraph 2 –

In sub-clause (e) of clause (viii) in sub-paragraph (1) of the said Directions, the term “Telecom Towers” shall be inserted before the term “network of trunking”.

2. Amendment of paragraph 19A –

The existing clause (iii) shall be substituted with the following viz.,

“ (iii) have obtained a minimum credit rating 'A' or equivalent of CRISIL, FITCH, CARE, ICRA or equivalent rating by any other credit rating agency accredited by RBI ';

(Uma Subramaniam)

Chief General Manager-in-Charge

---------------------------------------------------------------

RESERVE BANK OF INDIA

DEPARTMENT OF NON-BANKING SUPERVISION

CENTRAL OFFICE

CENTRE I, WORLD TRADE CENTRE,

CUFFE PARADE, COLABA,

MUMBAI 400 005.

Notification No. DNBS(PD).226/ CGM(US)-2011 dated March 16, 2011

The Reserve Bank of India, having considered it necessary in public interest and being satisfied that, for the purpose of enabling the Bank to regulate the credit system to the advantage of the country, it is necessary to amend the Non-Banking Financial (Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 (here in after referred to as the said Directions), contained in Notification No. DNBS.192/DG(VL)-2007 dated February 22, 2007, in exercise of the powers conferred by sections 45JA of the Reserve Bank of India Act, 1934 (2 of 1934) and of all the powers enabling it in this behalf, hereby directs that the said Directions shall be amended with immediate effect as follows, namely -

1. Amendment of paragraph 2 –

i) In sub-clause (e) of clause (viii) in sub-paragraph (1) of the said Directions, the term “Telecom Towers” shall be inserted before the term “network of trunking”.

ii) The sub-clause (k) of clause (viii) in sub-paragraph (1) of the said Directions viz; 'construction of educational institutions and hospitals'; shall be omitted.

(Uma Subramaniam)

Chief General Manager-in-Charge



Provision of 0.25% for standard assets of NBFCs

RBI/2010-11/370

DNBS.PD.CC.No.207/ 03.02.002 /2010-11

January 17, 2011

All NBFCs

Dear sir,

Provision of 0.25% for standard assets of NBFCs

1. In terms of Non-Banking Financial (Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007, and Non-Banking Financial (Non- Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007, all NBFCs are required to make necessary provisions for non performing assets. In the interests of counter cyclicality and so as to ensure that NBFCs create a financial buffer to protect them from the effect of economic downturns, it has been decided to introduce provisioning for standard assets also.

2. Accordingly

i) NBFCs should make a general provision at 0.25 per cent of the outstanding standard assets.

(ii) The provisions on standard assets should not be reckoned for arriving at net NPAs.

(iii) The provisions towards Standard Assets need not be netted from gross advances but shown separately as 'Contingent Provisions against Standard Assets' in the balance sheet.

(iv) NBFCs are allowed to include the ‘General Provisions on Standard Assets’ in Tier II capital which together with other ‘general provisions/ loss reserves’ will be admitted as Tier II capital only up to a maximum of 1.25 per cent of the total risk-weighted assets.

3. Accompanying Notifications No. DNBS. 222 CGM(US)2011 and No. DNBS. 223 CGM (US) 2011 both dated January 17, 2011 are enclosed for meticulous compliance.

Yours sincerely,

(Uma Subramaniam)

Chief General Manager-in-Charge

Encl: as above

Regulatory Framework for Core Investment Companies

RBI has issued four notifications regarding regulatory framework for core investment companies. Click here for the text of the notifications.

Submission of Balance sheet and Profit and Loss Account - NBFCs

RBI/2010-11/295

DNBS.PD/ CC.No. 204 / 03.05.002 /2010-11 December 1, 2010

All NBFCs

Dear Sir,

Submission of Balance sheet and Profit and Loss Account

In terms of para 12 of both the Non-Banking Financial (Deposit Accepting) Companies Prudential Norms Directions, 2007 and Non-Banking Financial (Non-Deposit Accepting) Companies Prudential Norms Directions, 2007, every NBFC shall prepare its balance sheet and profit and loss account as on March 31 every year and extension of date of balance sheet requires prior approval of RBI. Further in terms of para 15 of the above Directions, all NBFCs are required to submit a certificate from Statutory Auditor with respect to the position of the company as on March 31st every year within one month from the date of finalization of the balance sheet and in any case not later than December 30th of that year.

2. While emphasizing that the certificate from Statutory Auditor shall be submitted to RBI within one month from the date of finalization of the balance sheet, it is also advised that all NBFCs shall finalise their balance sheet within a period of 3 months from the date to which it pertains. For eg: balance sheet as on March 31st of an year shall be finalized by June 30th of the year.

3. A copy each of amending Notifications No.DNBS.217/CGM(US)-2010 and Notification No.DNBS.218/CGM(US)-2010 both dated December 1, 2010 is enclosed.

Yours sincerely,

(Uma Subramaniam)

Chief General Manager-in-Charge

Encl: As above

Infrastructure Finance Company

Currently, the Reserve Bank has classified NBFCs under three categories, viz., Asset Finance Companies, Loan companies and Investment Companies. It has now been decided to introduce a fourth category of NBFCs as "Infrastructure Finance Companies"(IFCs) vide notification no. RBI/2009-10/316 dated 12-2-2010.

Click here for the text of the notification.

Capital Adequacy - Risk weightage on Lending through Collateralized Borrowing and Lending Obligation (CBLO)

RBI Circular : DNBS.PD/ CC.No.165/03.05.002/2009-10

It is clarified that the counterparty credit risk, arising out of exposure of NBFCs to Clearing Corporation of India Ltd (CCIL) on account of securities financing transactions Collateralized Borrowing and Lending Obligations (CBLOs) will carry a risk weight of zero.

Click the title for the text of the circular.

NBFC regulations and other relevant information on NBFC

ICAI has made a collection of all regulations as on 25/11/2009 relating to NBFCs at one location.

Click the title for referring to the collection.

Know Your Customer (KYC) Guidelines / Anti-Money Laundering (AML) Standards for NBFCs- RBI circular

It is advised that in the event of an existing customer or the beneficial owner of an existing account, subsequently becoming a politically exposed perosn (PEP), NBFCs (including RNBCs) should obtain senior management approval to continue the business relationship and subject the account to the CDD measures as applicable to the customers of PEP category including enhanced monitoring on an ongoing basis.

Click the tilte for the text of the circular.

Prevention of Money laundering Act, 2002 – Obligations of NBFCs in terms of Rules notified thereunder- RBI Circular

In modification of paragraph 4 of the Master Circular No.152/03.10.42/2009-10 dated July 1, 2009, NBFCs (including RNBCs) are advised to maintain for at least ten years from the date of transaction between the NBFC (including RNBC) and the client, all necessary records of transactions referred to at Rule 3 of the Prevention of Money-Laundering (Maintenance of Records of the Nature and Value of Transactions, the Procedure and Manner of Maintaining and Time for Furnishing Information and Verification and Maintenance of Records of the Identity of the Clients of the Banking Companies, Financial Institutions and Intermediaries) Rules, 2005 (PMLA Rules), both domestic or international, which will permit reconstruction of individual transactions (including the amounts and types of currency involved, if any) so as to provide, if necessary, evidence for prosecution of persons involved in criminal activity.

Click the tiltle for the text of the Circular.

Prior Approval of RBI for transfer of control in NBFC accepting Deposit

To enable RBI to verify that the 'fit and proper' character of the management of NBFCs is continuously maintained, it has been decided that any take over / acquisition of shares of a deposit taking NBFC or merger/amalgamation of a deposit taking NBFC with another entity or any merger/amalgamation of an entity with a deposit taking NBFC that would give the acquirer / another entity control of the deposit taking NBFC, would require prior permission of RBI.