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Harmonising computation for concentration limits across NBFCs
/1 Comment/in Financial Services, Housing finance, NBFCs /by Kaushal Shah– Kaushal Shah, finserv@vinodkothari.com
Reserve Bank of India (RBI) has recently announced amendments to the Credit and Investment concentration norms, specifically targeting Base and Middle Layer Non-Banking Financial Companies (NBFCs). The circular, dated January 15, 2024, brings about notable changes aimed at ensuring uniformity and consistency across NBFCs while computing the concentration norms.
What has RBI done?
For Middle Layer NBFCs (NBFC-MLs) :
- In addition to the use of Credit Default Swaps (‘CDS’), RBI has now allowed NBFC MLs to offset the aggregate exposure with the following additional Credit Risk Transfer (CRT) instruments:
- Cash margin/caution money/security deposit held as collateral on behalf of the borrower against the advances for which right to set off is available;
It is pertinent to note that, as per para 84 of the SBR Directions, already requires the NBFC for the purpose of assignment of risk weight to net off the amount of cash margin/ caution money/security deposits held as collateral against the advances out of the total outstanding exposure of the borrower.
- Central Government guaranteed claims which attract 0 per cent risk weight for capital computation;
- State Government guaranteed claims which attract 20 per cent risk weight for capital computation; and
- Guarantees issued under Credit guarantee Schemes of Credit Guarantee Fund Trust for Micro and Small Enterprises, Credit Risk Guarantee Fund Trust for Low Income Housing and individual schemes under National Credit Guarantee Trustee Company Ltd
RBI mandates appointment of an Internal Ombudsman by NBFCs
/0 Comments/in Financial Services, NBFCs, RBI /by Team FinservUpdated as on December 29, 2023
– Team Finserv | finserv@vinodkothari.com
Our Resources on the topic:
Year 2023 in retrospect: Regulatory changes for NBFCs
/0 Comments/in Financial Services, NBFCs, UPDATES /by Aanchal Kaur NagpalWorkshop on RBI Circular on Regulatory Measures in Consumer Credit by Banks & NBFCs
/0 Comments/in Financial Services, Training & Workshops /by Vinod Kothari ConsultantsClick here to register: https://forms.gle/5MkAYcULqUK3unxu9
Read our article here: RBI raises red flag on increasing personal loans
Sale of Retail NPAs : A synoptic overview
/0 Comments/in Financial Services /by Team FinservIT Governance, Risk, Controls and Assurance Practices Direction, 2023
/0 Comments/in Financial Services, Information Technology, RBI, Risk Management /by Team FinservAnalysis of Impact on Financial Sector Entities
Kaushal Shah & Subhojit Shome | finserv@vinodkothari.com
Read our other resources
- RBI regulates outsourcing of IT Services by financial entities
- Draft Master Direction on IT Governance, Risk, Controls and Assurance Practices
- Erstwhile Directions on IT Framework for the NBFC Sector – RBI keen on implementing several operational requirements
Access our resource centre on SBR Framework :
Draft framework for Financial Services Outsourcing
/1 Comment/in Financial Services, NBFCs /by Team FinservElevating Risk Management and Regulatory Compliance
– Team Finserv | finserv@vinodkothari.com
Introduction
Financial institutions are increasingly turning to outsourcing for cost efficiency and achievement of strategic objectives. The need and economics of outsourcing are quite clear as there is increasing specialisation in several functions in the lending journey , particularly, cloud-sourcing, use of shared technology, software and applications, etc. However, this reliance on third-party providers introduces challenges and risks like data protection, security, operational resilience, service continuity, shifting of risks and compliance responsibilities to unregulated entities, raising concerns about maintaining control, risk management, and regulatory compliance. This necessitates regulatory guidelines for regulated institutions, especially when service providers have concentrated functions or engage in regulated activities.
The concerns about outsourcing by financial entities have been a part of regulatory attention for years. In 2005, the Basel Committee framed General Principles on Outsourcing, and it was indicated in 2023 that these principles will be superseded by new outsourcing principles. The European Banking Authority also has comprehensive guidelines on outsourcing IOSCO also has set principles on outsourcing by entities coming within its regulatory domain.
Currently, RBI has different guidelines for outsourcing by different financial institutions. In this article, the author examines the RBI’s recently released Draft Master Direction on Managing Risks and Code of Conduct in Outsourcing of Financial Services (“Proposed Master Direction”/”Draft Master Directions”), intended to repeal the existing guidelines and cover all financial institutions under its gamut, particularly focusing on the major changes, that these Proposed Directions bring with them.. .
Read more →Defaulters at will, and defaulters of size: RBI proposes new Directions
/0 Comments/in Banks, Financial Services, Insolvency and Bankruptcy, NBFCs, RBI, SEBI, Wilful Defaulters /by Team FinservMiddle and Upper Layer NBFCs also part of the system
Team Finserv, finserv@vinodkothari.com (updated as on March 30,2024)
Introduction
The Reserve Bank of India on September 21, 2023 has issued the Draft Master Directions on Treatment of Wilful Defaulters and Large Defaulters (‘Proposed Directions’). The Directions, when finalized, will replace the existing Master circulars (referred below). The draft Directions are largely consolidating in nature, with some significant differences. Importantly, NBFCs of middle and upper layer have been brought into the framework, and additionally, as was clear from the recent circular on compromise/settlements, the tag of willful defaulter may be removed if the borrower does a compromise settlement with the lender. However, a mere sale of the loan will not cause removal of the tag, as the tag will pass on to the buyer. The draft Directions also assimilate the provisions about large defaulters, which was earlier a CIC filing requirement, and make it a part of these Directions.
Read more →Unlocking Working Capital: An Overview of Supply Chain Finance
/0 Comments/in Banks, Factoring, Financial Services, NBFCs /by Staff-Dayita Kanodia, Executive | finserv@vinodkothari.com
The best way to reduce your supply chain inventory is to sell it.” Dilbert.
Background
A supply chain is a complex network of organizations, people, activities, information, and resources involved in the creation and distribution of a product or service from its initial sourcing of raw materials to the delivery of the final product to the end customer. The supply chain of a business can vary significantly depending on the industry, size of the company, and the specific products or services it offers.
Financing the supply chain is a critical aspect of supply chain management and is essential for ensuring the smooth flow of goods and services.
This article discusses the model of supply chain finance and how it helps in improving the health of the supply chain.
Read more →