scale based regulations – Page 2 – Vinod Kothari Consultants

Group NBFCs’ assets to be aggregated for middle layer classification: RBI clarification

October 11, 2022/0 Comments/in Financial Services, NBFCs, RBI, scale based regulations /by Aanchal Kaur Nagpal

– Aanchal Kaur Nagpal, Manager | aanchal@vinodkothari.com

RBI vide notification dated October 11, 2022, has clarified that the assets of NBFCs forming part of a group will be aggregated for determination of the “middle layer” status of NBFCs. This clarification dates back to the 1st of October and therefore, as on the effective date of the SBR framework, NBFCs which, on a consolidated basis, have assets of Rs 1000 crores or above, will have to start adhering to the SBR framework as applicable to NBFC-ML.

Effective date

The Circular will be effective retrospectively from the date of applicability of the SBR Framework i.e. October 01, 2022.

Read more →

16 NBFCs identified as Upper Layer entities for bank-like compliances

October 1, 2022/0 Comments/in Financial Services, NBFCs, RBI, scale based regulations /by Anita Baid

– Anita Baid, Vice-President, VKCPL | finserv@vinodkothari.com

In line with the guidance given in the Scale Based Regulatory Framework of the RBI[1], the new regulatory framework is effective from October 1, 2022. Just one day before D-day, the RBI on September 30, has kickstarted the new regulatory version for NBFCs by identifying 16 of the 9472 odd NBFCs[2], as NBFCs constituting the Upper Layer. These entities have been asked to migrate to a bank-like regulatory system. The first step upon this identification would be to put in place a Board approved policy for the adoption of the enhanced regulatory framework applicable to NBFC-UL. Further, these entities will prepare a glide path of compliance within three months, i.e. by December 30, 2022 and the glide path itself will have two years of adherence time, i.e. by September 30, 2024.

Our resources on the SBR Framework can be read here- https://vinodkothari.com/sbr/

In-house Training on SBR Framework for NBFC-ML/UL –
https://vinodkothari.com/2022/09/in-house-training-on-sbr-framework-for-nbfc-ml-ul/

Read more →

In-house Training on SBR Framework for NBFC-ML/UL

September 26, 2022/0 Comments/in Financial Services, scale based regulations, Training & Workshops /by Vinod Kothari Consultants

Loading…

Taking too long?

Reload document

|

Open in new tab

Download as PDF [768.81 KB]

Resources on Scale Based Regulations

Workshop on Emerging Regulatory Framework for NBFCs and digital lending

September 7, 2022/2 Comments/in digital lending, Financial Services, NBFCs, scale based regulations, Training & Workshops /by Team Finserv

Register here: https://forms.gle/D7QTKbPDcZn3AP7y6

Loading…

Taking too long?

Reload document

|

Open in new tab

Download as PDF [376.81 KB]

Our resources on the topics:

Scale Based Resources – https://vinodkothari.com/sbr/
Digital Lending – https://vinodkothari.com/?s=digital+lending
Co-lending – https://vinodkothari.com/?s=co-lending

Exploring Core Financial Services Solution for NBFCs

June 17, 2022/0 Comments/in Financial Services, NBFCs, RBI, scale based regulations /by Parth Ved

Applicability, Features, Modules & Challenges

– Subhojit Shome, Executive and Parth Ved, Executive | finserv@vinodkothari.com

Background

As a part of the overhaul for the NBFC Sector, the Reserve Bank of India (‘RBI’) had, on October 22, 2021, introduced the Scale Based Regulations (SBR): ‘A Revised Regulatory Framework for NBFCs’. Upon application of SBR, NBFCs will now be divided into four major categories starting from base layer, followed by middle and upper layers and a top layer. The categories can be briefly summarised through the below chart (visit https://vinodkothari.com/sbr/ to read our write-ups on SBR and related topics).

*Overview of the Scalar Approach for Classifying NBFCs*

Through SBR, various governance guidelines have been newly introduced while the existing guidelines have been modified to keep up with the current market practices. One of the requirements is the introduction of Core Financial Services Solution (CFSS) for NBFCs vide RBI circular dated February 23, 2022 (‘CFSS Circular’).

In this article, we discuss the applicability of CFSS on NBFCs, explore the current core banking systems of banks, highlight the necessary modules which can be adopted by NBFCs along with the issues that may arise during implementation.

Read more →

FAQs on Large Exposures Framework (‘LEF’) for NBFCs under Scale Based Regulatory Framework

June 14, 2022/0 Comments/in Financial Services, NBFCs, RBI, scale based regulations /by Team Finserv

Financial Services Division | (finserv@vinodkothari.com)

1. Applicability –

1.1. What is the intent behind the LEF?

Response: Regulation and control of “large exposures” is a part of financial sector regulations globally to control concentration of exposures (thus, risks) to a few individuals/entities/groups. The Basel Committee of Banking Standards has been having recommendatory pieces on this topic since 1991, if not earlier. The Basel standard subsequently became a part of the Basel capital adequacy framework.

There is a large exposures framework in case of banks as well.

The intent behind the large exposure framework, which essentially limits the exposures to a single entity or group or group of economically interdependent entities is to strengthen the capital regulations. Capital regulations prescribe minimum capital in case of financial entities. The adequacy of capital is obviously connected with the risks on the asset side – hence, if the assets represent exposure in a single borrower or economically connected group of borrowers, a credit event with respect to such borrower may deplete the adequacy of capital very quickly. Hence, regulators limit the exposure to a single entity or a group.

There might be other forms of credit concentrations – for example, sectoral or geographical concentrations – these are not captured by the Framework.

Read more →

Differential Standard Asset Provisioning for NBFC-UL

June 7, 2022/0 Comments/in Financial Services, NBFCs, RBI, scale based regulations /by Team Finserv

-RBI issues new guidelines on provisioning for standard assets

-Kumari Kirti | finserv@vinodkothari.com

The function of NBFCs as a supplemental route of credit intermediation alongside banks and its contribution to supporting real economic activity are well known. Within the financial sector, the NBFCs have grown significantly in terms of scale, complexity, and interconnectedness over time. Many companies have expanded to the point where they are systemically significant, necessitating the alignment of the regulatory framework for NBFCs in light of their shifting risk profile.

To address the same, RBI vide its circular dated October 22, 2021^[1] has introduced Scale Based Regulation (SBR) for all NBFCs and has classified NBFCs in four layers- Base, Middle, Upper and Top layer.

Read more →

FAQs on compensation of Key Managerial Personnel and Senior Management under the Scale Based Regulatory Framework

May 4, 2022/0 Comments/in Financial Services, NBFCs, scale based regulations /by Staff

Financial Services Division | (finserv@vinodkothari.com)

RBI had introduced the Scale Based Regulatory Framework: A Revised Regulatory Framework for NBFCs vide a circular dated October 22, 2021. Para 3.2.3 (h) of the circular dealt with ‘Compensation Guidelines’ which required that NBFCs shall put in place a Board approved compensation policy in order to address issues arising out of excessive risk taking caused by misaligned compensation packages.

In terms of the aforementioned para, the RBI subsequently issued a circular on April 29, 2022 detailing the ‘Guidelines on Compensation of Key Managerial Personnel (KMP) and Senior Management in NBFCs’.

With these FAQs, we aim to address some of the key questions that may arise out of the guidelines and provide an understanding of the same.

1. Applicability

1.1. What is the basic intent of RBI for issuing the Compensation Guidelines for NBFCs?

Response: As per the SBR framework and the text of the notification, the purpose appears to be – (i) to address issues arising out of excessive risk taking caused by misaligned compensation packages and (ii) to ensure that there is no conflict of interest.

Read more →

Like banks, NBFC-UL to maintain CET-1 capital

April 29, 2022/0 Comments/in Financial Services, NBFCs, RBI, scale based regulations /by Staff

Manner of computation of CET-1 for NBFCs prescribed by RBI

– Qasim Saif | finserv@vinodkothari.com

Addressing risk faced by NBFCs and enhancing their capacity to absorb such risk has been a key point of consideration under the Scale Based Regulations (SBR) for NBFCs. SBR also intends to curb regulatory arbitrage available to very large NBFCs whose size of operations are more or less in line with that of banks.

Read more →