Page 31 - BANKING FINANCE OCTOBER 2021

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supervisory outline and such NBFCs should also be subject Middle Layer (ML): This layer contains of NBFCs which are
to obligatory listing requirements. currently grouped as Non-Deposit taking-Systemically
Important (NBFC-ND-SI), Deposit-taking NBFCs, Housing
Four shades of pyramid Finance Companies, Infrastructure Finance Companies,
Infrastructure Debt Funds, Standalone Primary Dealers and
In preceding five years, size of balance sheet of NBFCs has
Core Investment Companies. Although no amendments are
more than doubled from Rs. 20.72 lakh crore (2015) to
prescribed in capital requirements for NBFC-ML the Apex
?49.22 lakh crore (2020). Due to marvelous progress in the
bank has mentioned that connection of their exposure limits
NBFC sector in recent years, the RBI has proposed a stiffer
are planned to be altered from Owned Funds to Tier I
monitoring plan for the sector by creating a four-tier
capital, as is presently relevant for banks. The existing credit
configuration with a progressive increase in concentration
concentration limits suggested for NBFC-ML for their
of directive.
advancing and investment can be combined into a single
exposure threshold of 25 per cent for the single borrower
Base Layer (BL): As per the discussion paper, the nature of
and 40 per cent for a group of borrowers attached to the
activity will be the base for determining the base layer
NBFC's Tier 1 capital.
NBFCs. Therefore, NBFC-BL will consist of NBFCs which are
presently categorized as non-systemically important NBFCs
Bearing in mind the misuse of the system by NBFCs in Initial
(NBFC-Non deposit taking), besides Type I NBFCs which do
Public Offer (IPO) financing the discussion paper
not have either access to public funds or customer interface,
recommended to fix a top limit of Rs. 1 crore per individual
Peer to Peer lending platforms (NBFC P2P), Non-Operative
for any NBFC. However, they are allowed to choose more
Financial Holding Company (NOFHC), Account Aggregators
conservative bounds. Further, a sub-ceiling within the
(NBFC-AA) and NBFCs up to Rs. 1,000 crore (raised from Rs.
commercial real estate exposure limit should be set inside
500 crore) asset size.
for funding the land purchase. As per the paper, a few curbs
Around 9,209 NBFCs will be in the BL. Low level admission are extended to NBFCs in ML, including not permitting them
spot norms increase the likelihoods of failure resulting from to offer finances to corporate entities for buy back of shares
weak governance of non-serious players, the central bank or securities and rules on sale of strained assets by NBFCs
intends to amend these norms for NBFC-BL from Rs. 2 crore will be altered on parallel lines as that for banks. The
to Rs. 20 crore. The RBI suggests regularizing the existing framework proposed that NBFCs with ten and more
non-performing asset grouping norm of 180 days to 90 days branches shall compulsorily be required to embrace Core
for NBFC-BL. The RBI mentioned that these NBFCs are Banking Solution. The paper suggested an unchanging term
dubious to pose any systemic risk on account of their of three successive years applicable for statutory auditors
activities and hence they can be controlled comparatively of the NBFC and functionally autonomous Chief Compliance
lightly. Officer should be employed.

Upper Layer (UL): This layer will be a new layer for regulation
and consists of NBFCs which are recognized as systemically
significant among them and will invite a new supervisory
framework. This layer will be filled by NBFCs which have a
large capacity of systemic spill-over of risks and can influence
fiscal constancy. It is projected that a total of not more than
25 to 30 NBFCs will fill this layer and monitoring structure
for NBFCs falling in this layer will be bank-like with proper
adjustments.

It is sensed that Common Equity Tier (CET) 1 capital could
be announced for NBFC-UL to improve the worth of

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