Bank group NBFCs fall in Upper Layer without RBI identification
– Dayita Kanodia | finserv@vinodkothari.com
RBI on December 5, 2025 issued RBI (Commercial Banks – Undertaking of Financial Services) (Amendment) Directions, 2025 (‘UFS Directions’) in terms of which NBFCs and HFCs, which are group entities of Banks and are therefore undertaking lending activities, will be required to comply with the following additional conditions:
- Follow the regulations as applicable in case of NBFC-UL (except the listing requirement)
- Adhere to certain stipulations as provided under RBI (Commercial Banks – Credit Risk Management) Directions, 2025 and RBI (Commercial Banks – Credit Facilities) Directions, 2025
The requirements become applicable from the date of notification itself that is December 5, 2025. Further, it may be noted that the applicability would be on fresh loans as well as renewals and not on existing loans. The following table gives an overview of the compliances that NBFCs/HFCs, which are a part of the banking group will be required to adhere to:
| Common Equity Tier 1 | RBI (Non-Banking Financial Companies – Prudential Norms on Capital Adequacy) Directions, 2025 | Entities shall be required to maintain Common Equity Tier 1 capital of at least 9% of Risk Weighted Assets. |
| Differential standard asset provisioning | RBI (Non-Banking Financial Companies – IncomeRecognition, Asset Classification and Provisioning) Directions, 2025 | Entities shall be required to hold differential provisioning towards different classes of standard assets. |
| Large Exposure Framework | RBI (Non-Banking Financial Companies – Concentration Risk Management) Directions, 2025 | NBFCs/HFCs which are group entities of banks would have to adhere to the Large Exposures Framework issued by RBI. |
| Internal Exposure Limits | In addition to the limits on internal SSE exposures, the Board of such bank-group NBFCs/HFCs shall determine internal exposure limits on other important sectors to which credit is extended. Further, an internal Board approved limit for exposure to the NBFC sector is also required to be put in place. | |
| Qualification of Board Members | RBI (Non-Banking Financial Companies – Governance)Directions, 2025 | NBFC in the banking group shall be required to undertake a review of its Board composition to ensure the same is competent to manage the affairs of the entity. The composition of the Board should ensure a mix of educational qualification and experience within the Board. Specific expertise of Board members will be a prerequisite depending on the type of business pursued by the NBFC. |
| Removal of Independent Director | The NBFCs belonging to a banking group shall be required to report to the supervisors in case any Independent Director is removed/ resigns before completion of his normal tenure. | |
| Restriction on granting a loan against the parent Bank’s shares | RBI (Commercial Banks – Credit Risk Management) Directions, 2025 | NBFCs/HFCs which are group entities of banks will not be able to grant a loan against the parent Bank’s shares. |
| Prohibition to grant loans to the directors/relatives of directors of the parent Bank | NBFCs/HFCs will not be able to grant loans to the directors or relatives of such directors of the parent bank. | |
| Loans against promoters’ contribution | RBI (Commercial Banks – Credit Facilities) Directions,2025 | Conditions w.r.t financing promoters’ contributions towards equity capital apply in terms of Para 166 of the Credit Facilities Directions. Such financing is permitted only to meet promoters’ contribution requirements in anticipation of raising resources, in accordance with the board-approved policy and treated as the bank’s investment in shares, thus, subject to the aggregate Capital Market Exposure (CME) of 40% of the bank’s net worth. |
| Prohibition on Loans for financing land acquisition | Group NBFCs shall not grant loans to private builders for acquisition and development of land. Further, in case of public agencies as borrowers, such loans can be sanctioned only by way of term loans, and the project shall be completed within a maximum of 3 years. Valuation of such land for collateral purpose shall be done at current market value only. | |
| Loan against securities, IPO and ESOP financing | Chapter XIII of the Credit Facilities Directions prescribes limits on the loans against financial assets, including for IPO and ESOP financing. Such restrictions shall also apply to Group NBFCs. The limits are proposed to be amended vide the Draft Reserve Bank of India (Commercial Banks – Capital Market Exposure) Directions, 2025. See our article on the same here. | |
| Undertaking Agency Business | Reserve Bank of India (Commercial Banks – Undertaking of Financial Services) Directions, 2025 | NBFCs/HFCs, which are group entities of Banks can only undertake agency business for financial products which a bank is permitted to undertake in terms of the Banking Regulations Act, 1949. |
| Undertaking of the same form of business by more than one entity in the bank group | UFS Directions | There should only be one entity in a bank group undertaking a certain form of business unless there is proper rationale and justification for undertaking of such business by more than one entities. |
| Investment Restrictions | Restrictions on investments made by the banking group entities (at a group level) must be adhered to. |
Read our write-up on other amendments introduced for banks and their group entities here.
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