Money & Banking

RBI issues guidelines on capital requirements for NBFCs- UL

BL Mumbai Bureau | Updated on: Apr 19, 2022

NBFCs-Upper Layer must maintain Common Equity Tier-1 ratio of at least nine per cent of risk weighted assets

NBFCs-Upper Layer will maintain, on an on-going basis, Common Equity Tier 1 (CET1) ratio of at least nine per cent of risk weighted assets, the Reserve Bank of India has said.

This follows a circular for Scale Based Regulation for NBFCs.

“This circular is applicable to all NBFCs identified as NBFC-UL, except core investment companies (CICs),” the RBI said in detailed guidelines on capital requirements issued on Tuesday.

Elements of the CET-1 capital will comprise of paid-up equity share capital issued by the NBFC, share premium resulting from the issue of equity shares, and capital reserves representing surplus arising out of sale proceeds of assets. Further, statutory reserves and revaluation reserves arising out of change in the carrying amount of an NBFC’s property, consequent upon its revaluation in accordance with the applicable accounting standards may, at the discretion of the NBFC, will be reckoned as CET1.

Loans and advances under ₹5 crore

Meanwhile, in a separate set of guidelines on loans and advances by NBFCs, the RBI has spelt out regulatory restrictions for NBFCs in the Middle and Upper Layer.

Unless sanctioned by the board of directors or committee of directors, NBFCs shall not grant loans and advances aggregating ₹5 crore and above to their directors (including the Chairman/Managing Director); relatives of directors; any firm in which any of director or their relative is interested as a partner, manager, employee or guarantor; or any company in which any director their relative is interested as a major shareholder, director, manager, employee or guarantor.

Real estate loans

In the real estate sector, the RBI has said that while appraising loan proposals, NBFCs shall ensure that the borrowers have obtained prior permission from government, local government, or other statutory authorities for the project, wherever required.

“To ensure that the loan approval process is not hampered on account of this, while the proposals may be sanctioned in normal course, the disbursements shall be made only after the borrower has obtained requisite clearances from the government or other statutory authorities,” it added.

The guidelines on loans and advances will be effective from October 1, 2022.

Published on April 19, 2022
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