Non-Banking Financial Companies (NBFCs) are required to formulate various policies for effective corporate governance and operations. This article lists out some of the important policies to be formulated by the Base Layer NBFCs (NBFC-BL).
Business Model
Master Direction – Reserve Bank of India (Non-Banking Financial Company – Scale Based Regulation) Directions, 2023 dated October 19, 2023
- Para 1.1 of Annex II – In view of the criticality of the nature of the business model in determining the classification of financial assets and restrictions on subsequent reclassification, NBFCs are advised to put in place Board approved policies that clearly articulate and document their business models and portfolios.
- Para 1.2 of Annex II – NBFCs shall frame their policy for sales out of amortised cost business model portfolios.
Expected Credit Losses (ECL) Policy
Master Direction – Reserve Bank of India (Non-Banking Financial Company – Scale Based Regulation) Directions, 2023 dated October 19, 2023
- Para 1.3 of Annex II – Board of Directors shall approve sound methodologies for computation of ECL that address policies, procedures and controls for assessing and measuring credit risk on all lending exposures, commensurate with the size, complexity and risk profile specific to the NBFC.
- Para 1.3 of Annex II – The parameters and assumptions considered as well as their sensitivity to the ECL output should be documented.
- Para 1.3 of Annex II – The rationale and justification for any change in the ECL model should be documented and approved by the Board.
Credit Policy
Master Direction – Reserve Bank of India (Non-Banking Financial Company – Scale Based Regulation) Directions, 2023 dated October 19, 2023
- Para 32B – NBFCs shall put in place Board approved limits in respect of various sub-segments under consumer credit, in particular, for all unsecured consumer credit exposures.
- Para 45.6.1(ii) – At the time of reset of floating interest rate on Equated Monthly Instalments (EMI) based personal loans, NBFCs shall provide the option to the borrowers to switch over to a fixed rate as per their Board approved policy. The policy, inter alia, may also specify the number of times a borrower will be allowed to switch during the tenor of the loan.
Master Direction – Reserve Bank of India (Credit Information Reporting) Directions, 2025 dated January 06, 2025
- Para 11(1) – The Credit Institutions (CIs) shall include in their loan policies / credit appraisal processes, suitable provisions for obtaining Credit Information Reports (CIRs) from one or more Credit Information Companies (CICs) so that the credit decisions are based on credit information available in the system.
Policy on Gold Loans
Master Direction – Reserve Bank of India (Non-Banking Financial Company – Scale Based Regulation) Directions, 2023 dated October 19, 2023
- Para 37.2.2 – NBFCs shall have an explicit policy on verification of the ownership of Gold as approved by the Board in their overall loan policy.
- Para 45.14.1 – The Board approved policy for lending against gold shall inter alia, cover the following –
- Adequate steps to ensure that the Know Your Customer (KYC) guidelines stipulated by the Reserve Bank of India (RBI) are complied with and to ensure that adequate due diligence is carried out on the customer before extending any loan.
- Proper assaying procedure for the jewellery received.
- Internal systems to satisfy ownership of the gold jewellery.
- Adequate systems for storing the jewellery in safe custody, reviewing the systems on an on-going basis, training the concerned staff and periodic inspection by internal auditors to ensure that the procedures are strictly adhered to. Normally, such loans shall not be extended by branches that do not have appropriate facility for storage of the jewellery.
- The jewellery accepted as collateral shall be appropriately insured.
- Transparent auction procedure in case of non-repayment with adequate prior notice to the borrower. There shall be no conflict of interest and the auction process must ensure that there is arm’s length relationship in all transactions during the auction including with group companies and related entities.
- The auction shall be announced to the public by issue of advertisements in at least 2 newspapers, one in vernacular and another in national daily newspaper.
- As a policy, the NBFCs themselves shall not participate in the auctions held.
- Gold pledged shall be auctioned only through auctioneers approved by the Board.
- The policy shall also cover systems and procedures to be put in place for dealing with fraud including separation of duties of mobilisation, execution and approval.
Reserve Bank of India (Lending Against Gold and Silver Collateral) Directions, 2025 dated June 06, 2025
- Para 8 – The credit policy shall include, inter alia, appropriate single borrower limits and aggregate limits for the portfolio of loans against eligible collateral; maximum LTV ratio permissible for such loans; action to be taken in cases of breach of LTV ratio; valuation standards and norms; and standards of gold and silver purity.
- Para 8 – The policy shall include appropriate documentation to be obtained and maintained for loans proposed to be categorised under priority sector lending.
- Para 9 – The policy / Standard Operating Procedures (SOPs) prepared under the policy shall cover the conduct related aspects relating to the assaying procedure; criteria / qualifications for employing gold and silver assayer or valuer; the auction procedure specifying, inter alia, the trigger event for the auction of eligible collateral and timeline for serving an auction notice upon the borrower; mode of auction; notice period allowed to the borrowers / legal heirs for settlement of loan before auction; empanelment of auctioneers; procedure to be followed in case of loss of eligible collateral pledged or any deterioration or discrepancy in quantity or purity of eligible collateral during internal audit or otherwise, including at the time of return or auction of the collateral, and fair compensation to be paid to the borrowers / legal heirs in such cases, with timelines for effecting the same, etc.
Master Direction – Reserve Bank of India (Regulatory Framework for Microfinance Loans) Directions, 2022 dated March 14, 2022
- Para 3.4 – Regulated Entities (REs) shall have a board-approved policy to provide the flexibility of repayment periodicity on microfinance loans as per borrowers’ requirement.
- Para 4.1 – RE shall put in place a board-approved policy for assessment of household income (indicative methodology provided in Annex I).
- Para 5.1 – RE shall have a board-approved policy regarding the limit on the outflows on account of repayment of monthly loan obligations of a household as a percentage of the monthly household income. This shall be subject to a limit of maximum 50% of the monthly household income.
Master Direction – Reserve Bank of India (Non-Banking Financial Company – Scale Based Regulation) Directions, 2023 dated October 19, 2023
- Para 32A – NBFCs-BL shall put in place an internal Board approved policy for credit / investment concentration limits for both single borrower / party and single group of borrowers / parties.
Policy on Digital Lending
Reserve Bank of India (Digital Lending) Directions, 2025 dated May 08, 2025
- Para 5(iv) – RE shall lay down, as part of its policy, suitable monitoring mechanisms for the loan portfolios originated with the support of Lending Service Providers (LSPs).
- Para 10(i) – The borrower shall be given an explicit option to exit a digital loan by paying the principal and the proportionate Annual Percentage Rate (APR) without any penalty during an initial “cooling-off period”. The cooling off period shall be determined by the Board of the RE as laid down in their loan policy, subject to the period so determined not being less than one day.
- Para 13(ii) – RE shall ensure that clear policy guidelines regarding the storage of customer data including the type of data that can be stored, the length of time for which data can be stored, restrictions on the use of data, data destruction protocol, standards for handling security breach, etc., are put in place and also disclosed by the RE and the LSP engaged by the RE prominently on their website and Digital Lending Apps / Platforms (DLAs) at all times.
- Para 14 – RE and LSPs engaged by RE shall have a comprehensive privacy policy compliant with applicable laws, associated regulations and RBI guidelines which shall be made available publicly on the website of RE and LSP, as the case may be. Details of third parties (where applicable) allowed to collect personal information through the DLA shall also be disclosed in the privacy policy.
- Para 19(i) – RE, including a RE acting as Default Loss Guarantee (DLG) provider, shall put in place a Board approved policy before entering into any DLG arrangement. Such policy shall include, at a minimum, the eligibility criteria for DLG provider, nature and extent of DLG cover, process of monitoring and reviewing the DLG arrangement, and the details of the fees, if any, payable to / received by the DLG provider, as the case may be.
Master Direction – Reserve Bank of India (Non-Banking Financial Company – Scale Based Regulation) Directions, 2023 dated October 19, 2023
- Para 40 – NBFCs shall have a Board approved policy on grant of loans to directors, senior officers and relatives of directors and to entities where directors or their relatives have major shareholding.
- Para 40 – The Board approved policy shall include a threshold beyond which loans to above-mentioned persons shall be reported to the Board.
Interest Rate Model / Pricing Policy
Master Direction – Reserve Bank of India (Non-Banking Financial Company – Scale Based Regulation) Directions, 2023 dated October 19, 2023
- Para 45.3.3 – NBFCs shall formulate a Board approved policy on penal charges or similar charges on loans, by whatever name called.
- Para 45.11.1 – The Board of each NBFC shall adopt an interest rate model taking into account relevant factors such as cost of funds, margin and risk premium and determine the rate of interest to be charged for loans and advances.
- Para 6.1 – RE shall put in place a board-approved policy regarding pricing of microfinance loans which shall, inter alia, cover the following –
- A well-documented interest rate model / approach for arriving at the all-inclusive interest rate.
- Delineation of the components of the interest rate such as cost of funds, risk premium and margin, etc. in terms of the quantum of each component based on objective parameters.
- The range of spread of each component for a given category of borrowers.
- A ceiling on the interest rate and all other charges applicable to the microfinance loans.
- Para 8(4) – The pricing policy shall be objective and NBFC-Peer to Peer Lending (NBFC-P2P) shall disclose the fees liable to be charged, ab initio, i.e., at the time of lending itself. The fees shall be a fixed amount or a fixed proportion of the principal amount involved in the lending transaction. The fees shall not be dependent upon the repayment by the borrowers.
Master Direction - Non-Banking Financial Company - Account Aggregator (Reserve Bank) Directions, 2016 dated September 02, 2016
- Para 13.1 – NBFC-Account Aggregator (NBFC-AA) shall have a Board approved policy for pricing of services.
Know Your Customer (KYC) Policy
Master Direction - Know Your Customer (KYC) Direction, 2016 dated February 25, 2016
- Para 4(a) – There shall be a KYC policy duly approved by the Board of Directors of REs or any committee of the Board to which power has been delegated.
- Para 4(b) – Every RE which is part of a group, shall implement group-wide programmes against money laundering and terror financing, including group-wide policies for sharing information required for the purposes of client due diligence and money laundering and terror finance risk management and such programmes shall include adequate safeguards on the confidentiality and use of information exchanged, including safeguards to prevent tipping-off.
- Para 4(c) – REs’ policy framework should seek to ensure compliance with Prevention of Money Laundering (PML) Act / Rules, including regulatory instructions in this regard and should provide a bulwark against threats arising from money laundering, terrorist financing, proliferation financing and other related risks.
- Para 5 – The KYC policy shall include following 4 key elements –
- Customer Acceptance Policy
- Risk Management
- Customer Identification Procedures (CIP)
- Monitoring of Transactions
- Para 5A(b) – The periodicity of ‘Money Laundering (ML) and Terrorist Financing (TF) Risk Assessment’ exercise (to identify, assess and take effective measures to mitigate its money laundering and terrorist financing risk for clients, countries or geographic areas, products, services, transactions or delivery channels, etc.) shall be determined by the Board or any committee of the Board of the RE to which power in this regard has been delegated, in alignment with the outcome of the risk assessment exercise. However, it should be reviewed at least annually.
- Para 11 – Customer Acceptance Policy shall not result in denial of financial facility to members of the general public, especially those, who are financially or socially disadvantaged.
- Para 12 – The various information collected from different categories of customers relating to the perceived risk shall be non-intrusive and the same shall be specified in the KYC policy.
- Para 38 – Policy on updation / periodic updation of KYC shall be documented as part of REs’ internal KYC policy.
- Para 38(c)(v) – Any additional and exceptional measures, which otherwise are not mandated under the KYC guidelines, adopted by the REs such as requirement of obtaining recent photograph, requirement of physical presence of the customer, requirement of periodic updation of KYC only in the branch of the RE where account is maintained, a more frequent periodicity of KYC updation than the minimum specified periodicity etc., shall be clearly specified in the internal KYC policy duly approved by the Board of Directors of REs or any committee of the Board to which power has been delegated.
- Para 40(b) – RE shall have a Board approved policy delineating a robust process of due diligence for dealing with requests for change of registered mobile number.
Liquidity Risk Management (LRM) Policy
Master Direction – Reserve Bank of India (Non-Banking Financial Company – Scale Based Regulation) Directions, 2023 dated October 19, 2023
- Annex VI – Applicable to non-deposit taking NBFCs with asset size of ₹100 crore and above.
- Para 1 of Annex VI – Liquidity risk management framework shall spell out the entity-level liquidity risk tolerance; funding strategies; prudential limits; system for measuring, assessing and reporting / reviewing liquidity; framework for stress testing; liquidity planning under alternative scenarios / formal contingent funding plan; nature and frequency of management reporting; periodical review of assumptions used in liquidity projection; etc.
- Para 1.1.1 of Annex VI – The Board shall decide the strategy, policies and procedures of the NBFC to manage liquidity risk in accordance with the liquidity risk tolerance / limits decided by it.
- Para 1.8 of Annex VI – An NBFC shall formulate a contingency funding plan (CFP) which should contain details of available / potential contingency funding sources and the amount / estimated amount which can be drawn from these sources, clear escalation / prioritisation procedures detailing when and how each of the actions can and should be activated, and the lead time needed to tap additional funds from each of the contingency sources.
- Para 4.4 of Annex VI – The Board / Asset-Liability Management Committee (ALCO) shall approve the volume, composition, holding / defeasance period, cut loss, etc. of the ‘Trading Book'.
- Para 4.5 of Annex VI – The policy note recorded by the NBFCs on treatment of the investment portfolio for the purpose of Asset Liability Management (ALM) and approved by their Board / ALCO shall be forwarded to the Regional Office of the Department of Supervision of RBI under whose jurisdiction the registered office of the company is located.
- Para 4.6 of Annex VI – The net cumulative negative mismatches in the Statement of Structural Liquidity in the maturity buckets 1-7 days, 8-14 days, and 15-30 days shall not exceed 10%, 10% and 20% of the cumulative cash outflows in the respective time buckets. NBFCs, however, are expected to monitor their cumulative mismatches (running total) across all other time buckets up to 1 year by establishing internal prudential limits with the approval of the Board.
- Para 7.3, 7.5 and 7.6 of Annex VI – NBFC shall set prudential limits on individual Gaps with the approval of the Board / ALCO. The Gap is the difference between Rate Sensitive Assets (RSA) and Rate Sensitive Liabilities (RSL) for each time bucket. The rate sensitive liabilities, assets and off-balance sheet positions shall be grouped into time buckets according to residual maturity or next repricing period, whichever is earlier.
Nomination and Remuneration (NR) Policy
Companies Act, 2013
- Section 178(1) – Applicable to every listed public company.
- Section 178(3) – Nomination and Remuneration Committee (NRC) shall formulate the criteria for determining qualifications, positive attributes and independence of a director and recommend to the Board a policy, relating to the remuneration for the directors, key managerial personnel and other employees.
- Section 178(4) – NRC shall, while formulating the policy ensure that—
- The level and composition of remuneration is reasonable and sufficient to attract, retain and motivate directors of the quality required to run the company successfully.
- Relationship of remuneration to performance is clear and meets appropriate performance benchmarks.
- Remuneration to directors, key managerial personnel and senior management involves a balance between fixed and incentive pay reflecting short and long-term performance objectives appropriate to the working of the company and its goals.
Outsourcing Policy
Master Direction – Reserve Bank of India (Non-Banking Financial Company – Scale Based Regulation) Directions, 2023 dated October 19, 2023
- Para 5.1 of Annex XIII – An NBFC intending to outsource any of its financial activities shall put in place a comprehensive outsourcing policy, approved by its Board, which incorporates, inter alia, criteria for selection of such activities as well as service providers, delegation of authority depending on risks and materiality and systems to monitor and review the operations of these activities.
- Para 5.7.2 of Annex XIII – NBFCs shall put in place a board approved Code of conduct for Direct Sales Agents (DSA) / Direct Marketing Agents (DMA) / Recovery Agents and obtain their undertaking to abide by the code.
- Para 6.1 of Annex XIII – Before entering into outsourcing arrangements with group entities, NBFCs shall have a Board approved policy and also service level agreements / arrangements with their group entities, which shall cover demarcation of sharing resources i.e. premises, personnel, etc.
Master Direction - Information Technology Framework for the NBFC Sector dated June 08, 2017
- Para 7 – NBFCs shall have a policy for IT Services Outsourcing.
Fraud Risk Management (FRM) Policy
Master Directions on Fraud Risk Management in Non-Banking Financial Companies (NBFCs) (including Housing Finance Companies) dated July 15, 2024
- Para 1.2.1 – Applicable to Base Layer NBFCs with asset size of ₹500 crore and above.
- Para 2.1 – There shall be a Board approved Policy on fraud risk management delineating roles and responsibilities of Board / Board Committees and Senior Management.
- Para 2.1 – The policy shall incorporate measures for ensuring compliance with principles of natural justice in a time-bound manner.
- Para 2.1 – The policy shall contain measures towards prevention, early detection, investigation, staff accountability, monitoring, recovery and reporting of frauds.
- Para 2.2 – The FRM Policy shall be reviewed by the Board at least once in 3 years, or more frequently, as may be prescribed by the Board.
- Para 2.5 – NBFCs shall put in place a transparent mechanism to ensure that Whistle Blower complaints on possible fraud cases / suspicious activities in accounts are examined and concluded appropriately under their Whistle Blower Policy.
- Para 4.1 – In case where there is a suspicion / indication of wrongdoing or fraudulent activity, NBFCs shall use an external audit or an internal audit as per their Board approved Policy for further investigation in such accounts.
- Para 4.1.1 – NBFCs shall frame a policy on engagement of external auditors covering aspects such as due diligence, competency and track record of the auditors, among others. Further, the contractual agreement with the auditors shall, inter alia, contain suitable clauses on timeline for completion of the audit and submission of audit report to the NBFC within a specified time limit, as approved by the Board.
- Para 4.1.5 – In cases where Law Enforcement Agencies (LEAs) have suo moto initiated investigation involving a borrower account, NBFCs shall follow the process of classification of account as fraud as per their Board approved Policy.
- Para 7.1 – NBFCs shall subject the title deeds and other related title documents in respect of all credit facilities of ₹1 crore and above to periodic legal audit and re-verification, till the loan is fully repaid. The scope and periodicity of legal audit shall be in accordance with the Board approved policy on fraud risk management.
Fair Practice Code (FPC)
Master Direction – Reserve Bank of India (Non-Banking Financial Company – Scale Based Regulation) Directions, 2023 dated October 19, 2023
- Para 45 – NBFCs having customer interface shall adopt FPC.
- Para 45.10 – FPC (which shall preferably be in the vernacular language or a language as understood by the borrower) shall be put in place by NBFCs with the approval of their Boards. NBFCs will have the freedom of drafting the FPC, enhancing the scope of the guidelines but in no way sacrificing the spirit underlying the prescribed guidelines.
- Para 51.2 – NBFCs, irrespective of whether they lend through their own digital lending platform or through an outsourced lending platform, must adhere to the FPC guidelines in letter and spirit.
- Para 5.7.2 of Annex XIII – Recovery Agents shall adhere to FPC for NBFCs as also their own code for collection of dues and repossession of security.
Master Direction – Reserve Bank of India (Regulatory Framework for Microfinance Loans) Directions, 2022 dated March 14, 2022
- Para 7.3.2 – A declaration that the RE shall be accountable for inappropriate behaviour by its employees or employees of the outsourced agency and shall provide timely grievance redressal, shall be made in the FPC.
Master Direction - Non-Banking Financial Company – Peer to Peer Lending Platform (Reserve Bank) Directions, 2017 dated October 04, 2017
- Para 6(1)(iv) – NBFC-P2P shall not assume any credit risk, either directly or indirectly, arising out of transactions carried out on its platform. In other words, entire loss of principal or interest or both, if any, in respect of funds lent by lenders to borrowers on the platform shall be borne by the lenders and adequate disclosures to this effect shall be made to lenders as part of FPC.
Grievance Redressal Policy
Master Direction – Reserve Bank of India (Non-Banking Financial Company – Scale Based Regulation) Directions, 2023 dated October 19, 2023
- Para 45.8.1 – The Board of Directors of NBFCs shall also lay down the appropriate grievance redressal mechanism which shall ensure that all disputes arising out of the decisions of lending institution’s functionaries are heard and disposed of at least at the next higher level.
Master Direction – Reserve Bank of India (Credit Information Reporting) Directions, 2025 dated January 06, 2025
- Para 3 of Annex XIV – Grievance redressal in respect of credit information should be integrated with the existing systems for grievance redressal.
- Para 3 of Annex XIV – Aspects relating to customer grievances pertaining to credit information may also be an integral part of customer service policy.
Master Direction - Non-Banking Financial Company – Peer to Peer Lending Platform (Reserve Bank) Directions, 2017 dated October 04, 2017
- Para 13(1) – NBFC-P2P shall put in place a Board approved policy to address participant grievances / complaints. Complaints shall be handled / disposed of by NBFC-P2P within such time and in such manner as provided for in its Board approved policy, but in any case, not beyond 1 month from the date of receipt.
Master Direction - Non-Banking Financial Company - Account Aggregator (Reserve Bank) Directions, 2016 dated September 02, 2016
- Para 11.1 – NBFC-AA shall have a Board approved policy for handling / disposal of customer grievances / complaints. It shall have a dedicated set-up to address customer grievances / complaints.
- Para 11.2 – Customer complaints shall be handled / disposed of by the NBFC-AA within such time and in such manner as provided for in its Board approved policy, but in any case not beyond 1 month from its receipt.
Information Technology (IT) Policy
Master Direction - Information Technology Framework for the NBFC Sector dated June 08, 2017
- Introduction – Applicable to NBFCs with asset size above ₹500 crore.
- Para 2 – NBFCs may formulate a Board approved IT policy, in line with the objectives of their organisation comprising the following –
- An IT organizational structure commensurate with the size, scale and nature of business activities carried out by the NBFC.
- NBFCs may designate a senior executive as the Chief Information Officer (CIO) or in-Charge of IT operations whose responsibility is to ensure implementation of IT Policy to the operational level involving IT strategy, value delivery, risk management and IT resource management.
- To ensure technical competence at senior / middle level management of NBFC, periodic assessment of the IT training requirements should be formulated to ensure that sufficient, competent and capable human resources are available.
- The NBFCs which are currently not using IPv6 platform should migrate to the same as per National Telecom Policy issued by the Government of India in 2012.
Information Security (IS) Policy
Master Direction - Information Technology Framework for the NBFC Sector dated June 08, 2017
- Introduction – Applicable to NBFCs with asset size above ₹500 crore.
- Para 3 – NBFCs must have a board approved IS Policy with the following basic tenets –
- Confidentiality – Ensuring access to sensitive data to authorized users only.
- Integrity – Ensuring accuracy and reliability of information by ensuring that there is no modification without authorization.
- Availability – Ensuring that uninterrupted data is available to users when it is needed.
- Authenticity – For IS it is necessary to ensure that the data, transactions, communications or documents (electronic or physical) are genuine.
Cyber Security Policy
Master Direction - Information Technology Framework for the NBFC Sector dated June 08, 2017
- Introduction – Applicable to NBFCs with asset size above ₹500 crore.
- Para 3.2 – NBFCs should put in place a cyber-security policy elucidating the strategy containing an appropriate approach to combat cyber threats given the level of complexity of business and acceptable levels of risk, duly approved by their Board.
- Para 3.3 – A vulnerability can be defined as an inherent configuration flaw in an organization’s information technology base, whether hardware or software, which can be exploited by a third party to gather sensitive information regarding the organization. NBFCs may devise a strategy for managing and eliminating vulnerabilities and such strategy may clearly be communicated in the Cyber Security policy.
Change Management Policy
Master Direction - Information Technology Framework for the NBFC Sector dated June 08, 2017
- Introduction – Applicable to NBFCs with asset size above ₹500 crore.
- Para 4.2 – NBFCs are required to realign their IT systems on a regular basis in line with the changing needs of its customers and business. For this purpose, NBFCs should develop, with the approval of their Board, a Change Management Policy that encompasses the following –
- Prioritizing and responding to change proposals from business.
- Cost benefit analysis of the changes proposed.
- Assessing risks associated with the changes proposed.
- Change implementation, monitoring and reporting.
IS Audit Policy
Master Direction - Information Technology Framework for the NBFC Sector dated June 08, 2017
- Introduction – Applicable to NBFCs with asset size above ₹500 crore.
- Para 5.1 – NBFCs shall adopt an IS Audit framework duly approved by their Board.
- Para 5.5 – IS Audit framework should clearly prescribe the reporting framework, whether to the Board or a Committee of the Board viz. Audit Committee of the Board (ACB).
Business Continuity Planning (BCP) Policy
Master Direction - Information Technology Framework for the NBFC Sector dated June 08, 2017
- Introduction – Applicable to NBFCs with asset size above ₹500 crore.
- Para 6 – BCP shall be designed to minimise the operational, financial, legal, reputational and other material consequences arising from a disaster. NBFC should adopt a Board approved BCP Policy. CIO shall be responsible for formulation, review and monitoring of BCP to ensure continued effectiveness.
Policy on Demand / Call Loans
Master Direction – Reserve Bank of India (Non-Banking Financial Company – Scale Based Regulation) Directions, 2023 dated October 19, 2023
- Para 28.1 – The Board of Directors of NBFCs granting / intending to grant demand / call loans shall frame a policy for the company.
- Para 28.2 – The policy shall, inter alia, stipulate the following –
- A cut-off date within which the repayment of demand or call loan shall be demanded or called up.
- The sanctioning authority shall, record specific reasons in writing at the time of sanctioning demand or call loan, if the cut-off date for demanding or calling up such loan is stipulated beyond a period of 1 year from the date of sanction.
- The rate of interest which shall be payable on such loans.
- Interest on such loans, as stipulated shall be payable either at monthly or quarterly basis.
- The sanctioning authority shall, record specific reasons in writing at the time of sanctioning demand or call loan, if no interest is stipulated or a moratorium is granted for any period.
- A cut-off date, for review of performance of the loan, not exceeding 6 months commencing from the date of sanction.
- Such demand or call loans shall not be renewed unless the periodical review has shown satisfactory compliance with the terms of sanction.
Investment Policy
Master Direction – Reserve Bank of India (Non-Banking Financial Company – Scale Based Regulation) Directions, 2023 dated October 19, 2023
- Para 29.1 – The Board of Directors of NBFCs shall frame investment policy for the company.
- Para 29.2 – 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.
Policy for transfer and acquisition of loan exposures
Master Direction – Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021 dated September 24, 2021
- Para 10 – The lenders must put in place a comprehensive Board approved policy for transfer and acquisition of loan exposures.
- Para 10 – The policy must, inter alia, lay down the minimum quantitative and qualitative standards relating to due diligence, valuation, requisite IT systems for capture, storage and management of data, risk management, periodic Board level oversight, etc. The policy must also ensure independence of functioning and reporting responsibilities of the units and personnel involved in transfer / acquisition of loans from that of personnel involved in originating the loans. All transactions must meet the requirements as detailed in the policy.
Policy for transfer and acquisition of stressed loans
Master Direction – Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021 dated September 24, 2021
- Para 51 – The Board approved policies of every lender on transfer and / or acquisition of stressed loans shall, inter alia, cover the following aspects –
- Norms and procedure for transfer or acquisition of such loans.
- Valuation methodology to be followed to ensure that the realisable value of stressed loans, including the realisability of the underlying security interest, if available, is reasonably estimated.
- Delegation of powers to various functionaries for taking decision on the transfer or acquisition of the loans.
- Stated objectives for acquiring stressed assets.
- Risk premium to be applied; etc.
- Para 52(a) – The process of identification of stressed loans beyond a specified value, as may be determined by a lender’s policy, for transfer shall follow a top-down approach i.e., the head office / corporate office of the lender shall be actively involved in identification of stressed loans for transfer.
- Para 53 – Transferors should have clear policies with regard to valuation of loan exposures proposed to be transferred. The basis or the grounds which will determine the type of valuation used - internal or external - must be clearly specified in the policy. The discount rate used by the transferor in the internal valuation exercise shall also be spelt out in the policy. This may be either cost of equity or average cost of funds or opportunity cost or some other relevant rate, subject to a floor of the contracted interest rate charged. However, in case the credit exposure being transferred (without netting for provisions), singly, jointly or severally, is ₹100 crore or more, the transferor shall obtain 2 external valuation reports.
- Para 55 – The manner of transfer of stressed loans must be in terms of the Board approved policy of the transferor. Lenders may also use e-auction platforms, wherever available, for transferring their loans.
- Para 57 – Subsequent to transfer of the stressed loans, the transferor shall not extend additional funding or commitments to the borrower with reference to the loan transferred. Fresh exposure may be taken on the borrower after a cooling period laid down in the respective Board approved policy of the transferor, which in any case, shall not be less than 12 months from the date of such transfer.
- Para 80 – There is no prohibition on lenders from taking over standard accounts from Asset Reconstruction Companies (ARCs). Accordingly, in cases where ARCs have successfully implemented a resolution plan for the stressed loans acquired by them, lenders may, at their discretion and with appropriate due diligence, take over such loans after the period equivalent to the ‘monitoring period’ as defined in Reserve Bank of India (Prudential Framework for Resolution of Stressed Assets) Directions, 2019 dated June 7, 2019, provided that the account performed satisfactorily, as defined in the circular ibid during the said ‘monitoring period’. Lenders shall lay down a board approved policy containing various aspects governing such take overs viz., type of assets that may be taken over, due diligence requirements, viability criteria, performance requirement of asset, etc. as a part of the policy. A lender cannot at any point of time acquire from ARCs the loan exposures they have themselves earlier transferred.
- Para 82 – The lenders shall put in place a board approved policy on adoption of Swiss Challenge Method for transfer of their stressed loans. The policy should specify the conditions under which lenders may opt for Swiss Challenge method, which could be based on parameters such as a tolerance limit for extent of haircut required by the lenders in the base-bid, for instance, or any objective parameter identified by the lenders’ Board. The policy should also specify the minimum mark-up over the base-bid required for the challenger bid to be considered by the lenders, which in any case, shall not be less than 5% and shall not be more than 15%. For this purpose, mark-up shall be the difference between the challenger bid and the base-bid expressed as a percentage of the base-bid.
Corporate Social Responsibility (CSR) Policy
Companies Act, 2013
- Section 135(1) – Applicable to every company having net worth of ₹500 crore or more, or turnover of ₹1000 crore or more or a net profit of ₹5 crore or more during the immediately preceding financial year.
- Section 135(3)(a) – CSR Committee shall formulate and recommend to the Board, CSR Policy which shall indicate the activities to be undertaken by the company in areas or subject, specified in Schedule VII.
Other Policies
Master Direction – Reserve Bank of India (Non-Banking Financial Company – Scale Based Regulation) Directions, 2023 dated October 19, 2023
- Para 45.5.1(iv) – NBFCs shall have a well laid out procedure for return of original movable / immovable property documents to the legal heirs.
- Para 1 of Annex XV – NBFCs shall put in place a Board approved policy for resource planning which, inter-alia, shall cover the planning horizon and the periodicity of private placement of non-convertible debentures (NCDs) (maturity more than 1 year) by NBFCs.
- Para 1(ii)(a) of Annex XVIII – The NBFC shall have put in place a comprehensive Board approved policy regarding undertaking mutual funds distribution. The policy will also encompass issues of customer appropriateness and suitability as well as grievance redressal mechanism.
Master Direction – Reserve Bank of India (Securitisation of Standard Assets) Directions, 2021 dated September 24, 2021
- Para 69 – Lenders shall have Board approved policies detailing valuation of the securitisation notes in which they have invested. The policies should inter alia describe the models used for valuation, the assumptions underpinning the models, the policy regarding back-testing and stress testing the valuation model and its parameters etc.
Master Direction - Know Your Customer (KYC) Direction, 2016 dated February 25, 2016
- Para 70(a) – Adequate screening mechanism, including Know Your Employee / Staff policy, as an integral part of their personnel recruitment / hiring process shall be put in place.
Master Direction – Reserve Bank of India (Regulatory Framework for Microfinance Loans) Directions, 2022 dated March 14, 2022
- Para 7.2.1 – RE shall have a board-approved policy regarding the conduct of employees and system for their recruitment, training and monitoring. This policy shall, inter alia, lay down minimum qualifications for the staff and shall provide necessary training tools to deal with the customers.
- Para 8(1) – NBFC-P2P shall have a Board approved policy in place –
- Setting out the eligibility criteria for participants on it.
- Determining the pricing of services provided by it.
- Setting out the rules for matching / mapping lenders with borrowers in an equitable and non-discriminatory manner.
- Para 15(1)(i) – NBFC-P2P shall ensure that a policy is put in place, with the approval of the Board of Directors, setting out ‘Fit and Proper’ criteria to be met by its directors.
Master Direction - Non-Banking Financial Company - Account Aggregator (Reserve Bank) Directions, 2016 dated September 02, 2016
- Para 14.4.1 – NBFC-AA shall establish a well-documented risk management framework which shall include –
- A sound and robust technology risk management framework.
- Strengthening system security, reliability, resiliency, and recoverability.
- Deploying strong authentication to protect access to customer data and systems.
- Para 14.5.1(i) – NBFC-AA shall put in place a policy with the approval of the Board of Directors for ascertaining the fit and proper criteria of the directors / managing director / Chief Executive Officer (CEO) at the time of appointment, and on a continuing basis.
References
'Companies Act, 2013'. (n.d.). Retrieved from https://www.indiacode.nic.in/bitstream/123456789/2114/5/A2013-18.pdf
Reserve Bank of India. (2016, February 25). 'Master Direction - Know Your Customer (KYC) Direction, 2016 (Updated as on November 06, 2024)'. Retrieved from https://website.rbi.org.in/web/rbi/-/notifications/master-direction-know-your-customer-kyc-direction-2016-updated-as-on-may-04-2023-lt-span-gt-11566
Reserve Bank of India. (2016, September 02). 'Master Direction- Non-Banking Financial Company - Account Aggregator (Reserve Bank) Directions, 2016 (Updated as on September 06, 2024)'. Retrieved from https://website.rbi.org.in/en/web/rbi/-/notifications/master-direction-non-banking-financial-company-account-aggregator-reserve-bank-directions-2016-updated-as-on-december-29-2022-10598
Reserve Bank of India. (2017, June 08). 'Master Direction - Information Technology Framework for the NBFC Sector'. Retrieved from https://website.rbi.org.in/web/rbi/-/notifications/master-direction-information-technology-framework-for-the-nbfc-sector-10999
Reserve Bank of India. (2017, October 04). 'Master Direction - Non-Banking Financial Company - Peer to Peer Lending Platform (Reserve Bank) Directions, 2017 (Updated as on February 27, 2025)'. Retrieved from https://website.rbi.org.in/web/rbi/-/notifications/master-directions-non-banking-financial-company-peer-to-peer-lending-platform-reserve-bank-directions-2017-updated-as-on-december-29-2022-11137
Reserve Bank of India. (2021, September 24). 'Master Direction - Reserve Bank of India (Securitisation of Standard Assets) Directions, 2021 (Updated as on December 05, 2022)'. Retrieved from https://website.rbi.org.in/web/rbi/-/notifications/master-direction-reserve-bank-of-india-securitisation-of-standard-assets-directions-2021-updated-as-on-december-05-2022-12165
Reserve Bank of India. (2021, September 24). 'Master Direction - Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021 (Updated as on December 28, 2023)'. Retrieved from https://website.rbi.org.in/web/rbi/-/notifications/master-direction-reserve-bank-of-india-transfer-of-loan-exposures-directions-2021-updated-as-on-december-05-2022-12166
Reserve Bank of India. (2022, March 14). 'Master Direction - Reserve Bank of India (Regulatory Framework for Microfinance Loans) Directions, 2022 (Updated as on October 10, 2024)'. Retrieved from https://website.rbi.org.in/web/rbi/-/notifications/master-direction-reserve-bank-of-india-regulatory-framework-for-microfinance-loans-directions-2022-updated-as-on-july-25-2022-12256
Reserve Bank of India. (2023, October 19). 'Master Direction – Reserve Bank of India (Non-Banking Financial Company – Scale Based Regulation) Directions, 2023 (Updated as on February 27, 2025)'. Retrieved from https://website.rbi.org.in/web/rbi/-/notifications/master-direction-reserve-bank-of-india-non-banking-financial-copany-scale-based-regulation-directions-2023
Reserve Bank of India. (2024, July 15). 'Master Directions on Fraud Risk Management in Non-Banking Financial Companies (NBFCs) (including Housing Finance Companies)'. Retrieved from https://website.rbi.org.in/web/rbi/-/notifications/master-directions-fraud-risk-management-in-non-banking-financial-companies-nbfcs-including-housing-finance-companies-
Reserve Bank of India. (2025, January 06). 'Master Direction – Reserve Bank of India (Credit Information Reporting) Directions, 2025'. Retrieved from https://website.rbi.org.in/web/rbi/-/notifications/master-direction-reserve-bank-of-india-credit-information-reporting-directions-2025
Reserve Bank of India. (2025, May 08). 'Reserve Bank of India (Digital Lending) Directions, 2025'. Retrieved from https://website.rbi.org.in/web/rbi/-/notifications/reserve-bank-of-india-digital-lending-directions-2025
Reserve Bank of India. (2025, June 06). 'Reserve Bank of India (Lending Against Gold and Silver Collateral) Directions, 2025'. Retrieved from https://website.rbi.org.in/web/rbi/-/notifications/reserve-bank-of-india-lending-against-gold-and-silver-collateral-directions-2025
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