MICROCAPITAL BRIEF: Reserve Bank of India (RBI) Revises Regulations for Non-bank Financial Companies

The Reserve Bank of India (RBI), the country’s central banking authority, recently announced that it has revised its regulatory framework for non-bank financial companies (NBFCs). The new regulation allows for the resumption of issuances of Certificates of Registration to companies newly seeking to do business as non-banking financial institutions. Among the changes for existing NBFCs are a increase in minimum net owned funds (NOF) requirement from INR 10 million (USD 157,000) to INR 20 million (USD 316,000)  by 2017 and a cap on deposits at the lower of one and a half times the company’s NOF or INR 100 million (USD 1.57 million). The regulation also increases the threshold for defining an NBFC as “systemically significant” to INR 5 billion (USD 79 million). Prior to this revision, an NBFC was considered “systemically significant” at INR 1 billion (USD 15.8 million) however the revision was made due to growth among NBFCs.

According to an unspecified spokesperson for the RBI, “a lighter regulatory framework has been placed on NBFCs other than for those with large asset sizes and deposit accepting. For NBFCs with large asset sizes, and for all deposit-accepting NBFCs, regulations have been harmonised across NBFCs, and to some extent, with banks. The intent is to create a level playing field that does not unduly favour or disfavour any institution.”

By Ananya Tiwari, Research Associate

About Reserve Bank of India (RBI)

Reserve Bank of India (RBI) is India’s central banking authority. Established in 1935, RBI undertakes consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies (NFBCs). The current focus of RBI is to supervise financial institutions, consolidate accounting standards, resolve legal issues in cases of banking fraud, monitor non-performing assets and supervise the rating model for the banking sector. In 1979, the National Bank for Agriculture and Rural Development (NABARD) was formed at the behest of RBI to provide regulatory oversight to regional rural banks (RRBs) and to promote the development of agricultural lenders: tasks that had been the responsibility of RBI. While non-banking financial companies such as for-profit microfinance institutions operate under RBI regulations, the responsibility for inspecting agricultural lenders, RRBs, state cooperative banks, district central cooperative banks and state cooperative agricultural and rural development banks was transferred to NABARD. RBI maintains these responsibilities for for-profit MFIs. Although RBI was originally the parent organization of NABARD and until October 2010 held a 72.5-percent stake in the outfit, RBI owns a 0.5-percent stake in NABARD as of March 31, 2013. RBI reported total reserves of USD 263 billion as of February 14, 2014.

Sources and Additional Resources

[1] Reserve Bank of India Press Release, http://rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=32476

[2] RBI Revised Regulatory Framework for NBFC, http://rbi.org.in/scripts/NotificationUser.aspx?Id=9327&Mode=0

MicroCapital, December 23, 2014, Reserve Bank of India (RBI) Enables “Small Finance Banks” in Effort to Promote Financial Inclusion, https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-rbi-enables-small-finance-banks-in-effort-to-promote-financial-inclusion/

MicroCapital, August 20, 2014, Reserve Bank of India (RBI) to Encourage Banks to Deploy Rural Automatic Teller Machines (ATMs), Use Unclaimed Funds for Financial Education, https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-rbi-to-encourage-banks-to-deploy-rural-automatic-teller-machines-atms-use-unclaimed-funds-for-financial-education/

MicroCapital, July 7, 2014, Reserve Bank of India (RBI) Allows Non-banking Finance Companies (NBFCs) to Work as Agents for Banks, https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-rbi-allows-non-banking-finance-companies-nbfcs-to-work-as-agents-for-banks/

MicroCapital, July 2, 2014, Reserve Bank of India Simplifies “Know Your Customer” Requirement for Establishing Bank Accounts, https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-simplifies-know-your-customer-requirement-for-establishing-bank-accounts/

MicroCapital, May 27, 2014, Reserve Bank of India (RBI) Gives 2-Year Extension to Share, Asmitha, Spandana Sphoorty to Meet Capital Requirements, https://www.microcapital.org/microcapital-brief-reserve-bank-of-india-rbi-gives-2-year-extension-to-share-asmitha-spandana-sphoorty-to-meet-capital-requirements/

MicroCapital Universe Profile: Reserve Bank of India (RBI), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Reserve+Bank+of+India+%28RBI%29

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