Performance of NBFCs in 2016-17

By Mayank Agarwal (finserv@vinodkothari.com)

2016-17 could be summed up as a year of ‘Coming of age’ for Non-Banking Financial Institutions(NBFIs) as they finally fulfilled their potential by displaying a resilient performance against the backdrop of revised regulatory frameworks, widened credit gap due to sluggish performance by banking institutions and providing specialized services to the sector to which they cater. As per the recently released ‘Trend and Progress of Banking in India’ report by RBI,[1] NBFCs have given a stiff competition to established banks in the country, having finally edged ahead in the financial credit race in the country as their portfolio of loans grew at 14.9% during the first half of 2017-18, compared to 6.2% in the case of banks. The share of NBFCs in the total credit granted by NBFCs as well as Banks rose from 9.5% in 2008 to 15.5% as of March 2017, thus showing the increasing popularity of NBFCs as a source of finance. The credit granted by NBFCs as a percentage of GDP rose to 8%, displaying their significance in the country’s financial ecosystem. While the bank credit reached a historical low during 2016-17, NBFCs recorded an increased credit performance during the same year, highlighting the growing popularity in the country.

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UNDERSTANDING THE CONCEPT OF OUTSOURCING- ENVISAGING A TOUGH ROAD AHEAD FOR THE SERVICE PROVIDERS

By Saloni Mathur (finserv@vinodkothari.com)

INTRODUCTION

Mr. Le Kuan Yu, Singapore’s founding father once said, “If you are depriving yourself of the outsourcing business and your competitors do not, you are putting yourself out of the business.” These words reflect upon the importance of outsourcing as a function that has become a necessity for the business organizations in the current scenario, to manage their core as well as ancillary functions through the specialized services of the third parties. This business process re-engineering can reap bundle of benefits to the organizations and its inevitability can be based on the fact that these activities can help organizations to access skilled expertise, reduce overhead, offer flexible staffing, increase efficiency, enhance technological know-how, reduce turnaround time, and eventually generate more profits for the business houses.

SOURCE– KPMG INSTITUTES.COM, “THE RADICAL NEW
WAY OF OUTSOURCING FOR TECHNOLOGY RELATED SERVICES

According to a report of the Boston consulting group ‘21st annual analysis of the outsourcing industry’, the average number of functions outsourced by the organizations across the world has risen by 225% over the past 5 years and are expected to keep on growing. Outsourcing has been moving from the peripheral activities to the core ones. The recent survey report of the ‘Statistita on Global market size of the Outsourced services from 2000-2016, March 2017’ says that  the use of outsourcing in the Indian financial services sector is projected to increase by 36% in the next 3 years, with a CAGR of 7.6%.[1]

Suffice it to say, that the competition between banks, financial institutions in India have increased significantly in the last decade and the consumers now have even higher expectations than in the past when it comes to customer experience and service for which they are using the services of specialised entities. However, such rampant outsourcing of key functions are coming at the cost of loss of managerial control, threat to security and confidentiality and the quality problems, owing to the fact that these institutions are responsible for the funds of the general public. Therefore, it is the need of the hour to have a robust regulatory mechanism which shall ensure appropriate norms for the outsourcing, in order to safeguard the interest of both the customers and the organization.

WHAT IS OUTSOURCING OF FINANCIAL SERVICES?

The transferring of financial services to the third parties for using their specialised services, which otherwise could be performed by them itself, would amount to outsourcing. However, using the services of the third parties for actions that could not be taken in-house would not be considered as outsourcing. For example, statutory audits of the companies cannot be conducted in house itself, thereby keeping them out of the purview of the concept, outsourcing. Similarly, the payment gateway services and agreements would not constitute to outsourcing because these cannot be taken by the companies itself and require the services of the third parties for a speedy and an efficient process.

Thus, the agreements in the nature of debt recovery and repossession agreements, the agreements with the direct selling agents, the agreements related to cash management with the third party would constitute to outsourcing.

Hence organizations have to clearly demarcate between what is outsourcing and what is not,  thereby applying this code of conduct only to the key areas of outsourcing.

AN OVERVIEW OF THE RBI’S MASTER DIRECTIONS ON OUTSOURCING BY NBFC’S

The RBI’s master directions [2]on the outsourcing norms have put stringent compliances on the service providers while discharging their functions, and increased responsibility and monitoring on the part of the non-banking financial companies. The RBI has come up with more tougher norms, where the new directions prohibits the NBFC’s to outsource the core management functions to the third parties including the internal audit, the strategic and compliance functions, and the decision-making functions. However, they can be outsourced within the same group/conglomerate subject to the compliance and instructions in para 6 of the master directions, which states that the NBFC’s shall have a board approved policy and service level arrangements with the group entities prior to entering into such transactions with them.

Further the scope of these directions and new code of conduct applies only to the ‘outsourcing of the financial services’ keeping, general IT related services, and management services like janitorial services, housekeeping, catering of staff out of the purview of this code. Further the code requires NBFC’s strict compliance and monitoring of the activities of the service providers, where the service providers shall not impede or interfere with the RBI during the monitoring of its functions.

RATIONALE BEHIND THE NEW NORMS

The RBI is of the view that over the years, increased outsourcing in the financial sector have posed major risks to the organizations in terms of strategy, reputation, compliance operational, legal, concentration and the country risk. As we could see the rapid outsourcing in different sectors of the services, the underlying principles behind these directions emphasise that the regulated entity shall ensure that outsourcing arrangements neither diminish its ability to fulfil its obligations to customers and RBI nor impede effective supervision by RBI. NBFCs, therefore, have to take steps to ensure that the service provider employs the same high standard of care in performing the services as is expected to be employed by the NBFCs, if the activities were conducted within the NBFCs and not outsourced.

REGULATORY IMPACT ANALYSIS OF THE NEW MASTER DIRECTIONS

ANALYSING MATERIAL OUTSOURCING

The  board of directors and the senior management shall have to observe the materiality while outsourcing the key functions in terms of the business operations, reputability, profitability and customer service. The materiality would be based and assessed on the following parameters.

Thus, companies board first need to determine the materiality of the activities being outsourced. For example, an agreement with the direct selling agents, direct marketing agents, debt recovery agents, to market the company’s products would be material outsourcing, because here the brand value of or the reputation would be at stake if the service provider fails. Further such kind of outsourcing would be material in nature because of the huge operational costs in direct marketing and high DSA’s pay-outs.

CONCLUDING REMARKS

The new directions on outsourcing can be envisaged as careful and robust approach by the RBI in safeguarding the NBFC’S from certain risk exposures with the service providers. Initiatives like a holistic code of conduct for the direct selling agents, the setting up of the internal and the external audit committees to monitor the outsourcing activities, the increased role of RBI to have a close eye on the operations, substantially drafted service agreements that deal with all the risks that could arise and the subsequent clauses to address them,  set up of a grievance redressal mechanism, could pave a way for a better regulatory environment and protection of the interests of the public, the NBFC’S and the service providers.

  1. http://www.kpmg.institutes.com/content/dam/kpmg/sharedservicesoutsourcinginstitute/pdf/2015/spps-it-outsourcing-infographic-2014-15.pdf
  2. ttps://rbidocs.rbi.org.in/rdocs/notification/PDFs/NT87_091117658624E4F2D041A699F73068D55BF6C5.PDF

 

Cautious Approach to be taken by NBFCs while outsourcing activities ancillary to financial services

By Mayank Agarwal & Anita Baid, ( finserv@vinodkothari.com)

The Reserve Bank of India (RBI), on the 9th of November, 2017 released a notification bringing out the Directions on Managing Risks and Code of Conduct in Outsourcing of Financial Services by Non-Banking Financial Companies (NBFCs).[1] (“Directions”) These Directions are a much awaited outcome of the draft guidelines[2] which had been issued long back, in the year 2015. The Directions come in the wake of ever-increasing need to outsource ancillary activities such as applications processing (loan origination, credit card), document processing, marketing and research, supervision of loans, data processing and back office related activities in order to provide the customers best possible services associated with the core business of the company. The Directions have been issued to ensure that there exists no possibility of discrepancy or fallibility that could affect the customer as well as the NBFC in an adverse manner.

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Mandatory linking of Aadhaar and PAN under PMLA

By Anita Baid, (finserv@vinodkothari.com)

PML Second Amendment Rules

The Ministry of Finance on 1st June, 2017 vide notification No. G.S.R. 538(E) issued the [1]Prevention of Money-Laundering (Maintenance of Records) Second Amendment Rules, 2017 (hereinafter referred to as “Second Amendment Rules”) mandating all account holders of the reporting entities i.e., banks and financial institutions to link Aadhaar number issued by the Unique Identification Authority of India and Permanent Account Number (PAN) or Form No. 60 as defined in Income-tax Rules, 1962. The timelines for the same were as below- Read more

RBI’s P2P Regulations: A step forward or backward?

The Reserve Bank of India issued a Master Directions – Non Banking Financial Company – Peer to Peer Lending Platform (Reserve Bank) Directions, 2017 (hereinafter referred to as “Directions”) on 4th October, 2017[1], which is an extensive statement outlining in detail the various rules and regulations that all existing and prospective entities carrying on or intending to carry on the business of Peer-to-Peer (P2P) lending (hereby known as NBFC-P2P) will have to comply with. These Directions shall come in force with immediate effect and shall apply to all NBFC-P2Ps, i.e. with effect from the date of issuance of the Master Directions, mentioned above. Read more

APPLICATION UNDER SARFAESI- A Liberal Approach by the Supreme Court

By Richa Saraf, (legal@vinodkothari.com)

 

In the case of M.D. Frozen Foods Exports Pvt. Ltd. v. Hero Fincorp Ltd.[1], the Hon’ble Supreme Court held that there was no illegality in an Non-Banking Financial Company (NBFC) invoking SARFAESI Act for recovery of loan arrears with respect to an account classified as Non-Performing Asset (NPA) before the NBFC got notified under the Act. It also clarified that NBFC is entitled to initiate both arbitration proceedings and SARFAESI proceedings with respect to a loan account, and that the ‘doctrine of election’ was not attracted in such a scenario. There was a cleavage of judicial opinions inter se the High Courts, while the Full Bench of the Orissa High Court, as also the Delhi High Court and the Allahabad High Court have taken a view favourable in terms of the simultaneous legal processes under the SARFAESI Act and arbitration recovery proceedings, the Andhra Pradesh High Court has taken a divergent view and after careful scrutiny of the rival contentions and the judicial precedents cited, the Apex Court has finally settled the law on the point. Below, we discuss the same.  Read more

The Financial Resolution and Deposit Insurance Bill, 2017: Key Highlights

By Nidhi Bothra, (nidhi@vinodkothari.com)

 

In March, 2016 a committee was constituted under the Chairmanship of Mr. Ajay Tyagi to draft and submit a bill on resolution of financial firms. In September, 2016, the Committee submitted its report and bill which was titled as “The Financial Resolution and Deposit Insurance Bill, 2016”[1] (Bill 2016). The objective of the Bill, 2016 was to provide for a framework for safeguarding the stability and viability of financial services providers and to protect the interest of the depositors, as the name of the bill also suggests[2].

The Financial Resolution and Deposit Insurance Bill, 2017[3] (Bill, 2017) is formulated to provide resolution to certain categories of financial service providers in distress; the deposit insurance to consumers of certain categories of financial services; designation of systemically important financial institutions; and establishment of a Resolution Corporation for protection of consumers of specified service providers and of public funds for ensuring the stability and resilience of the financial system and for matters connected therewith or incidental thereto.

The proposed legislation together with the Insolvency and Bankruptcy Code, 2016 is expected to provide a comprehensive resolution mechanism for the economy.

The existing draft of the Bill, 2017 has been referred to a Joint Parliamentary Committee of both the Houses, under the Chairpersonship of Shri Bhupender Yadav, for examination and presenting a Report to the Parliament.

The Bill is divided into several chapters, which deal with establishment of a Resolution Corporation, its powers, management and functioning which is broadly to function along with the appropriate regulator[4] of financial services provider, classification of persons as systematically important financial institutions, deposit insurance, restoration and resolution plan, method of resolution, liquidation etc.

Highlights of the Bill, 2017

The brief highlights of the Bill[5], 2017 are as follows:

  1. Establishing the Resolution Corporation – A resolution corporation would be formulated broadly with the objective of
    1. monitoring certain financial services provider[6];
    2. providing deposit insurance to banking institutions;
    3. classifying certain persons as specified service provider [7] into one of the categories of risks to viability;
    4. acting as an administrator or liquidator for such service provider or resolve a specified service provider which has been classified into critical risk category;
    5. set up funds including Corporation Insurance Fund, set up for deposit insurance provided by the Corporation to the insured service providers[8] and other funds such as Corporation Resolution Fund for meeting the expenses of carrying out resolution of specified service providers and Corporation General Fund for all other functions of the Corporation.
  2. Deposit Insurance – Chapter IV of the Bill, 2017 discusses about deposit insurance and largely deals with
    1. Determination of amount payable by the Corporation, to a depositor on account of deposit insured;
    2. Amount payable to an insured service provider[9] on account of resolution but not bail-out or eligible co-operative bank on account of merger or amalgamation;
    3. If the Resolution Corporation is dealing with the resolution of an insured service provider, then the Corporation may decide to invite offers from other insured service providers to take over the liabilities, deposits or realisable assets of the insured service provider.
  3. Categorisation as SIFIs[10] – Certain persons can be classified as SIFIs by the Central Government in consultation with the appropriate regulator, as per Section 25 of the Bill, 2017, if it meets the criteria prescribed by the Central Government in this regard. Once categorised as an SIFI, then are deemed to be specified service provider and the provisions of being a specified service provider under the Bill, 2017 become applicable to them. It is important to mention that any financial service provider or domestic systematically important banks can be classified as SIFIs. Once classified as SIFIs, the Central Government may designate, its holding, subsidiary, associate company or any other body corporate related to it as financial service provider and falling into the ambit of being SIFI.
  4. Registration of specified service provider – Chapter V of the Bill, 2017 talks about registration of specified service providers and states that if a person classified as a specified service provider or deemed to be a service provider, it shall be deemed to be registered under the Act, from the date of classification. If the appropriate regulator has issued a license in favour of a specified service provider, such license shall be deemed to be registration for the purpose of this Act as well.
  5. Risk to viability categories – The Bill, 2017 specifies 5 categories[11] of risk to viability under Section 36 (5) and are as follows —
    1. low, where the probability of failure of a specified service provider is substantially below the acceptable probability of failure;
    2. moderate, where the probability of failure of a specified service provider is marginally below or equal to acceptable probability of failure;
    3. material, where the probability of failure of a specified service provider is marginally above acceptable probability of failure;
    4. imminent, where the probability of failure of a specified service provider is substantially above the acceptable probability of failure;
    5. critical, where the probability of failure of a specified service provider is substantially above the acceptable probability of failure, and the specified service provider is on the verge of failing to meet its obligations to its consumers

The classification of a specified service provider into any of the categories of risk to viability except the category of critical risk to viability under section 45, shall be kept confidential by the appropriate regulator, the Corporation and by all relevant parties.

6.   Categorisation of specified service providers under risk to viability categories

  1. The Resolution Corporation in consultation with the appropriate regulator categorise specified service providers under risk to viability categories.
  2. The Resolution Corporation shall have no power to classify a specified service provider into the category of low or moderate risk to viability.
  3. While classifying under risk categories, they can assess, evaluate and classify the holding or non-regulated operational entity within the group of the specified service provider as deemed to be a specified service provider.

7.   Restoration and Resolution Plan — Any specified service provider, classified in the category of material or imminent risk to viability shall submit a restoration plan to the appropriate regulator and a resolution plan to the Corporation within ninety days of such classification. Every restoration plan will prescribe for the details of restoring category to low moderate and resolution plan on who resolution will be achieved.

Where a systemically important financial institution is classified in the category of low or moderate risk to viability, it shall submit the information required under this subsection assuming that it is classified in the category of material or imminent risk to viability.

Where the Resolution Corporation determines that liquidation is the most appropriate method for the resolution of a specified service provider, notwithstanding anything in any other law for the time being in force relating to liquidation and winding up, the Corporation shall make an application to the Tribunal for an order of liquidation in respect of such specified service provider.

The detailed actions as prescribed under the Bill for various categories of risks is tabulated in Annexure I to this note.

Changes from the Bill, 2016

The Bill, 2016 aimed at including all NBFCs its foray. Bill, 2017 only intends to cover such NBFCs and other entities in the group, if such NBFC is classified on high risks to viability categories. This was an important and a necessary change from the Bill, 2016.

All the NBFCs, big and small will be continued to be monitored by the appropriate regulators, however, matters will get escalated only if they are on the risks to viability meter. Similar would be the case with other financial services providers as well.

Some key issues

Some key issues that the Bill, 2017 does not address or overlook are as follows:

  1. Definition of financial services provider – The Bill does not provide for a definition of financial services providers. The specified services provider will be deduced from the financial services providers, by and large. However the Bill, 2017 does not expressly provide for the universe of which the monitoring will be carried out. The Bill, 2017 indicates, NBFCs, insurance companies and banking institutions will fall in the ambit of discussion.
  2. NBFC-Ds – While the concept continues to be theoretical for all practical purposes, but the Bill, 2017 does not make a mention at all of this category of entities.
  3. Resolution and restoration plan — Chapter VII provides for resolution plan and restoration plan to be submitted to appropriate regulator and resolution corporation for material and imminent risk category specified service providers. The plans are to be submitted with 90 days. The brief contents of the plans to be provided to the authorities is prescribed in the Bill, 2017. However, are both plans to be provided within 90 days from the date of categorisation and for both categories?

For both categories of risks to viability, there can be strong intervention of the authorities in running of the business itself. One may find it difficult to find the distinction between the two categories of the risks to viability as the action taken by the authorities and from the specified service providers seems to be almost similar.

In case an entity is categorised as critical risk to viability, the turnaround of the resolution plan is to be carried out within one year, else the Resolution Corporation may require the liquidation of the entity. The entities, in determination here have an element of systemic risks and therefore liquidation of such entities can have daunting consequences on the economy. The provision for triggering liquidation should be well defined or determined in consultation with the Central Government.

4.   Rule-making – The devil, as they say, lies in the details. A lot of actions to be taken in each of the risks categorisation will come by way of rule-making. This will determine the effectiveness of the resolution plans and restoration plans prescribed in the Bill, 2017.

5.  Existing resolution mechanisms – The appropriate regulators have introduced several policy initiatives and resolution guidance and schemes for restructuring of stressed assets, special restructuring norms, strategic restructuring norms, corporate debt restructuring wherein the entities were required to submit resolution/ restructuring/ restoration plans within certain timeframes. The experience with these guidelines have indicated the failure of these guidelines and schemes to provide for a resolution plan within the dedicated time frame and also restoring the position of the entities.Therefore, appropriate learnings from those guidelines should also be reflected in the Bill,2017.

Annexure I

SL no. Category of risk to viability (Section 36) Categorised by ** Immediate action to be taken by the specified service provider Continued Action required by the specified service provider Action taken by appropriate regulator and/ or corporation
 
1 Low Appropriate Regulator No Action taken, regular monitoring of the activities of the entity may be conducted.

Where a SIFI is classified in the category of low or moderate risk to viability, it shall submit the information required under section 39 (2) assuming that it is classified in the category of material or imminent risk to viability.

2 Moderate Appropriate Regulator No Action taken, regular monitoring of the activities of the entity may be conducted.

Where a SIFI is classified in the category of low or moderate risk to viability, it shall submit the information required under section 39 (2) assuming that it is classified in the category of material or imminent risk to viability.

3 Material Resolution Corporation or Appropriate Regulator Submit a restoration plan[12] to the appropriate regulator and a resolution plan[13] to the resolution corporation within 90 days of such classification.

A copy of the restoration plan and resolution plan to be submitted to the resolution corporation and appropriate regulator respectively, within 15 days of the first submission, thereof.

Every systemically important financial institution shall submit a restoration plan to the appropriate regulator and a resolution plan to the Corporation within ninety days of its designation under section 25.

Every restoration plan or resolution plan shall be revised annually and the appropriate regulator and the Corporation shall be informed of such revised restoration plan, within seven days of the revision.

Every material change shall be immediately informed to the appropriate regulator and the Corporation.

Additional inspection may be carried out to monitor the risk to viability.

Appropriate regulator may prevent entity from taking certain business decisions including declaration of dividend, establishing new business or acquiring new clients, undertaking related party transactions, increasing liabilities etc.

Appropriate regulator may require the entity to increase capital, sell assets etc.

4 Imminent Resolution Corporation or Appropriate Regulator

 

Or

If the specified service provider has not submitted the restoration plan or resolution plan within prescribed time frame.

Submit a restoration plan to the appropriate regulator and a resolution plan to the resolution corporation within 90 days of such classification.

A copy of the restoration plan and resolution plan to be submitted to the resolution corporation and appropriate regulator respectively, within 15 days of the first submission, thereof.

Every systemically important financial institution shall submit a restoration plan to the appropriate regulator and a resolution plan to the Corporation within ninety days of its designation under section 25.

Every restoration plan or resolution plan shall be revised annually and the appropriate regulator and the Corporation shall be informed of such revised restoration plan, within seven days of the revision.

Every material change shall be immediately informed to the appropriate regulator and the Corporation.

The resolution corporation may appoint an officer to inspect the functioning of the entity and act as an observer.

The corporation may prevent the entity from accepting funds, declaring dividend, acquiring new businesses or new clients, undertake related party transactions etc.

The corporation may require the entity to infuse new capital or sell identified assets etc.

 

A specified service provider classified in the category of imminent risk to viability shall, if it is not a SIFI, submit a resolution plan to the Corporation within 90 days.

 

5 Critical Resolution Corporation or Appropriate Regulator – effective from the date of publication in official gazette N.A. N.A. Corporation shall be deemed to be the administrator[14] and may take the following actions:

a.       resolve the issue through a scheme or merger or amalgamation or bail-in instrument.

b.      Transfer whole or part of assets/ liabilities to another person

c.       Create a bridge service provider

d.      Cause liquidation of the entity

e.       No legal action or proceeding including arbitration shall commence or continue until conclusion of resolution.

f.       No repayment or acceptance of deposit shall be made or liabilities incurred.

g.      temporarily prohibit (not exceeding 2 business days) by an order in writing, the exercise of such termination rights of any party to such specified contract with the relevant specified service provider or its associate company or subsidiary

License granted to the entity by the appropriate regulator may be withdrawn or modified.

 


[1] http://dea.gov.in/sites/default/files/FRDI%20Bill-27092016_1.pdf

[2] See our article titled – Financial Resolution and Deposit Insurance Bill: Implications for NBFCs, by Vinod Kothari and Niddhi Parmar, here http://vinodkothari.com/blog/financial-resolution-and-deposit-insurance-bill-implications-for-nbfcs-by-niddhi-parmar/

[3] http://164.100.47.4/BillsTexts/LSBillTexts/Asintroduced/165_2017_LS_Eng.pdf

[4] Appropriate Regulator is defined in First Schedule to the Bill, 2017 to include a) RBI, b) IRDA, c) SEBI, d) Pension Fund Regulatory Development Authority or any other regulator as notified by the Central Government.

[5] http://164.100.47.4/BillsTexts/LSBillTexts/Asintroduced/165_2017_LS_Eng.pdf

[6] Financial services provider categorised as specified service providers and SIFIs fall within the purview of the Resolution Corporation. The detailed mechanism of monitoring is discussed further in the highlights.

[7] A specified service provider is a person as defined in Second Schedule to Bill, 2017 and includes

  1. A banking institution, , other than eligible co-operative bank including an insured service provider;
  2. Any insurance company
  3. Any Financial Market Infrastructure
  4. Any payment system, as defined under the Payment and Settlement Systems Act, 2007 (51 of 2007), not notified under section 227 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016)
  5. Any non-banking financial company, not notified under section 227 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016)
  6. Any systemically important financial institution
  7. Any other financial service provider (excluding individuals and partnership firms), not notified under section 227 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016)
  8. A holding company of any specified service provider enumerated under items 1 to 7, registered in India which is not notified under section 227 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), subject to the determination by the Corporation under the proviso to sub-section (1) of section 33
  9. Non-regulated operational entities within a financial group or conglomerate of a specified service provider enumerated under items 1 to 7 subject to the determination by the Corporation under the proviso to sub-section (1) of section 33.
  10. Branch offices of body corporates incorporated outside India, carrying on the business of providing financial service in India.
  11. Any other entity or fund which may be notified by the Central Government

[8] As defined in Section 2 (19) of the Bill, 2017 — means any banking institution, that has obtained deposit insurance under sub-section (3) of section 33. Section 33 (3) states that every banking institution that has been granted a banking license by the appropriate regulator shall be deemed to be categorised as insured service provider for obtaining deposit insurance under the Act.

[9] Insured service provider is a banking institution that has obtained deposit insurance

[10] To qualify as an SIFI, the Central Government will consider the size, complexity of the financial service provider, the nature and volume of transactions undertaken, interconnectedness with other financial service providers and nature of services offered and possibility of substitution such business.

[11] The categorisation are based on assessment of the following parameters:

(a) adequacy of capital, assets and liability; (b) asset quality; (c) capability of management; (d) earnings sufficiency; (e) leverage ratio; (f) liquidity of the specified service provider; (g) sensitivity of the specified service provider to adverse market conditions; (h) compliance with applicable laws; (i) risk of failure of a holding company of a specified service provider or a connected body corporate in India or abroad; and (j) any other attributes as the Corporation deems necessary

[12] A restoration plan as per the provisions of Section 39, will contain details of assets and liabilities of the entity, including contingent liabilities, steps to be taken by the entity to move to moderate classification at least, time frame within which such restoration plan will be executed and other information relevant for the appropriate regulator to assess the plan.

[13] A resolution plan, as per the provisions of Section 40, will contain details of assets and liabilities of the entity, identification of critical functions of the specified service provider, access to financial market infrastructure services, either directly or indirectly, strategy plans on exiting the resolution process and any other relevant information.

[14] The resolution plan must be completed within one year from the date of classification into critical risk to viability. Where the plan is completed within one year and the Corporation deems necessary, it shall require liquidation of the entity.