Presentation on ICAAP for NBFCs

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Our services and Assistance for ICAAP Implementation can be viewed here –

Our resources on the topic:

Understanding ICAAP for NBFCs

– Qasim Saif | Manager |

Systemic risk of NBFCs has been an issue for discussion, specifically in India as there have been some major NBFC failures, and the issue of inter-connectivity between NBFCs and the rest of the financial sector became clearly evident. The issue is not limited to India, an annual publication of the Financial Stability Board, called Global Monitoring Report on Non-banking Financial Intermediation has been drawing attention to the increasing relevance of non-banking financial intermediaries and the risk they pose on a global level.[1]

In order to carry out the risk assessment, the banks are required to follow the Internal Capital Adequacy Assessment Process (ICAAP) as per Pillar II of the Basel II framework. However, with the increasing importance of non-banking financial institutions, the RBI has through its Revised Regulatory Framework for NBFCs (Revised Framework)[2] have inserted the ICAAP requirements to the middle layer NBFCs too from October 2022.

Under the existing regulatory framework, the NBFCs are required to carry out stress testing of only securitisation exposures or pool of loans acquired from other institutions.

Our services and Assistance for ICAAP Implementation can be viewed here –

As this would be a new requirement for NBFCs, and the specific directions in this respect are still awaited, the literature and guidance in this respect is scarce. In this article we have tried to discuss in brief, the expectations of the regulator along with a probable approach for NBFCs towards the ICAAP.

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