The resolution of stressed assets are subject to the provisions of (a) the Prudential Framework for Resolution of Stressed Assets as contained in para 18 and (b) norms on restructuring of advances as contained in para 22, 23, 24 and 25 of the Master Direction – Reserve Bank of India (Non-Banking Financial Company – Scale Based Regulation) 2023 (as amended from time to time). The acquisition of shares due to conversion of debt into equity during a restructuring process will be exempted from regulatory ceilings on capital market exposures.

Loans which are against the collateral of multiple securities and it is specifically agreed to in the agreement that primary security would be something other than shares/ units of mutual funds, LTV as would not be applicable. However, reporting requirements shall remain. In cases where such differentiation is not made (thereby NBFCs can off-load shares at the instance of a default), LTV would be applicable.

The regulations would be applicable and the type of encumbrance created is immaterial.

No, the definition of “companies in the group” is only for the purpose of determining the applicability of prudential norms on multiple NBFCs in a group.

Yes, prior approval would be required in all cases of acquisition/ transfer of shareholding of 26 per cent or more of the paid up equity capital of an NBFC.

Reserve Bank of India has deregulated interest rates to be charged to borrowers by NBFCs. The rate of interest to be charged by the company is governed by the terms and conditions of the loan agreement entered into between the borrower and the NBFCs. However, the NBFCs have to be transparent and the rate of interest and manner of arriving at the rate of interest to different categories of borrowers should be disclosed to the borrower or customer in the application form and communicated explicitly in the sanction letter and on their websites, Key Facts Statement, etc., to enable the borrower to take an informed decision.

IRF may be used to hedge interest rate risk associated with single asset/ liability or a group of assets/ liabilities. Hence, NBFCs are permitted to use duration-based hedging for managing interest rate risk.

As per extant guidelines, NBFCs with asset size of ₹1,000 crore and above are permitted to participate in IRF as trading members duly subject to provisions of ‘Rupee Interest Rate Derivatives (Reserve Bank) Directions, 2019’ dated June 26, 2019 (as amended from time to time). While trading members of stock exchanges are permitted to execute trades on their own account as well as on account of their clients, only banks, SPDs and All India Financial Institutions (AIFIs) have been allowed to act as market-makers. Hence, currently, NBFCs as trading members are permitted to execute only their proprietary trades and are not allowed to undertake transactions on behalf of clients.

Residuary Non-Banking Company is a class of NBFC which is a company and has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner and not being an Investment and Credit Company, a housing finance company, an insurance company, a factor, a mutual benefit company, a mutual benefit financial company and a miscellaneous non-banking company. These companies are required to maintain investments as per directions of the Reserve Bank, in addition to liquid assets. The functioning of these companies is different from those of NBFCs in terms of method of mobilization of deposits and requirement of deployment of depositors' funds as per Directions. Besides, Prudential Norms Directions are also applicable to these companies.