Workshop on Emerging RegulatoryFramework for NBFC-ML
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Open in new tab Tweezing out for dormancy: RBI intends to intensify regulatory audits of NBFCs
- By CS Anita Baid, Vice President, Vinod Kothari Consultants P. Ltd.
As per reports available on public domain[1], the RBI intends to intensify regulatory audits of non-banking finance companies, to find dormancy, non-compliance, non clarity of business models, or other risks that the regulator may wish to check. The intent seems to be weed out the truant ones out of the crowd of over 9000 NBFCs that exist. It is a fact that in the recent years, the RBI has been granting lesser new registrations, and canceling more of existing registrations, causing the number to come down. It is also important to note that if the number of NBFCs looks overwhelming, it is not because so many companies are into real operation: it is because the regulations currently define a company investing its owned capital into financial investments, with absolutely no access to either public funds or customer interface, as an NBFC, by imputing the public interest that actually does not exist. The number would have been a lot lesser had the regulator had the realisation that if there are no public funds, no customer interface and investment of owned funds being done, there is no reason for the regulator to interfere, as the intent of the country’s Central Bank cannot be to regulate investment activity that one does with one’s own money.
While this issue remains to be advocated for a potential reform, in the meantime, it is important for NBFCs to brace up for the RBI’s inquisitorial interest.
This article is intended to help NBFCs to be better prepared for such regulatory interface.
Read more →Compliance Risk Assessment
Guidance for implementation by NBFCs
Subhojit Shome, Assistant Manager | subhojit@vinodkothari.com
Introduction
The RBI published the Compliance Function and Role of Chief Compliance Officer (CCO) – NBFCs[1] on April 11, 2022 (‘Compliance Circular’) that are applicable on Middle Layer (NBFC-ML) and Upper Layer NBFCs (NBFC-UL) and the deadline to put into place the framework for this function falls due on October 1, 2023 for NBFC-ML and April 1, 2023 for NBFC-UL entities.
The circular brings up the significant aspect of Compliance Risk, a concept that has been for long relevant for Banks[2] and now becomes applicable for specified NBFCs as well. The Compliance Circular define Compliance Risk as follows:
‘the risk of legal or regulatory sanctions, material financial loss or loss of reputation an NBFC may suffer, as a result of its failure to comply with laws, regulations, rules and codes of conduct, etc., applicable to its activities.’
Hence, Compliance Risk goes beyond mere fines and penalties that may arise as a result of compliance irregularities and the Compliance Function needs to consider the entire gamut of adverse events that a company may be exposed to as a result of compliance failures. These may include events with extreme impact such as suspension of business operation or loss of reputation as a result of enforcement action against senior management.
As a crucial piece of being able to anticipate such risks and to put necessary mitigation measures in place the Circular mandates putting in place an effective compliance risk assessment framework and the senior management to review such assessment annually.
Read more →11th Securitisation Summit | Sponsorship Proposal
Details of the 11th Securitisation Summit – https://vinodkothari.com/secsummit/
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Post-event report of the 10th Securitisation Summit – https://vinodkothari.com/2022/05/key-takeaways-10th-securitisation-summit-may-27-2022-the-lalit-mumbai/
For queries regarding participation, partnership or anything else, reach us at: summit@vinodkothari.com / fintrain@vinodkothari.com
Presentation on ICAAP for NBFCs
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| Our services and Assistance for ICAAP Implementation can be viewed here – https://vinodkothari.com/2022/09/services-and-assistance-for-icaap-implementation/ |
Our resources on the topic:
Full Day Workshop on Securitisation and Transfer of Loans
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Our writeups on the topic:
- Video Lecture on basics of Securitisation
- Securitisation Primer
- Evolution of securitisation – Genesis of MBS
- Global Securitisation Markets in 2021: A Robust Year for Structured Finance
- Securitisation Glossary
- After 15 years: New Securitisation regulatory framework takes effect
- One stop RBI norms on transfer of loan exposures
- Loan Participations: The Rising Star of Loan Markets
- FAQs on Securitisation of Standard Assets
- FAQs on Transfer of Loan Exposure
- Legal Issues in Securitization
- Has the cover fallen off Covered Bonds?
- Security Token Offerings & their Application to Structured Finance
- Resurgence of synthetic securitisations: Capital-relief driven transactions scale new peaks
- Understanding the budding concept of green securitization
2022 in retrospect: Regulatory activity in the financial sector
– Vinod Kothari | finserv@vinodkothari.com
It has been a brisk year in terms of activity – a busy regulator kept all regulated entities busier. This year marked the initiation of a new SBR framework for NBFCs – hence there was a lot of buzz in terms of understanding the new regulatory framework. The names of 16 Upper layer entities were declared by the RBI – consisting of 5 HFCs, 10 NBFC-ICCs, one CIC[1]. As is the design, UL entities are treated at par with banks in terms of regulatory intensity –hence, there is a LEF (large exposure framework), differential provisioning norms in case of standard assets, CET-1 capital requirement, mandatory listing etc.
Read more →Full Day Workshop on Partnering in lending (Mumbai)
Loan sourcing, co-lending, transfer of loans, securitisation
| Please note that registration for the workshop is closed, thank you for the overwhelming support! Do express your interests by filling this form: https://forms.gle/qoUwx99aV1acELSp6 |
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Details of our workshop in Bengaluru: https://vinodkothari.com/2022/12/full-day-workshop-on-partnering-in-lending/
Our recent write-ups on the topic:
Financial Services- https://vinodkothari.com/category/financial-services
Digital Lending- https://vinodkothari.com/?s=digital+lending
The sale of season: Holding period requirements for assignments and securitisation
– Team Finserv | finserv@vinodkothari.com
Any sale or assignment or transfer, including securitisation, of loans is subject to a minimum seasoning with the originator. Under the extant regulatory provisions, such requirement is referred to as ‘Minimum Holding Period’ (MHP), which means the minimum period for which the originator should have held the loan exposures before the same is transferred to the transferee or Special Purpose Entity (SPE), as the case may be. This serves several purposes: that the loan was not originated for sale, the originator has had some equity in the loans, and that there is a benefit of hindsight of performance.
MHP requirements have always been a part of the regulations in India. However, on December 5, 2022, the Reserve Bank of India (RBI) made certain amendments to the Master Direction – Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021[1] (‘TLE Directions’) as well as the Master Direction – Reserve Bank of India (Securitisation of Standard Assets) Directions, 2021[2] (‘SSA Directions’). Among the other changes, there was a change in the MHP provisions; this change may have a significant impact on future transactions.
This write-up intends to clarify the position with respect to the computation of MHP for different types of loans under TLE Directions as well as SSA Directions.
Read more →RBI amends TLE Directions
– Team Finserv | finserv@vinodkothari.com
The Reserve Bank of India (RBI) made certain amendments to the Master Direction – Reserve Bank of India (Transfer of Loan Exposures) Directions, 2021 (‘TLE Directions’) on December 05, 2022. The long-awaited welcome move of allowing ARCs to acquire loans falling in 1-60 DPD as well is being well appreciated. Some of the changes seem to be creating a confusion; say not allowing foreign branches of Indian banks to acquire defaulted loans; while others, seem to be providing more clarity; such as clarifying that registration of security interest for the purpose of computing MHP shall mean registration of security interest with CERSAI only.
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