Notification as amended upto June 30, 2012 - “Non-Banking Financial (Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007” - ஆர்பிஐ - Reserve Bank of India
Notification as amended upto June 30, 2012 - “Non-Banking Financial (Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007”
RBI/2012-13/38 July 2, 2012 To The Chairman / CEOs of all Non-Banking Financial (Deposit Accepting or Holding) Dear Sir, Notification as amended upto June 30, 2012 – “Non-Banking Financial (Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007” 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 contained in the Notification No. DNBS. 192 / DG (VL)-2007 dated February 22, 2007 updated as on June 30, 2012 are reproduced below. The updated notification has also been placed on the RBI web-site (http://www.rbi.org.in). Yours sincerely, (C.R.Samyuktha)
RESERVE BANK OF INDIA NOTIFICATION No. DNBS.192/ DG (VL)-2007 dated February 22, 2007 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 issue the Directions relating to the prudential norms as set out below, 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, and in supersession of the Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 1998 contained in Notification No. DFC. 119/DG(SPT)/98 dated January 31, 1998, gives to every non-banking financial company (other than Residuary Non-Banking Company) accepting/ holding public deposits and to every Residuary Non-Banking Company the Directions hereinafter specified. Short title, commencement and applicability of the Directions: 1. (1) These Directions shall be known as the "Non-Banking Financial (Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007". (2) These Directions shall come into force with immediate effect. (3) (i) The provisions of these Directions, shall apply to: (a) a non-banking financial company, except a mutual benefit financial company [and a mutual benefit company] as defined in the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998 and accepting/holding public deposit; (b) a residuary non-banking company as defined in the Residuary Non-Banking Companies (Reserve Bank) Directions, 1987. (ii) These Directions shall not apply to a non-banking financial company being a Government company as defined under Section 617 of the Companies Act, 1956 (1 of 1956) and accepting / holding public deposit. 2. (1) For the purpose of these Directions, unless the context otherwise requires: (i) “break up value” means the equity capital and reserves as reduced by intangible assets and revaluation reserves, divided by the number of equity shares of the investee company; (ii) “carrying cost” means book value of the assets and interest accrued thereon but not received; (iii) “current investment” means an investment which is by its nature readily realisable and is intended to be held for not more than one year from the date on which such investment is made; (iv) “doubtful asset” means:
which remains a sub-standard asset for a period exceeding 18 months; (v) “earning value” means the value of an equity share computed by taking the average of profits after tax as reduced by the preference dividend and adjusted for extra-ordinary and non-recurring items, for the immediately preceding three years and further divided by the number of equity shares of the investee company and capitalised at the following rate: (a) in case of predominantly manufacturing company, eight per cent; NOTE : If, an investee company is a loss making company, the earning value will be taken at zero; (vi) “fair value” means the mean of the earning value and the break up value; (vii) “hybrid debt” means capital instrument which possesses certain characteristics of equity as well as of debt; (viii) ‘infrastructure loan’ means a credit facility extended by non-banking financial companies to a borrower, by way of term loan, project loan subscription to bonds/debentures/ preference shares / equity shares in a project company acquired as a part of the project finance package such that such subscription amount to be “in the nature of advance” or any other form of long term funded facility provided to a borrower company engaged in:
any infrastructure facility that is a project in any of the following sectors:
(ix) “loss asset” means: (a) an asset which has been identified as loss asset by the non-banking financial company or its internal or external auditor or by the Reserve Bank of India during the inspection of the non-banking financial company, to the extent it is not written off by the non-banking financial company; and (b) an asset which is adversely affected by a potential threat of non-recoverability due to either erosion in the value of security or non availability of security or due to any fraudulent act or omission on the part of the borrower; (x) “long term investment” means an investment other than a current investment; (xi) “net asset value” means the latest declared net asset value by the mutual fund concerned in respect of that particular scheme; (xii) “net book value” means: (a) in the case of hire purchase asset, the aggregate of overdue and future instalments receivable as reduced by the balance of unmatured finance charges and further reduced by the provisions made as per paragraph 9(2)(i) of these Directions; (b) in the case of leased asset, aggregate of capital portion of overdue lease rentals accounted as receivable and depreciated book value of the lease asset as adjusted by the balance of lease adjustment account. (xiii) ‘non-performing asset’ (referred to in these Directions as “NPA”) means:
(xiv) “owned fund” means paid up equity capital, preference shares which are compulsorily convertible into equity, free reserves, balance in share premium account and capital reserves representing surplus arising out of sale proceeds of asset, excluding reserves created by revaluation of asset, as reduced by accumulated loss balance, book value of intangible assets and deferred revenue expenditure, if any; (xv) “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; (xvi) “sub-standard asset” means:
(xvii) "subordinated debt" means an instrument, which is fully paid up, is unsecured and is subordinated to the claims of other creditors and is free from restrictive clauses and is not redeemable at the instance of the holder or without the consent of the supervisory authority of non-banking financial company. The book value of such instrument shall be subjected to discounting as provided hereunder: Remaining Maturity of the instruments Rate of discount (a) Upto one year 100% (b) More than one year but upto two years 80% (c) More than two years but upto three years 60% (d) More than three years but upto four years 40% (e) More than four years but upto five years 20% to the extent such discounted value does not exceed fifty per cent of Tier I capital; (xviii) “substantial interest” means holding of a beneficial interest by an individual or his spouse or minor child, whether singly or taken together in the shares of a company, the amount paid up on which exceeds ten per cent of the paid up capital of the company; or the capital subscribed by all the partners of a partnership firm; (xix) “Tier I Capital” means owned fund as reduced by investment in shares of other non-banking financial companies and in shares, debentures, bonds, outstanding loans and advances including hire purchase and lease finance made to and deposits with subsidiaries and companies in the same group exceeding, in aggregate, ten per cent of the owned fund; (xx) “Tier II capital” includes the following:
c) 3"General Provisions (including that for standard assets) and loss reserves to the extent these are not attributable to actual diminution in value or identifiable potential loss in any specific asset and are available to meet unexpected losses, to the extent of one and one fourth percent of risk weighted assets;" d) of one and one fourth percent of risk weighted assets;
to the extent the aggregate does not exceed Tier I capital. (2) Other words or expressions used but not defined herein and defined in the Reserve Bank of India Act, 1934 (2 of 1934) or the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998 or the Residuary Non-Banking Companies (Reserve Bank) Directions, 1987 shall have the same meaning as assigned to them under that Act or those Directions. Any other words or expressions not defined in that Act or those Directions, shall have the same meaning assigned to them in the Companies Act, 1956 (1 of 1956). 3. (1) The income recognition shall be based on recognised accounting principles. (2) Income including interest/discount or any other charges on NPA shall be recognised only when it is actually realised. Any such income recognised before the asset became non-performing and remaining unrealised shall be reversed. (3) In respect of hire purchase assets, where instalments are overdue for more than 12 months, income shall be recognised only when hire charges are actually received. Any such income taken to the credit of profit and loss account before the asset became non-performing and remaining unrealised, shall be reversed. (4) In respect of lease assets, where lease rentals are overdue for more than 12 months, the income shall be recognised only when lease rentals are actually received. The net lease rentals taken to the credit of profit and loss account before the asset became non-performing and remaining unrealised shall be reversed. Explanation For the purpose of this paragraph, 'net lease rentals’ mean gross lease rentals as adjusted by the lease adjustment account debited/credited to the profit and loss account and as reduced by depreciation at the rate applicable under Schedule XIV of the Companies Act, 1956 (1 of 1956). 4. (1) Income from dividend on shares of corporate bodies and units of mutual funds shall be taken into account on cash basis: Provided that the income from dividend on shares of corporate bodies may be taken into account on accrual basis when such dividend has been declared by the corporate body in its annual general meeting and the non-banking financial company’s right to receive payment is established. (2) Income from bonds and debentures of corporate bodies and from Government securities/bonds may be taken into account on accrual basis: Provided that the interest rate on these instruments is pre-determined and interest is serviced regularly and is not in arrears. (3) Income on securities of corporate bodies or public sector undertakings, the payment of interest and repayment of principal of which have been guaranteed by Central Government or a State Government may be taken into account on accrual basis. 5. Accounting Standards and Guidance Notes issued by the Institute of Chartered Accountants of India (referred to in these Directions as “ICAI”) shall be followed insofar as they are not inconsistent with any of these Directions. 6. (1) (a) The Board of Directors of every non-banking financial company shall frame investment policy for the company and implement the same; (b) The criteria to classify the investments into current and long term investments shall be spelt out by the Board of the company in the investment policy; (c) Investments in securities shall be classified into current and long term, at the time of making each investment; (d) (i) There shall be no inter-class transfer on ad-hoc basis; (ii) The inter-class transfer, if warranted, shall be effected only at the beginning of each half year, on April 1 or October 1, with the approval of the Board; (iii) The investments shall be transferred scrip-wise, from current to long-term or vice-versa, at book value or market value, whichever is lower; (iv) The depreciation, if any, in each scrip shall be fully provided for and appreciation, if any, shall be ignored; (v) The depreciation in one scrip shall not be set off against appreciation in another scrip, at the time of such inter-class transfer, even in respect of the scrips of the same category. (2) Quoted current investments shall, for the purposes of valuation, be grouped into the following categories, viz.,
Quoted current investments for each category shall be valued at cost or market value whichever is lower. For this purpose, the investments in each category shall be considered scrip-wise and the cost and market value aggregated for all investments in each category. If the aggregate market value for the category is less than the aggregate cost for that category, the net depreciation shall be provided for or charged to the profit and loss account. If the aggregate market value for the category exceeds the aggregate cost for the category, the net appreciation shall be ignored. Depreciation in one category of investments shall not be set off against appreciation in another category. (3) Unquoted equity shares in the nature of current investments shall be valued at cost or break up value, whichever is lower. However, non-banking financial companies may substitute fair value for the break up value of the shares, if considered necessary. Where the balance sheet of the investee company is not available for two years, such shares shall be valued at one Rupee only. (4) Unquoted preference shares in the nature of current investments shall be valued at cost or face value, whichever is lower. (5) Investments in unquoted Government securities or Government guaranteed bonds shall be valued at carrying cost. (6) Unquoted investments in the units of mutual funds in the nature of current investments shall be valued at the net asset value declared by the mutual fund in respect of each particular scheme. (7) Commercial papers shall be valued at carrying cost. (8) A long term investment shall be valued in accordance with the Accounting Standard issued by ICAI. Note: Unquoted debentures shall be treated as term loans or other type of credit facilities depending upon the tenure of such debentures for the purpose of income recognition and asset classification. Need for Policy on Demand/Call Loans 7. (1) The Board of Directors of every non-banking financial company granting/intending to grant demand/call loans shall frame a policy for the company and implement the same. (2) Such policy shall, inter alia, stipulate the following, -
8. (1) Every non-banking financial company shall, after taking into account the degree of well defined credit weaknesses and extent of dependence on collateral security for realisation, classify its lease/hire purchase assets, loans and advances and any other forms of credit into the following classes, namely,:
(2) The class of assets referred to above shall not be upgraded merely as a result of rescheduling, unless it satisfies the conditions required for the upgradation. 9. Every non-banking financial company shall, after taking into account the time lag between an account becoming non-performing, its recognition as such, the realisation of the security and the erosion over time in the value of security charged, make provision against sub-standard assets, doubtful assets and loss assets as provided hereunder: Loans, advances and other credit facilities including bills purchased and discounted (i) Loss Assets The entire asset shall be written off. (ii) Doubtful Assets (a) 100% provision to the extent to which (b) In addition to item (a) above, Period for which the asset has Upto one year 20 iii) Sub-standard assets A general provision of 10% of total Lease and hire purchase assets (2) The provisioning requirements in respect of hire purchase and leased assets shall be as under: Hire purchase assets (i) In respect of hire purchase assets, the total dues (overdue and future instalments taken together) as reduced by (b) the depreciated value of the underlying asset, Explanation : For the purpose of this paragraph, (1) the depreciated value of the asset shall be notionally computed as the original cost of the asset to be reduced by depreciation at the rate of twenty per cent per annum on a straight line method; and (2) in the case of second hand asset, the original cost shall be the actual cost incurred for acquisition of such second hand asset. Additional provision for hire purchase and leased assets (ii) In respect of hire purchase and leased assets, additional provision shall be made as under :
NOTES:
“9A. Every Non Banking Financial Company shall make provision for standard assets at 0.25 percent of the outstanding, which shall not be reckoned for arriving at net NPAs. The provision towards standard assets need not be netted from gross advances but shall be shown separately as ‘Contingent Provisions against Standard Assets’ in the balance sheet.”4 Disclosure in the balance sheet 10. (1) Every non-banking financial company shall separately disclose in its balance sheet the provisions made as per paragraph 9 above without netting them from the income or against the value of assets. (2) The provisions shall be distinctly indicated under separate heads of account as under : (i) provisions for bad and doubtful debts; and (3) Such provisions shall not be appropriated from the general provisions and loss reserves held, if any, by the non-banking financial company. (4) Such provisions for each year shall be debited to the profit and loss account. The excess of provisions, if any, held under the heads general provisions and loss reserves may be written back without making adjustment against them. Constitution of Audit Committee by non-banking financial companies
12. Every non-banking financial company shall prepare its balance sheet and profit and loss account as on March 31 every year. Whenever a non-banking financial company intends to extend the date of its balance sheet as per provisions of the Companies Act, it should take prior approval of the Reserve Bank of India before approaching the Registrar of Companies for this purpose. Further, even in cases where the Bank and the Registrar of Companies grant extension of time, the non-banking financial company shall furnish to the Bank a proforma balance sheet (unaudited ) as on March 31 of the year and the statutory returns due on the said date. "Every non-banking financial company shall finalise its balance sheet within a period of 3 months from the date to which it pertains".5 13. Every non-banking financial company shall append to its balance sheet prescribed under the Companies Act, 1956, the particulars in the schedule as set out in Annex 1. Transactions in Government securities 14. Every non-banking financial company may undertake transactions in Government securities through its CSGL account or its demat account: provided that no non-banking financial company shall undertake any transaction in government security in physical form through any broker. Submission of a certificate from Statutory Auditor to the Bank 15. Every non-banking financial company shall submit a Certificate from its Statutory Auditor that it is engaged in the business of non-banking financial institution requiring it to hold a Certificate of Registration under Section 45-IA of the RBI Act. A certificate from the Statutory Auditor in this regard with reference to the position of the company as at end of the financial year ended March 31 may be submitted to the Regional Office of the Department of Non-Banking Supervision under whose jurisdiction the non-banking financial company is registered, [“within one month from the date of finalization of the balance sheet and in any case not later than December 30th of that year".]6 Such certificate shall also indicate the asset / income pattern of the non-banking financial company for making it eligible for classification as Asset Finance Company, Investment Company or Loan Company. Requirement as to capital adequacy 16. (1) Every non-banking financial company shall maintain a minimum capital ratio consisting of Tier I and Tier II capital which shall not be less than twelve per cent of its aggregate risk weighted assets on balance sheet and of risk adjusted value of off-balance sheet items. (2) The total of Tier II capital, at any point of time, shall not exceed one hundred per cent of Tier I capital. Explanations : On balance sheet assets (1) In these Directions, degrees of credit risk expressed as percentage weightages have been assigned to balance sheet assets. Hence, the value of each asset/item requires to be multiplied by the relevant risk weights to arrive at risk adjusted value of assets. The aggregate shall be taken into account for reckoning the minimum capital ratio. The risk weighted asset shall be calculated as the weighted aggregate of funded items as detailed hereunder: Weighted risk assets - On-Balance Sheet items (ii) Investments (a) Approved securities 0 (b) Bonds of public sector banks 20 (c) Fixed deposits/certificates of deposits/ (iii) Current assets (a) Stock on hire (net book value) 100 (b) Intercorporate loans/deposits 100 (c) Loans and advances fully (d) Loans to staff 0 (e) Other secured loans and advances (f) Bills purchased/discounted 100 (g) Others (To be specified) 100 (iv) Fixed Assets (net of depreciation) (b) Premises 100 (c) Furniture & Fixtures 100 (v) Other assets (a) Income tax deducted at (b) Advance tax paid (net of provision) 0 (c) Interest due on Government securities 0 (d) Others (to be specified) 100 Notes: (1) Netting may be done only in respect of assets where provisions for depreciation or for bad and doubtful debts have been made. (2) Assets which have been deducted from owned fund to arrive at net owned fund shall have a weightage of `zero’. [“(4) The counterparty credit risk, arising out of exposure of NBFCs to CCIL on account of securities financing transactions (CBLOs) will carry a risk weight of zero, as it is presumed that the CCP’s exposures to their counterparties are fully collateralised on a daily basis, thereby providing protection for the CCP’s credit risk exposures. The deposits / collaterals kept by NBFCs with CCIL will attract a risk weight of 20%"]. 8 Off-balance sheet items NBFCs will calculate the total risk weighted off-balance sheet credit exposure as the sum of the risk-weighted amount of the market related and non-market related off-balance sheet items. The risk-weighted amount of an off-balance sheet item that gives rise to credit exposure will be calculated by means of a two-step process: (a) the notional amount of the transaction is converted into a credit equivalent amount, by multiplying the amount by the specified credit conversion factor or by applying the current exposure method; and (b) the resulting credit equivalent amount is multiplied by the risk weight applicable viz; zero percent for exposure to Central Government/State Governments, 20 percent for exposure to banks and 100 percent for others. B. Non-market-related off- balance sheet items i. The credit equivalent amount in relation to a non-market related off-balance sheet item will be determined by multiplying the contracted amount of that particular transaction by the relevant credit conversion factor (CCF).
Note: iii. Cash margins/deposits shall be deducted before applying the conversion factor iv. Where the non-market related off-balance sheet item is an undrawn or partially undrawn fund-based facility, the amount of undrawn commitment to be included in calculating the off-balance sheet non-market related credit exposures is the maximum unused portion of the commitment that could be drawn during the remaining period to maturity. Any drawn portion of a commitment forms a part of NBFC’s on-balance sheet credit exposure’. C. Market Related Off-Balance Sheet Items i.NBFCs should take into account all market related off-balance sheet items (OTC derivatives and Securities Financing Transactions such as repo / reverse repo/ CBLO etc.) while calculating the risk weighted off-balance sheet credit exposures. ii. The credit risk on market related off-balance sheet items is the cost to an NBFC of replacing the cash flow specified by the contract in the event of counterparty default. This would depend, among other things, upon the maturity of the contract and on the volatility of rates underlying the type of instrument. iii. Market related off-balance sheet items would include : a. interest rate contracts - including single currency interest rate swaps, basis swaps, forward rate agreements, and interest rate futures; b. foreign exchange contracts, including contracts involving gold, - includes cross currency swaps (including cross currency interest rate swaps), forward foreign exchange contracts, currency futures, currency options; c. Credit Default Swaps; and d. any other market related contracts specifically allowed by the Reserve Bank which give rise to credit risk. iv. Exemption from capital requirements is permitted for - a. foreign exchange (except gold) contracts which have an original maturity of 14 calendar days or less; and b. instruments traded on futures and options exchanges which are subject to daily mark-to-market and margin payments. v. The exposures to Central Counter Parties (CCPs), on account of derivatives trading and securities financing transactions (e.g. Collateralised Borrowing and Lending Obligations - CBLOs, Repos) outstanding against them will be assigned zero exposure value for counterparty credit risk, as it is presumed that the CCPs' exposures to their counterparties are fully collateralised on a daily basis, thereby providing protection for the CCP's credit risk exposures. vi. A CCF of 100 per cent will be applied to the corporate securities posted as collaterals with CCPs and the resultant off-balance sheet exposure will be assigned risk weights appropriate to the nature of the CCPs. In the case of Clearing Corporation of India Limited (CCIL), the risk weight will be 20 per cent and for other CCPs, risk weight will be 50 percent. vii. The total credit exposure to a counterparty in respect of derivative transactions should be calculated according to the current exposure method as explained below: D. Current Exposure Method The credit equivalent amount of a market related off-balance sheet transaction calculated using the current exposure method is the sum of a) current credit exposure and b) potential future credit exposure of the contract. a). Current credit exposure is defined as the sum of the gross positive mark-to-market value of all contracts with respect to a single counterparty (positive and negative marked-to-market values of various contracts with the same counterparty should not be netted). The Current Exposure Method requires periodical calculation of the current credit exposure by. marking these contracts to market. b). Potential future credit exposure is determined by multiplying the notional principal amount of each of these contracts, irrespective of whether the contract has a zero, positive or negative mark-to-market value by the relevant add-on factor indicated below according to the nature and residual maturity of the instrument.
i. For contracts with multiple exchanges of principal, the add-on factors are to be multiplied by the number of remaining payments in the contract. ii. For contracts that are structured to settle outstanding exposure following specified payment dates and where the terms are reset such that the market value of the contract is zero on these specified dates, the residual maturity would be set equal to the time until the next reset date. However, in the case of interest rate contracts which have residual maturities of more than one year and meet the above criteria, the CCF or add-on factor is subject to a floor of 1.0 per cent. iii. No potential future credit exposure would be calculated for single currency floating / floating interest rate swaps; the credit exposure on these contracts would be evaluated solely on the basis of their mark-to-market value. iv. Potential future exposures should be based on 'effective' rather than 'apparent notional amounts'. In the event that the 'stated notional amount' is leveraged or enhanced by the structure of the transaction, the 'effective notional amount' must be used for determining potential future exposure. For example, a stated notional amount of USD 1 million with payments based on an internal rate of two times the lending rate of the NBFC would have an effective notional amount of USD 2 million. 11Deleted 12“E. Credit conversion factors for Credit Default Swaps(CDS): 6 NBFCs are only permitted to buy credit protection to hedge their credit risk on corporate bonds they hold. The bonds may be held in current category or permanent category. The capital charge for these exposures will be as under: (i) For corporate bonds held in current category and hedged by CDS where there is no mismatch between the CDS and the hedged bond, the credit protection will be permitted to be recognised to a maximum of 80% of the exposure hedged. Therefore, the NBFC will continue to maintain capital charge for the corporate bond to the extent of 20% of the applicable capital charge. This can be achieved by taking the exposure value at 20% of the market value of the bond and then multiplying that with the risk weight of the issuing entity. In addition to this, the bought CDS position will attract a capital charge for counterparty risk which will be calculated by applying a credit conversion factor of 100 percent and a risk weight as applicable to the protection seller i.e. 20 per cent for banks and 100 per cent for others. (ii) For corporate bonds held in permanent category and hedged by CDS where there is no mismatch between the CDS and the hedged bond, NBFCs can recognise full credit protection for the underlying asset and no capital will be required to be maintained thereon. The exposure will stand fully substituted by the exposure to the protection seller and attract risk weight as applicable to the protection seller i.e. 20 per cent for banks and 100 per cent for others.” Loans against non-banking financial company’s own shares prohibited 17. (1) No non-banking financial company shall lend against its own shares. (3) Any outstanding loan granted by a non-banking financial company against its own shares on the date of commencement of these Directions shall be recovered by the non-banking financial company as per the repayment schedule. 1317A“Loans against security of single product - gold jewellery” a. All NBFCs shall
b. NBFCs should not grant any advance against bullion / primary gold and gold coins. NBFCs primarily engaged in lending against gold jewellery (such loans comprising 50 percent or more of their financial assets) shall maintain a minimum Tier l capital of 12 percent by April 01, 2014. Non-banking financial company failing to repay public deposit prohibited from making loans and investments 18. A non-banking financial company which has failed to repay any public deposit or part thereof in accordance with the terms and conditions of such deposit, as provided in Section 45QA(1) of the Reserve Bank of India Act, 1934 (2 of 1934) shall not grant any loan or other credit facility by whatever name called or make any investment or create any other asset as long as the default exists. Restrictions on investments in land and building and Unquoted shares 19. (i) No Asset Finance Company, which is accepting public deposit, shall, invest in - (b) unquoted shares of another company, which is not a subsidiary company or a company in the same group of the non-banking financial company, an amount exceeding ten percent of its owned fund. (ii) No loan company or investment company, which is accepting public deposit, shall, invest in - (a) land or building, except for its own use, an amount exceeding ten percent of its owned fund ; (b) unquoted shares of another company, which is not a subsidiary company or a company in the same group of the non-banking financial company, an amount exceeding twenty percent of its owned fund: Provided that the land or building or unquoted shares acquired in satisfaction of its debts shall be disposed off by the non-banking financial company within a period of three years or within such period as extended by the Bank, from the date of such acquisition if the investment in these assets together with such assets already held by the non-banking financial company exceeds the above ceiling; Explanation While calculating the ceiling on investment in unquoted shares, investments in such shares of all companies shall be aggregated. Provided further that the ceiling on the investment in unquoted shares shall not be applicable to an Asset Finance Company or a loan company or an investment company in respect of investment in the equity capital of an insurance company upto the extent specifically permitted, in writing, by the Reserve Bank of India. 19A."NBFCs not to be partners in partnership firms" (1) No non-banking financial company, which is accepting public deposit shall contribute to the capital of a partnership firm or become a partner of such firm. (2) A non-banking financial company, which is accepting public deposit and which had already contributed to the capital of a partnership firm or was a partner of a partnership shall seek early retirement from the partnership firm.14 Concentration of credit/investment 20. (1) No non-banking financial company shall, (i) lend to (a) any single borrower exceeding fifteen per cent of its owned fund; and (b) any single group of borrowers exceeding twenty five per cent of its owned fund; (ii) invest in (a) the shares of another company exceeding fifteen per cent of its owned fund; and (b) the shares of a single group of companies exceeding twenty five per cent of its owned fund; (iii) lend and invest (loans/investments taken together) exceeding (a) twenty five per cent of its owned fund to a single party; and (b) forty per cent of its owned fund to a single group of parties. Provided that the ceiling on credit/investment concentration shall not be applicable to a residuary non-banking company in respect of investments in approved securities, bonds, debentures and other securities issued by a Government company or a public financial institution or a scheduled commercial bank under the provisions of paragraphs 6(1)(a) and 6(1)(b) of the Residuary Non-Banking Companies (Reserve Bank) Directions, 1987. Provided further that the ceiling on the investment in shares of another company shall not be applicable to a non-banking financial company in respect of investment in the equity capital of an insurance company upto the extent specifically permitted, in writing, by the Reserve Bank of India. Provided further that any non-banking financial company, classified as Asset Finance Company by the Reserve Bank of India, may in exceptional circumstances, exceed the above ceilings on credit/investment concentration to a single party or a single group of parties by 5 per cent of its owned fund, with the approval of its Board. Notes : (2) The investments in debentures for the purposes specified in this paragraph shall be treated as credit and not investment. (3) These ceilings shall be applicable to the credit/investment by such a non-banking financial company to companies/firms in its own group as well as to the borrowers/ investee company’s group. Submission of half yearly return 15 1621. 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.” 22 Every non-banking financial company (including residuary non-banking company) with total assets of Rs. 100 crore and above according to the previous audited balance sheet, shall submit a monthly return within a period of 7 days of the expiry of the month to which it pertains in the format NBS 6 provided in Annex 3 to the Regional Office of the Department of Non-Banking Supervision of the Reserve Bank of India as indicated in the Second Schedule to the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998 and Schedule B to the Residuary Non-Banking Companies (Reserve Bank) Directions, 1987. Norms relating to Infrastructure loan 23. (1) Applicability (i) These norms shall be applicable to restructuring and/or rescheduling and/or renegotiation of the terms of agreement relating to infrastructure loan, as defined in paragraph 2(1)(viii) of these Directions which is fully or partly secured standard and sub-standard asset and to the loan, which is subjected to restructuring and/or rescheduling and/or renegotiation of terms. (ii) Where the asset is partly secured, a provision to the extent of shortfall in the security available, shall be made while restructuring and/or rescheduling and/or renegotiation of the loans, apart from the provision required on present value basis and as per prudential norms. (2) Restructuring, reschedulement or renegotiation of terms of infrastructure loan The non-banking financial companies may, not more than once, restructure or reschedule or renegotiate the terms of infrastructure loan agreement as per the policy framework laid down by the Board of Directors of the company under the following stages: (a) before commencement of commercial production; (b) after commencement of commercial production but before the asset has been classified as sub-standard; (c) after commencement of commercial production and the asset has been classified as sub-standard: Provided that in each of the above three stages, the restructuring and/or rescheduling and/or renegotiation of principal and / or of interest may take place, with or without sacrifice, as part of the restructuring or rescheduling or renegotiating package evolved. (3) Treatment of restructured standard loan The rescheduling or restructuring or renegotiation of the instalments of principal alone, at any of the aforesaid first two stages shall not cause a standard asset to be re-classified in the sub-standard category, if the project is re-examined and found to be viable by the Board of Directors of the company or by a functionary at least one step senior to the functionary who sanctioned the initial loan for the project, within the policy framework laid down by the Board: Provided that rescheduling or renegotiation or restructuring of interest element at any of the foregoing first two stages shall not cause an asset to be downgraded to sub-standard category subject to the condition that the amount of interest foregone, if any, on account of adjustment in the element of interest as specified later, is either written off or 100 per cent provision is made thereagainst. (4) Treatment of restructured sub-standard asset A sub-standard asset shall continue to remain in the same category in case of restructuring or rescheduling or renegotiation of the instalments of principal until the expiry of one year and the amount of interest foregone, if any, on account of adjustment, including adjustment by way of write off of the past interest dues, in the element of interest as specified later, shall be written off or 100 per cent provision made there against. (5) Adjustment of interest Where rescheduling or renegotiation or restructuring involves a reduction in the rate of interest, the interest adjustment shall be computed by taking the difference between the rate of interest as currently applicable to infrastructure loan (as adjusted for the risk rating applicable to the borrower) and the reduced rate and aggregating the present value (discounted at the rate currently applicable to infrastructure loan, adjusted for risk enhancement) of the future interest payable so stipulated in the restructuring or rescheduling or renegotiation proposal. (6) Funded Interest: In the case of funding of interest in respect of NPAs, where the interest funded is recognized as income, the interest funded shall be fully provided for. (7) Income Recognition norms The income recognition in respect of infrastructure loan shall be governed by the provisions of paragraph 3 of these Directions; (8) Treatment of Provisions held The provisions held by the non-banking financial companies against non-performing infrastructure loan, which may be classified as ‘standard’ in terms of sub-paragraph (3) hereinabove, shall continue to be held until full recovery of the loan is made. (9) Eligibility for upgradation of restructured sub-standard infrastructure loan The sub-standard asset subjected to rescheduling and/or renegotiation and/or restructuring, whether in respect of instalments of principal amount, or interest amount, by whatever modality, shall not be upgraded to the standard category until expiry of one year of satisfactory performance under the restructuring and/or rescheduling and/or renegotiation terms. (10) Conversion of debt into equity Where the amount due as interest, is converted into equity or any other instrument, and income is recognized in consequence, full provision shall be made for the amount of income so recognized to offset the effect of such income recognition: Provided that no provision is required to be made, if the conversion of interest is into equity which is quoted; Provided further that in such cases, interest income may be recognized at market value of equity, as on the date of conversion, not exceeding the amount of interest converted to equity. (11) Conversion of debt into debentures Where principal amount and/or interest amount in respect of NPAs is converted into debentures, such debentures shall be treated as NPA, ab initio, in the same asset classification as was applicable to the loan just before conversion and provision shall be made as per norms. (12) Increase in exposure limits for Infrastructure related loan and investment The non-banking financial companies may exceed the concentration of credit/investment norms, as provided in paragraph 20 of these Directions, by 5 per cent for any single party and by 10 per cent for a single group of parties, if the additional exposure is on account of infrastructure loan and/ or investment. (13) Risk weight for investment in AAA rated securitized paper The investment in “AAA” rated securitized paper pertaining to the infrastructure facility shall attract risk weight of 50 per cent for capital adequacy purposes subject to the fulfilment of the following conditions: (i) The infrastructure facility generates income / cash flows, which ensures servicing / repayment of the securitized paper. (ii) The rating by one of the approved credit rating agencies is current and valid. Explanation: The rating relied upon shall be deemed to be current and valid, if the rating is not more than one month old on the date of opening of the issue, and the rating rationale from the rating agency is not more than one year old on the date of opening of the issue, and the rating letter and the rating rationale form part of the offer document. (iii) In the case of secondary market acquisition, the ‘AAA’ rating of the issue is in force and confirmed from the monthly bulletin published by the respective rating agency. (iv) The securitized paper is a performing asset. 24. The Reserve Bank of India may, if it considers it necessary for avoiding any hardship or for any other just and sufficient reason, grant extension of time to comply with or exempt any non-banking financial company or class of non-banking financial companies, from all or any of the provisions of these Directions either generally or for any specified period, subject to such conditions as the Reserve Bank of India may impose. 25. For the purpose of giving effect to the provisions of these Directions, the Reserve Bank of India may, if it considers necessary, issue necessary clarifications in respect of any matter covered herein and the interpretation of any provision of these Directions given by the Reserve Bank of India shall be final and binding on all the parties concerned. 26. (1)The Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 1998 shall stand repealed by these Directions. (2) Notwithstanding such repeal, any circular, instruction, order issued under the Directions in sub–section (1) shall continue to apply to non-banking financial companies in the same manner as they applied to such companies before such repeal. 1Inserted vide Notification No. DNBS(PD).226/ CGM(US)-2011 dated March 16, 2011 2Deleted videNotification No. DNBS(PD).226/ CGM(US)-2011 dated March 16, 2011 3Inserted vide Notification No. DNBS.222/ CGM(US)-2011 dated January 17, 2011 4Inserted vide Notification No. DNBS.222/ CGM(US)-2011 dated January 17, 2011 5Inserted vide Notification No. DNBS.217/ CGM(US)-2010 dated December 01, 2010 6Substituted vide Notification No. DNBS. (PD) 209 / CGM(ANR)-2009 dated October 22, 2009 7Inserted vide Notification No. DNBS.224 / CGM(US)-2011 dated February 17, 2011 8Inserted vide Notification No. DNBS. 211/ CGM (ANR)-2009 dated December 1, 2009 9Deleted vide Notification DNBS. PD.No.238 / CGM(US)-2011 dated December 26, 2011 10Inserted vide Notification DNBS. PD.No.238 / CGM(US)-2011 dated December 26, 2011 11Deleted vide Notification DNBS. PD.No.240 / CGM(US)-2011 dated December 30, 2011 12Inserted vide Notification DNBS. PD.No.240 / CGM(US)-2011 dated December 30, 2011 13Inserted vide Notification No. DNBS(PD).242/ CGM(US)-2012 dated March 21, 2012 14Inserted vide Notification no. DNBS.227/ CGM(US)-2011 dated March 30, 2011 15Deleted vide Notification No. DNBS.231 / CGM(US)-2011 dated September 22, 2011 16Inserted vide Notification No. DNBS.231 / CGM(US)-2011 dated September 22, 2011 |