What is Systemically Important Non-Deposit Taking NBFC?
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What is Systemically Important Non-Deposit Taking NBFC(NBFC – ND – SI)?
Non-Deposit taking NBFCs having an asset size of Rs. 500 Cr and more as per their audited balance sheet of last financial year are considered as a systemically important NBFC – ND (NBFC-ND-SI).
Other NBFC’s having an asset size of less than 500 Cr. will not come under the purview of Systematically Important Non-Deposit taking NBFC’s.
Since these NBFC’s are quite important for our economy, so to avoid any kind of fraud or false activity in this sector, the reserve bank of India has introduced some additional compliance requirements on these Kinds of NBFC’s.
Regulatory Overview on Systemically Important Non-Deposit Taking NBFC(NBFC – ND – SI)
Capital Adequacy Ratio
Minimum Capital to Risk-weighted Assets Ratio (CRAR) as required to be maintained by NBFC–ND–SI shall be 10%.
Single / Group Exposure norms
RBI has advised NBFCs – ND – SI to have a policy w.r.t. exposures to a single or group entity.
Application for appropriate dispensation consistent with the spirit of the exposure limits can be made by Non-deposit-taking NBFC – SI not accepting public funds.
Filing of Return
Every NBFC-ND-SI is required to submit a statement of capital funds, risk asset ratio, etc. quarterly in Form DNBS – 03.
Reporting of Asset Liability Management (ALM)
NBFC-ND-SI are required to file return in Form DNBS – 4A Monthly concerning ALM Structural Liquidity statement and interest rate sensitivity.
Apart from reporting in Form DNBS – 4A, NBFC-ND-SI are also required to file Form DNBS – 4B for AML STDL quarterly.
Capital raising option for capital adequacy purposes
NBFC-ND-SI is allowed to issue Perpetual Debt Instruments (PDI)subject to a certain limit, which will form part of Tier I capital of the company of the previous accounting year.
Reporting of Ratings of NBFCs
In case the NBFC having an asset size of more than Rs. 100 Cr issues any financial product like commercial Paper, Debenture, which requires rating from the rating agencies, the NBFC must obtain the rating from the eligible rating agency and also report the change in the rating of the NBFC to the regional office of the RBI within 15 days of the change in the rating of the product.
Criteria for Non-Deposit taking – Systematically important Status
Non-deposit taking NBFC, whose asset size crossed the limit of Rs. 500 Cr. must comply with the Compliance requirements as applicable to the Systematically important Non-deposit taking NBFC (NBFC-ND-SI) as and when the asset size increases to Rs. 500 Cr. irrespective of asset size in the last balance sheet of the company.
Further, the asset size of the company may fluctuate due to change in a dynamic environment, and also the asset size of the Systematically important NBFC – ND may fall below Rs. 500 Cr., in that case, the company must continue to fulfill the compliance requirement of Systematically important NBFC –ND until the submission of the next audited balance with RBI and specific dispensation is received from the Bank in this regard from RBI.
Participation in Currency Options by Systematically important NBFC-ND
Systematically important NBFC-ND are allowed to participate in the designated currency options exchanges recognized by SEBI as clients to hedge their underlying forex exposures. Appropriate disclosures may be made regarding transactions undertaken in the Balance sheet, subject to RBI (Foreign Exchange Department) guidelines in the matter
Frequently Ask Question-FAQ’s
Q 1What is the minimum asset size required for systematically important Non-Deposit-taking NBFC?
Ans. The minimum Asset size Rs 500 Cr. required for systematically important Non-Deposit taking NBFC. (NBFC-ND-SI)
Q 2 Is there any additional compliances required to be done by systematically important NBFC – ND?
Ans. Yes, they are required to file certain additional returns and information with RBI apart from filing an annual return.
Q 3 In case the asset size of systematically important Non-Deposit taking NBFC falls below 500 Cr. at any time than whether it is required to comply with RBI Regulation as applicable on NBFC – ND- SI?
Ans. Yes, the systematically important Non-Deposit taking NBFC must comply with the regulatory requirement until the RBI gives the dispensation order to the NBFC.
Q 4 Does NBFC – ND – SI required to report on Asset Liability Management?
Ans. Yes, NBFC – ND – SI is required to make reporting on Asset Liability Management in Form DNBS – 4A and Form DNBS – 4B on a monthly and quarterly basis respectively.
RBI Notification related to unfair interest on loans to NBFC :
The RBI has directed banks, Non-bank financial companies (NBFCs), and other financial organisations to closely review how they charge interest on the loans they distribute. After learning that certain lenders were charging unfair interest on loans, the RBI issued the new directive. As per the notification that the RBI released on April 29, 2024.
Regards
India Financial Consultancy Private Limited
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