India’s Leading BFSI Companies 2020

XXV Policy measures for NBFC sector The Finance Bill 2019 through amendments in the RBI Act, 1934 conferred powers on the Reserve Bank to strengthen governance of NBFCs to protect depositors’/creditors’ interest and secure financial stability. The amendments empowered the Reserve Bank to remove the directors of NBFCs; supersede their board and appoint administrators to improve governance and protect the interests of depositors and creditors; impose penalties in case of non-compliance with various requirements; and to resolve an NBFC by amalgamation, reconstruction or splitting an NBFC into different units or institutions. Pursuant to Budget announcements, the government amended the Companies (Share Capital and Debentures) Rules by removing Debenture Redemption Reserve (DRR) requirement for NBFCs and HFCs. The requirement of a DRR of 25 per cent of the value of outstanding debentures through public issues has been removed, which would reduce the cost of raising funds and deepen the corporate bond market. AWorking Group constituted by the Reserve Bank to review regulatory and supervisory framework for Core Investment Companies has submitted report and recommended that the number of layers of CICs in a group should be restricted to two along with measures to strengthen the governance practice by constituting board level committees, appointing independent directors and a Group Risk Management Committee. End-use restrictions relating to external commercial borrowings were relaxed with eligible borrowers allowed to raise ECBs from recognized lenders (except foreign branches / overseas subsidiaries of Indian banks) of (i) a minimum average maturity period of 10 years for working capital purposes, general corporate purposes and repayment of rupee loans availed domestically for purposes of on-lending (other than capital expenditure) by NBFCs. (ii) a minimum average maturity period of 7 years for repayment of rupee loans availed domestically for capital expenditure. Banks were allowed to provide partial credit enhancement (PCE) to bonds issued by NBFCs-ND-SI registered with the Reserve Bank and HFCs registered with National Housing Bank, provided the tenor of the bonds is not less than three years, proceeds from such bonds shall only be utilized for refinancing existing debt of the NBFCs-ND-SI/HFCs. In order to encourage NBFCs to securitize/assign their eligible assets, the Reserve Bank has relaxed theminimumholding period (MHP) requirement till December 31, 2019 for originating NBFCs in respect of loans of original maturity above 5 years, subject to certain conditions. All scheduled commercial banks (excluding Regional Rural Banks and Small Finance Banks) were allowed to co-originate loans with NBFCs-ND-SI for the creation of eligible priority sector assets, facilitating sharing of risks and rewards. Asset Finance Companies, Loan Companies, and Investment Companies were merged into a new category called NBFC- Investment and Credit Company (NBFC-ICC), reducing the complexities arising frommultiple categories and also providing the NBFCs greater flexibility in their operations. Exposures to all NBFCs excluding CICs would be risk weighted as per the ratings assigned by the rating agencies registered with the SEBI and accredited by the Reserve Bank in amanner similar to that of corporates under the existing regulations; exposure to CICs, rated as well as unrated, will continue to be risk-weighted at 100 per cent. Large NBFCs, with asset size of more than ` 5000 crore were required to appoint a functionally independent Chief Risk Officer (CRO) with clearly specified role and responsibilities, with involvement in the process of identification, measurement and mitigation of risks. The Reserve Bank has revised guidelines to raise the standard of asset-liability management (ALM) framework of NBFCs including Core Investment Companies (CICs). The revised guidelines stipulate more granular maturity buckets and tolerance limits along with adoption of liquidity risk monitoring tools, including stress testing and diversification of funding. The framework requires maintenance of a liquidity buffer in terms of a liquidity coverage ratio (LCR) starting at 50 per cent for all deposit taking NBFCs and all non-deposit taking NBFCs (NBFCs- ND) with an asset size of ` 10,000 crore and above and 30 per cent for all NBFCs-ND with an asset size of ` 5,000 crore and above but less than ` 10,000 crore, from December 1, 2020 to reach 100 per cent on December 1, 2024. Dun & radstreet