RBI (Commercial Paper and Non-Convertible Debentures of original or initial maturity upto one year) Directions, 2024

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Rebuilding Regulatory Infrastructure: The New SRO Norms

Draft Framework for SROs for financial sector entities

– Srinithi Sreepathy, finserv@vinodkothari.com

On December 21, 2023, the Reserve Bank of India presented its first  ‘Draft Omnibus Framework for recognising Self-Regulatory Organisations for Regulated Entities’(‘Omnibus’). The Framework comes in pursuance of its Statement on Developmental and Regulatory Policies dated October 06, 2023.

The Omnibus Framework is in response to a vacuum located between Regulators and the ever-evolving industry dynamic. The RBI has proposed a draft in the form of the present omnibus framework, for Self-Regulatory Organisations (SROs) indicating a willingness to enter a collaborative approach to regulatory frameworks.

The present Omnibus, taking the increasing number of regulated entities and their growing scale of business into consideration recognises the lack of sufficient industry standards for self-regulation. Identifying this need and being aware of the futility of increasing the burden on regulatory bodies like the RBI, SEBI or IRDA, (in this case, specifically: the RBI) the framework finds middle ground by recognising self-regulation amongst members of various industry entities.

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Housing finance companies regulatory framework: RBI proposes sectoral harmonisation

Chirag Agarwal, finserv@vinodkothari.com

The RBI has proposed changes in the regulations applicable to housing finance companies (HFCs). While larger part of these proposed changes will impact deposit-taking HFCs, there are some provisions and privileges, currently applicable to NBFCs only, which are being extended to HFCs as well. 

It may be recalled that the Finance Act, 2019 had moved the regulatory powers over HFCs to the RBI, whereas supervision remains with the NHB.  Accordingly, RBI vide its Press release dated August 13,2019 issued direction that HFCs will henceforth be treated as Non-Banking Financial Companies (NBFCs) for regulatory purposes and RBI will carry out review of extant regulatory framework applicable to HFCs and come out with new revised regulations in due course. On October 22, 2020, the RBI issued a circular titled “Review of regulatory framework for Housing Finance Companies (HFCs)”, introducing a revised regulatory framework for HFCs. The circular emphasized the need for further harmonization between the regulations of HFCs and NBFCs over the next two years to ensure a smooth transition with minimal disruption. As part of this initiative, the RBI has released, on 15th January, 2024,  a draft circular titled “Draft circular on Review of regulatory framework for HFCs and harmonisation of regulations applicable to HFCs and NBFCs” for public comments. The objective is to streamline the regulations governing HFCs, aligning them more closely with the regulatory framework applicable to NBFCs. 

The proposed changes relate to both acceptance of deposits, and otherwise. Some of the proposed changes will be applicable to all HFCs. Below, we have provided a table comparing the guidelines applicable to NBFCs with the modifications proposed for HFCs to align them with the guidelines for NBFCs. Our point-wise analysis on the proposed changes is provided below: 

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RBI mandates appointment of an Internal Ombudsman by NBFCs

Updated as on December 29, 2023

– Team Finserv | finserv@vinodkothari.com

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Our Resources on the topic:

  1. RBI mandates appointment of an Internal Ombudsman by NBFCs
  2. RBI’s Ombudsman storm- Tough road ahead for NBFCs
  3. Ombudsman Scheme for PPI issuers
  4. Extension of Ombudsman Scheme to remaining class of notified NBFCs

RBI bars lenders’ investments in AIFs investing in their borrowers

– Team Finserv | finserv@vinodkothari.com

The Reserve Bank of India on 19th December 2023 issued a notification imposing a bar on all regulated entities (REs) with respect to their investments in AIFs. Highlights of the notification are as below –

What has the RBI done?

  • Prohibited all regulated entities (REs), including banks, cooperative banks, NBFCs and All India Financial Institutions from making investments in Alternative Investment funds (AIFs), if the AIF has made any investment into a “debtor company”.
  • Debtor company means a company in which the RE currently has or previously had a loan or investment exposure anytime during the preceding 12 months
  • The bar applies immediately, that is, effective 19th Dec 2023. No further investments to be made.
  • If investments already exist, the RE shall exit within 30 days, that is, by 18th Jan 2024
  • Further, if an RE has made an investment in an AIF, and the AIF invests in a debtor company, the RE shall make an exit within 30 days.
  • Investment by REs in the subordinated units of any AIF scheme with a ‘priority distribution model’ subject to full deduction from RE’s capital funds.
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Workshop on RBI Circular on Regulatory Measures on Consumer Credit by Banks & NBFCs

– Vinod Kothari | vinod@vinodkothari.com

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Our Resources on the topic:-

  1. RBI raises red flag on increasing personal loan
  2. FAQs on Regulatory measures towards consumer credit and bank credit to NBFCs
  3. Workshop on RBI Circular on Regulatory Measures in Consumer Credit by Banks & NBFCs (YouTube live)

FAQs on Regulatory measures towards consumer credit and bank credit to NBFCs

– Team Finserv | finserv@vinodkothari.com

One may call it insecure about unsecured lending; the central bank has taken what in our view is a bold and timely measure, to rein in unsecured lending. Identifying a notable surge in specific segments of consumer credit, the RBI had recently met senior bankers. The latter had reportedly assured the central bank that things are under control. However, apparently, these assurances have failed to assuage the RBI’s view. Vide its notification dated November 16, 2023, the RBI has taken several mitigating measures.

We have developed a set of FAQs on the Circular, where we intend to answer some of the critical questions relating to the actionables by the REs and the impact of the circular.

Further, our detailed article on this topic can be read here – RBI raises red flag on increasing personal loans

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RBI raises red flag on increasing personal loans

Increased risk weights on bank lending to NBFCs, Sectoral exposure limits among protective measures

– Vinod Kothari | vinod@vinodkothari.com

One may call it insecure about unsecured lending; the central bank has taken what in our view is a bold and timely measure, to rein in unsecured lending.

Identifying a notable surge in specific segments of consumer credit, the RBI had recently met senior bankers. The latter had reportedly assured the central bank that things are under control. However, apparently, these assurances have failed to assuage the RBI’s view. Vide its notification dated November 16, 2023, the RBI has taken several mitigating measures.

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IT Governance, Risk, Controls and Assurance Practices Direction, 2023

Analysis of Impact on Financial Sector Entities

Kaushal Shah & Subhojit Shome | finserv@vinodkothari.com

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Read our other resources

  1. RBI regulates outsourcing of IT Services by financial entities
  2. Draft Master Direction on IT Governance, Risk, Controls and Assurance Practices
  3. Erstwhile Directions on IT Framework for the NBFC Sector – RBI keen on implementing several operational requirements

Access our resource centre on SBR Framework :

RBI issues twin circulars to strengthen customer services relating to credit information

– Chirag Agarwal | Executive | finserv@vinodkothari.com

Introduction:

In a world where information is power and financial well-being is paramount, credit plays a pivotal role in shaping our opportunities and choices. Your credit history is a mirror reflecting your financial trustworthiness, and it’s closely monitored by Credit Information Companies (CICs) and Credit Institutions (CIs). RBI in its Statement on Developments and Regulatory Policies released with the Bi-monthly Monetary Policy Statement 2023-24 on April 6, 2023 announced that a comprehensive framework will be put in place for strengthening and improving the efficacy of the grievance redress mechanism and customer service provided by the CICs and CIs. Additionally, it was announced that a compensation mechanism will be put in place for delayed updation/rectification of credit information by the CICs and CIs . Accordingly, RBI have introduced two comprehensive frameworks on October 27, 2023 titled  “Strengthening of customer service rendered by Credit Information Companies and Credit Institutions” and “Framework for compensation to customers for delayed updation/ rectification of credit information” 

While the first circular deals with strengthening of customer services provided by the CICs and CIs in relation to access and use of credit information, the other one provides for a comprehensive compensation framework where the CICs or CIs fail to address the customer requests/ complaints within a specified period of time. 

The objective of this article is to underscore the key provisions of the circular and identify actionable steps that CIs should take in response.

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