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Bank Finance to Non-Banking Financial Companies (NBFCs)

Reserve Bank of India (RBI) has issued guidelines on bank finance to Non-Banking Financial Companies (NBFCs).

To whom are the guidelines applicable?

The guidelines are applicable to all Scheduled Commercial Banks (excluding Regional Rural Banks).

What are the guidelines on bank finance to NBFCs registered with RBI?

  • The ceiling on bank credit linked to Net Owned Fund (NOF) of NBFCs has been withdrawn in respect of NBFCs registered with RBI and engaged in principal business of asset financing, loan, factoring and investment activities. 
  • Banks may extend need based working capital facilities as well as term loans to all NBFCs registered with RBI and engaged in infrastructure financing, equipment leasing, hire-purchase, loan, factoring and investment activities.
  • Banks may also extend finance to NBFCs against second-hand assets financed by them.

What are the guidelines on bank finance to NBFCs not requiring registration with RBI?

For NBFCs not needing registration with RBI, banks may take their credit decisions on the basis of usual factors like the purpose of credit, nature and quality of underlying assets, repayment capacity of borrowers as also risk perception, etc.

What are prudential ceilings for banks’ exposure to NBFCs?

  • Banks’ exposures to a single NBFC (excluding gold loan companies) are restricted to 20% of their eligible capital base (Tier I capital). 
  • Banks’ exposures to a group of connected NBFCs or group of connected counterparties having NBFCs in the group are restricted to 25% of their Tier I Capital.
  • The exposure of a bank to a single NBFC which is predominantly engaged in lending against collateral of gold jewellery (i.e. such loans comprising 50% or more of their financial assets), shall not exceed 7.5% of the bank’s capital funds (Tier I plus Tier II Capital). However, this exposure ceiling may go up by 5%, i.e., up to 12.5% of banks’ capital funds if the additional exposure is on account of funds on-lent by such NBFCs to the infrastructure sector.
  • Banks may also consider fixing internal limits for their aggregate exposure to all NBFCs put together.
  • Banks should have an internal sub-limit on their aggregate exposures to NBFCs (having gold loans of 50% or more of their total financial assets). This sub-limit should be within the internal limit fixed by the banks for their aggregate exposure to all NBFCs put together.


References

Reserve Bank of India. (2022, April 01). 'Master Circular - Bank Finance to Non-Banking Financial Companies (NBFCs)'. Retrieved from https://rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?id=12280


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