Proposed changes to NBFC Regs

Pursuant to the Usha Thorat Committee report, the RBI has proposed wide-ranging amendments to the NBFC regulations. In order to adopt a consultative approach, the RBI has placed on its website, the draft guidelines to address issues and concerns in the NBFC sector. 

The draft revised guidelines relate to entry point norms, principal business criteria, prudential regulations, liquidity requirements for NBFCs and corporate governance. While accepting some of the suggestions, the RBI has proposed additional time to bring the new regulatory framework into existence. My colleague, Mr. Jayant Thakur has commented on the proposed changes elsewhere.

Resurrection

Apologies to readers for being 'AWOL' - but I have been a bit busy with work. Just a quick round-up on regulatory developments and interesting trends:

1. Government of India relaxes downstream norms for foreign-owned NBFCs - FDI policy provides that relevant caps and conditionalities shall apply to downstream investments by NBFCs. However, there is a specific exception for 100% foreign-owned NBFCs where there is no restriction on establishing downstream subsidiaries without further capitalizing each subsidiary with the minimum required foreign investment. However, this specific dispensation was not available to NBFCs where foreign investment is between 75% and 100%. By way of a Press Note No. 9 (2012) Series, the Government has now brought such NBFCs on par with 100% foreign-owned NBFCs, whereby they can also set up downstream subsidiaries without further capitalizing each one of them with the requirement minimum amount.

2. International PE outfits buy in to NBFC model - As per a Business Today article, global PE firms are using NBFCs in India to get into the arena of corporate lending. The article analyzes the reasons for this and sets out an interesting continuum of NBFC regulation from February 1964 till date (set out below):

[Source: "A Shaky Ride" by Anand Adhikari, Business Today, Edition: November 11, 2012]

3. RBI notifies revised guidelines for micro-finance NBFCs - Based on representations received from micro-finance institutions, the RBI has made certain amendments to the regulations governing micro-finance NBFCs, a new category introduced by RBI in 2011. 

Miscellaneous

1. In an interesting article in the Mint, Suresh Gurumani has argued that private sector MFIs have demonstrated a scalable model that can also benefit the rural youth by providing gainful employment. He suggests that it is time for the government and the banks to step forward to use this model to further the objectives of financial inclusion.

2. The State of Bihar plans to set up two special courts to dispose of cases relating to defrauding of small investors by NBFCs.

3. The industry has differing views on the impact of the change in RBI regulations on NBFCs specializing in gold-loans - read here and here.

Finally, I am putting out a call for contributors to this blog. Anyone interested in contributing posts in the form of notes/ articles/ teasers in relation to the legal/ regulatory environment impacting NBFCs on a regular/ occasional basis, please drop me an mail - satyajit(dot)gupta(at)gmail(dot)com. Further details can be obtained through email.