RBI Guidelines

Base Layer
The Base Layer shall comprise of
(a) non-deposit taking NBFCs below the asset size of ₹1,000 crore and
(b) NBFCs undertaking the following activities –
(i) NBFC-Peer to Peer Lending Platform (NBFC-P2P),
(ii) NBFC-Account Aggregator (NBFC-AA),
(iii) Non-Operative Financial Holding Company (NOFHC) and
(iv) NBFC not availing public funds and not having any customer interface

Categorization of NBFCs Under Regulatory Structure

NBFCs are classified based on scale-based and activity-based regulations:

1. Base Layer: Includes NBFC-P2P, NBFC-AA, NOFHC, and NBFCs without public
funds or customer interface.
2. Middle or Upper Layer: Includes NBFC-D, CIC, NBFC-IFC, and HFC (not in Base
Layer). SPD and IDF-NBFC will always be in the Middle Layer.
3. Flexible Categorization: NBFC-ICCs, NBFC-MFIs, NBFC-Factors, and MGCs can
be in any layer depending on their scale.
4. Government-Owned NBFCs: Placed in Base or Middle Layer, but not in Upper
Layer until further notice.

Classification and Regulatory Framework for NBFCs

1. Revised NBFC Terminology (Effective October 1, 2022):

o NBFC-ND (Non-Deposit Taking, Non-Systemically Important) → NBFC-BL
(Base Layer)
o NBFC-D & NBFC-ND-SI (Deposit Taking & Systemically Important Non-
Deposit Taking) → NBFC-ML or NBFC-UL
2. Multiple NBFCs in a Group – Middle Layer Classification:
o NBFCs within the same Group are assessed collectively, not individually.
o If the Group’s total assets ≥ ₹1000 crore, all NBFC-ICC, NBFC-MFI, NBFC-
Factor, and MGC must be in the Middle Layer.
o NBFC-D in the Group will follow the 2016 Public Deposits Directions.
o Statutory Auditors must certify and report the asset size annually to the RBI
Department of Supervision.
3. NBFC-ML (Middle Layer) Criteria:
o Any NBFC reaching an asset size of ₹1000 crore or more must immediately
comply with Middle Layer regulations, regardless of balance sheet date.
Summary of Applicability of Directions to NBFCs

1. Applicable to:
o Deposit-taking NBFCs (NBFC-D)
o Investment and Credit Companies (NBFC-ICC)
o Factoring NBFCs (NBFC-Factor, NBFC-ICC under Factoring Regulation Act,
2011)
o Microfinance Institutions (NBFC-MFI)
o Infrastructure Finance Companies (NBFC-IFC)
o Infrastructure Debt Funds (IDF-NBFC)
o Government NBFCs under Companies Act, 2013
2. Category-Specific Directions:
o Additional, not a replacement for general directions.
3. Exemptions:
o NBFCs without public funds & customer interface: Exempt from Chapter IV,
Chapter V, and specific provisions.
o NBFCs with public funds but no customer interface: Exempt from specific
provisions.

o NBFCs-BL having customer interface but not availing public funds are
exempt from the applicability of Chapter IV and Chapter V of the
Directions.

Summary of Applicability of Other Directions to NBFCs

1. NBFCs Must Comply With:

o KYC Regulations (2016)
o Loan Transfer Directions (2021)
o Securitization of Standard Assets (2021)
o Microfinance Loan Regulations (2022)
o Credit & Debit Card Issuance Guidelines (2022)
2. Regulatory Compliance:
o NBFCs must adhere to all applicable RBI guidelines, including those issued by
other departments.
3. Category-Specific Regulations:
o NBFC-P2P: Peer-to-Peer Lending Directions (2017)
o NBFC-AA: Account Aggregator Directions (2016)
o CIC: Core Investment Company Directions (2016)
o SPD: Standalone Primary Dealers Directions (2016)
o MGC: Mortgage Guarantee Company Directions (2016)
o HFC: Housing Finance Company Directions(2021)
Net Owned Fund (NOF) Requirements for NBFCs

 ₹10 crore: Required for NBFC-ICC, NBFC-MFI, and NBFC-Factor.

 ₹2 crore: Required for NBFC-P2P, NBFC-AA, and NBFCs without public funds &
customer interface.
 ₹300 crore: Required for NBFC-IFC and IDF-NBFC.

NOF Calculation for NBFCs Investing Through AIFs

 As per Section 45IA of the RBI Act, 1934, investments/loans/exposures to subsidiaries,

group companies, and other NBFCs beyond 10% of paid-up equity & free reserves are
deducted from NOF.
 Investments made indirectly through an Alternative Investment Fund (AIF) will also
be deducted if:
o For AIF in company form: NBFC contributes 50% or more of the funds.
o For AIF in trust form: NBFC is the beneficial owner and contributes 50% or
more of the funds.
 "Substance over form" principle applies, meaning the actual control and benefit of the
investment will be considered in NOF calculations.

Investment Restrictions from FATF Non-Compliant Jurisdictions

 Investments from FATF non-compliant jurisdictions will not be treated at par with
those from compliant jurisdictions.
 New investors from such jurisdictions cannot acquire ‘significant influence’ in NBFCs
(as per accounting standards).
 Aggregate fresh investments from these jurisdictions must remain below 20% of the
NBFC's voting power (including potential voting power).
  Existing investors (who invested before a jurisdiction was classified as non-compliant)
can retain or increase their holdings as per existing regulations to support business
continuity.

Prudential Regulation

Leverage Ratio: shall not be more than seven at any point of time

Tier I Capital Requirement for Gold Loan NBFCs

 NBFCs lending primarily against gold jewellery (≥50% of financial assets) must
maintain a minimum Tier 1 capital of 12% of:
o Aggregate risk-weighted on-balance sheet assets
o Risk-adjusted off-balance sheet items
 Capital adequacy treatment follows paragraphs 84 & 85 of the Directions.
 Deferred tax assets & liabilities must be treated as per paragraph 86 for capital
computation.

Accounting Standards for NBFCs

 NBFCs required to follow Ind AS (as per Companies (Indian Accounting Standards)
Rules, 2015) must:
o Prepare financial statements as per Ind AS.
o Comply with regulatory guidance in Annex II of these Directions.
o Continue to follow disclosure requirements for notes to accounts.
 Other NBFCs must comply with notified Accounting Standards (AS), unless they
conflict with these Directions.

Valuation Categories for Quoted Current Investments

Quoted current investments shall be classified into the following categories for valuation:

1. Equity shares
2. Preference shares
3. Debentures and bonds
4. Government securities (including treasury bills)
5. Units of mutual funds
6. Others

Valuation Method for Quoted Current Investments

 Investments in each category shall be valued at cost or market value, whichever is

lower.
  Scrip-wise valuation is done, and values are aggregated for each category.
 If market value < cost, the net depreciation is charged to the profit & loss account.
 If market value > cost, the net appreciation is ignored.
 Depreciation in one category cannot be set off against appreciation in another
category.

Valuation for Unquoted Equity Shares (Current Investments)

 Valuation method: Cost or breakup value, whichever is lower.

 Fair value may be used instead of breakup value if necessary.
 If the investee company's balance sheet is unavailable for two years, shares shall be
valued at ₹1.

Valuation for Unquoted Current Investments

 Unquoted preference shares: Valued at cost or face value, whichever is lower.

 Unquoted Government securities/Government-guaranteed bonds: Valued at
carrying cost.
 Unquoted mutual fund units: Valued at Net Asset Value (NAV) declared by the
mutual fund.

Valuation for Specific Investments

 Commercial papers: Valued at carrying cost.

 Long-term investments: Valued as per applicable Accounting Standards.
 Unquoted debentures: Treated as term loans or credit facilities based on tenure for
income recognition & asset classification.

Income Recognition for NBFCs

 Income recognition follows recognized accounting principles.

 For Non-Performing Assets (NPAs):
o Income (interest, discount, hire charges, lease rentals, etc.) is recognized only
when actually realized.
o Any previously recognized but unrealized income must be reversed if the asset
becomes non-performing.

Interest Income Recognition for Loans with Moratorium

 For standard accounts: Interest income may be recognized on an accrual basis during
the moratorium period.
 For NBFCs-ML & NBFCs-UL: Must evaluate against the ‘restructuring’ definition in
the Prudential Framework for Resolution of Stressed Assets (June 7, 2019).
 If the loan becomes NPA after the moratorium: Capitalized interest accrued during
the moratorium does not need to be reversed.
Income Recognition from Investments

 Dividend income:
o Recognized on cash basis.
o On accrual basis if declared in an AGM and the NBFC's right to receive
payment is established.
 Income from bonds, debentures, and government securities:
o Recognized on accrual basis, provided the interest rate is pre-determined and
regularly serviced (no arrears).
 Income from government-guaranteed securities:
o Recognized on accrual basis.

Asset Classification for NBFCs

 Applicable to NBFCs (except NBFCs-ML, higher-tier NBFCs, and microfinance

loans of NBFC-MFIs).
 Assets are classified based on credit weaknesses and reliance on collateral into:
1. Standard assets
2. Sub-standard assets
3. Doubtful assets
4. Loss assets
 Rescheduling alone does not upgrade asset classification—conditions for upgradation
must be met.

 Standard Asset: No default in principal/interest repayment, no significant risk.

 Sub-Standard Asset:
1. NPA for up to 18 months.
2. Restructured/Renegotiated asset until 1 year of satisfactory performance
under new terms.
3. Infrastructure loans follow specific provisions in paragraph 17.
 Doubtful Asset: Remains sub-standard for more than 18 months.
 Loss Asset:
1. Identified as a loss by NBFC, auditors, or RBI, but not yet fully written off.
2. High risk of non-recovery due to security erosion, lack of security, or fraud.
NPA (Non-Performing Asset) Classification for NBFCs

An asset is classified as NPA if it remains overdue for more than 180 days under the following
conditions:

1. Loans & Advances:

o Interest or principal overdue for more than 180 days.
2. Demand/Call Loans:
o Unpaid for more than 180 days from the due date.
3. Bills:
o Overdue for more than 180 days.
4. Receivables & Other Current Assets:
o Income/dues unpaid for more than 180 days.
5. Sale of Assets/Services & Expense Reimbursements:
o Overdue for more than 180 days.
6. Lease Rentals & Hire Purchase Instalments:
o Unpaid for more than 180 days.
7. Multiple Facilities to Same Borrower:
o If one facility becomes an NPA, all outstanding credit facilities to that borrower
are classified as NPA.
8. Lease & Hire Purchase:
o Classification is based on recovery record.

Note: The 180-day NPA classification period will be adjusted as per the glide path in paragraph
14.2.
Overdue Amount & Loan Agreement Requirements for NBFCs

 A loan is overdue if not paid on the due date set by the NBFC.
 Loan agreements must clearly specify:
o Repayment due dates, frequency, and principal-interest breakup.
o SMA/NPA classification criteria with examples.
o Moratorium details, including the exact repayment start date.
 Borrowers must be informed at loan sanction and notified of any changes until full
repayment.
 Existing loans must comply with these requirements upon renewal or review.

 SMA-2 period shall follow the glide path in paragraph 14.2.

 Above SMA classification applies to all loans, including retail, regardless of
exposure size.
 Overdue flagging & classification must occur as part of the day-end process, with
the calendar date reflecting SMA/NPA status.
 NPA accounts can only be upgraded to ‘standard’ when all overdue principal &
interest across all credit facilities are fully paid.
 Restructured NPAs follow specific upgradation rules as per existing guidelines.
 Consumer education:
o NBFCs must provide literature on SMA/NPA concepts with examples on
their websites and branches.
o Front-line officers must educate borrowers during loan sanction, disbursal,
or renewal.