Fill the google form to register: https://forms.gle/bYgcj3fyJodW9tYeA
Following the success of our recent workshop in Mumbai and Bengaluru, we are delighted to announce our upcoming 2-day refresher course on RBI regulations for NBFCs in Delhi!Loading…
Team Finserv (finserv@vinodkothari.com)
Vide notification dated August 12, 2024, RBI has amended certain regulations applicable to Housing Finance Companies, and NBFCs to enure harmonization between HFC Master Directions and SBR Master Directions. These amendments shall be effective from January 01, 2025. The following table contains a snapshot of the changes from all HFCs and NBFCs1:
| Sr. | Particulars | Erstwhile provision | Amended / Harmonised provision |
|---|---|---|---|
| Changes in HFC Master Directions for all HFCs | |||
| 1 | Participation in exchange-traded currency derivatives | HFCs were allowed to participate in currency futures and options however no regulatory guidelines were prescribed for the same. | All HFCs can now participate in currency futures exchanges and Non-deposit HFCs with asset size of ₹1000 crore and above can participate in currency option exchanges, subject to the guidelines issued in the matter by the Foreign Exchange Department of the Reserve Bank and necessary disclosures in the balance sheet in accordance with guidelines issued by SEBI. |
| 3 | Participation in Interest Rate Futures | HFCs were allowed to participate in interest rate futures however no regulatory guidelines were prescribed for the same. | All HFCs can now participate in interest rate futures exchanges as clients and Non-deposit HFCs with asset size of ₹1000 crore and above are permitted to participate in interest rate futures market as trading members, subject to adherence to instructions contained in Rupee Interest Rate Derivatives (Reserve Bank) Directions, 2019 dated June 26, 2019, as amended from time to time. |
| 4 | Credit Default Swaps (CDS) | HFCs were allowed to participate in the CDS market however no regulatory guidelines were prescribed for the same. | HFCs will now be permitted to participate in the CDS market as users only and they may buy credit protection only to hedge their credit risk on corporate bonds they hold. HFCs cannot enter into short positions in CDS contracts. HFCs shall be required to comply with Annex XIV of SBR Directions while participating in CDS market as users. |
| 5 | Issue of co-branded credit cards | HFCs were not allowed to issue co-branded cards under the erstwhile directions. | HFCs are now allowed to issue co-branded credit cards, subject to the instructions prescribed in Master Direction – Credit Card and Debit Card – Issuance and Conduct Directions, 2022, as amended from time to time. |
| 6 | Accounting Year | Every HFC shall prepare its financial statements for the year ending on the 31st day of March. | HFCs must finalize their balance sheets within 3 months from the relevant date. If an HFC wishes to extend this period under the Companies Act, it must first obtain approval from NHB before seeking an extension from the RoC. In cases where NHB and RoC grants extension of time, the HFC shall furnish to NHB a proforma balance sheet(unaudited) as on March 31 of the year and the returns due on the said date. |
| 7 | Periodicity of IS Audit | The Audit Committee must ensure that an Information System Audit of the critical and significant internal systems and processes is conducted at least once in two years to assess operational risks faced by the HFC. | HFCs can now decide the periodicity of IS Audit as per its policy in accordance with IT Governance Directions. However, a continuous auditing approach for critical systems shall be undertaken. |
| 8 | Investment through Alternative Investment Funds for calculation of NOF | No regulatory guidelines were prescribed | To determine the Net Owned Funds (NOF) of a Housing Finance Company (HFC), investments or loans to subsidiaries, group companies, and other HFCs exceeding 10% of owned funds are deducted from the owned funds. Investments made by an HFC in group entities, either directly or indirectly through an AIF (if 50% or more of the AIF’s funds come from the HFC) or an AIF trust (if the HFC is the beneficial owner and 50% of the trust’s funds come from the HFC), shall be treated similarly. |
| 9 | Technical Specifications for all participants of Account Aggregator ecosystem | Regulatory provisions did not exist | HFCs acting either as ‘Financial Information Provider’ or ‘Financial Information User’ are expected to adopt the technical specifications published by ReBIT, as updated from time to time. |
| Changes in SBR Directions for all NBFCs | |||
| 7 | Periodicity of IS Audit | The Audit Committee must ensure that an Information System Audit of the critical and significant internal systems and processes is conducted at least once in two years to assess operational risks faced by the NBFCs. | NBFCs can now decide the periodicity of IS Audit as per its policy in accordance with IT Governance Directions. Further, a continuous auditing approach for critical systems shall be undertaken. |
Vinod Kothari and Anita Baid l finserv@vinodkothari.com
RBI has issued notification dated August 12, 2024 on Review of Risk Weights for Housing Finance Companies (HFCs). Accordingly, with immediate effect, the RWsfor computation of risk weighted assets (RWAs), for capital adequacy purposes, for for undisbursed portion of housing loans/other loans shall be capped at the RWA computed on a notional basis for an equivalent amount of disbursed loan. In other words, the applicable RW shall be lower of (a) RW, applying the credit conversion factor (CCF) on the undisbursed loan, with a 100% RW; and (b) the RW that will be applicable, based on the size and the LTV of the loan, if the undisbursed part were to be disbursed.
Read more →Vinod Kothari (finserv@vinodkothari.com)
The RBI’s bi-monthly Monetary Policy review was accompanied by the Governor’s customary statement, dated 8th August, 2024, highlighting 4 areas of potential risks to financial stability. Two of these relate to uncollateralised or personal lending.
The 4 red flags raised by the Governor are as follows.
First, with alternative financial instruments being available and attractive, lesser money is flowing into the banking system by way of deposits, thereby the credit-deposit ratio indicates deposit growth trailing the growth in credit. This would force banks to look for alternative short term sources of funding, to fund the credit growth, potentially creating what is known as structural liquidity risk. Structural liquidity risk is said to exist when there is greater dependence on short-term sources of funding, as compared to short-term assets.
It is notable that recently, the RBI proposed to increase the run-off rate for retail deposits which are backed by internet banking facility. Most retail deposits these days are. A higher run-off rate implies a faster ability of the depositor to withdraw his deposit, thereby increasing the assumption for outflows, which is used for computing the liquidity coverage ratio (LCR). Higher LCR requirement means higher funds blocked in so-called high-quality liquid assets, and thereby lesser funds available for lending. Thus, the Governor’s reference to slower deposit growth relative to lending will get be even stronger, once the proposed changes in LCR are implemented.
Read more →– Vinod Kothari & Anita Baid | finserv@vinodkothari.com
This presentation was used during the ICSI Crash course
Day 1
Loading…
Day 6
Loading…
Fill the google form to register: https://forms.gle/ULq6zBhESo1rpZLKA
Following the success of our recent workshop in Bengaluru, we are delighted to announce our upcoming 2-day refresher course on RBI regulations for NBFCs in Mumbai!
Loading…
Refer our resources on SBR:
– Team Finserv | finserv@vinodkothari.com
Loading…
Other Related Articles:
– Vinod Kothari and Anita Baid
While the regulatory interface for NBFCs with the RBI is considerably easier than that for banks, considering the sheer number and small size of several NBFCs, there are very frequent occasions for approvals like change in management, change of directors, etc., for which NBFCs need to approach the RBI for approval. For an NBFC having 3 directors, if one dies or retires and a new director has to be appointed, this fits the regulatory definition of “change in management”, even though nothing may have changed on the shareholding front.
Read more →
Loading…
Other resources on the topic –
Reload document 
Open in new tab