Pages

Subscribe:

Notification as amended upto June 30, 2013– “Non-Banking Financial (Non - Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007” . Part:- 1


Ozg NBFC Consultant

Ozg Center | Delhi | Mumbai | Chennai | Bangalore | Kolkata

Back Office Phone # 09811415831-37-61-72-84-92-94

W: nbfc.in | Email: ask@nbfc.in



RBI/2013-14/35
DNBS (PD) CC No.333/03.02.001/2013-14
July 1, 2013
To
The Chairman / CEOs of all Non-Banking Financial (Non - Deposit Accepting or Holding) Companies
Dear Sirs,
Notification as amended upto June 30, 2013– “Non-Banking Financial (Non - Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007”
As you are aware, in order to have all current instructions on the subject at one place, the Reserve Bank of India issues updated circulars/notifications. The instructions contained in the Notification No. DNBS. 193 DG(VL)-2007 dated February 22, 2007 updated as on June 30, 2013 are reproduced below. The updated notification has also been placed on the RBI web-site (http://www.rbi.org.in).
Yours faithfully,
(N. S. Vishwanathan)
Principal Chief General Manager

RESERVE BANK OF INDIA
DEPARTMENT OF NON-BANKING SUPERVISION
CENTRAL OFFICE
CENTRE I, WORLD TRADE CENTRE
CUFFE PARADE, COLABA
MUMBAI 400 005
NOTIFICATION No. DNBS.193 DG(VL)-2007 dated February  22, 2007
The Reserve Bank of India, having considered it necessary in the public interest, and being satisfied that, for the purpose of enabling the Bank to regulate the credit system to the advantage of the country, it is necessary to issue the Directions relating to the prudential norms as set out below, in exercise of the powers conferred by Section 45JA of the Reserve Bank of India  Act, 1934 (2 of 1934) and of all the powers enabling it in this behalf, and in supersession of the Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 1998 contained in Notification No. DFC. 119/DG(SPT)/98 dated January 31, 1998, gives to every non-banking financial company not accepting / holding public deposits the Directions hereinafter specified.
Short title, commencement  and applicability of the Directions:
1. (1) These Directions shall be known as the "Non-Banking Financial (Non- Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007".
(2) These Directions shall come into force with immediate effect.
(3) (i) The  provisions  of  these  Directions save as provided for in clauses  (ii)  (iii) and  (iv) hereinafter, shall apply to -
[every non-banking financial company not accepting / holding public deposits “including an infrastructure finance company”,]
(ii) The provisions of paragraphs 16 and 18 of these Directions shall not apply to -
  (a) a loan company;
  (b) an investment company;
  (c) an asset finance company
 
which is not a systemically important non-deposit taking non-banking financial company.
(iii) These Directions shall not apply to a non-banking financial company being an investment company;
Provided that, it is
(a)  holding investments in the securities of its group/ holding/ subsidiary companies and book value of such holding is not less than ninety per cent of its  total assets and it is not trading in such securities;
(b) not accepting/holding  public deposit; and
(c) is not a systemically important non-deposit taking non-banking financial company. 
However, the provisions of paragraphs 16 and 18 shall be applicable to such investment companies which are systemically important non-deposit taking non-banking financial company.
(iv) These Directions except the provisions of paragraph 19 shall not apply to non-banking financial company being a Government company as defined under Section 617 of the Companies Act, 1956 (1 of 1956) and not accepting / holding public deposit.
(v)  These Directions shall not apply to a non-banking financial company being a Core Investment Company referred to in the Core Investment Companies (Reserve Bank) Directions, 2011 (hereinafter referred to as CIC Directions), which is not a systemically important Core Investment Company as defined in clause (h) of sub-paragraph (1) of paragraph 3 of the CIC Directions.”
(vi) The provisions of paragraphs 15, 16 and 18 of these Directions shall not apply to a Systemically Important Core Investment Company as defined in the CIC Directions, subject to the condition that it submits the Annual Auditors Certificate and meets with the capital requirements and leverage ratio, as specified in the CIC Directions
(vii) ‘The provisions of paragraph 18 of these Directions shall not apply to an NBFC-MFI as defined in the Non-Banking Financial Company- Micro Finance Institutions (Reserve Bank)Directions 2011’.
‘The provisions of paragraphs 8 and 9 will not be applicable to an NBFC-MFI w.e.f April 01, 2012.
Definitions
2.  (1)  For the purpose of these Directions, unless the context otherwise requires:
(i)  “break up value” means the equity capital and reserves as reduced by intangible assets and revaluation reserves, divided by the number of equity shares of the investee company;
(ii)  “carrying cost” means book value of the assets and interest accrued thereon but not received;
(iii)  “current investment” means an investment which is by its nature readily realisable and is intended to be held for not more than one year from the date on which such investment is made;
(iv) “doubtful asset” means :
    1. a term loan, or
    2. a lease asset, or
    3. a hire purchase asset, or
    4. any other asset,
which remains a sub-standard asset for a period exceeding 18 months;
(v) “earning value” means the value of an equity share computed by taking the average of profits after tax as reduced by the preference dividend and adjusted for extra-ordinary and non-recurring items, for the immediately preceding three years and further divided by the number of equity shares of the investee company and capitalised at the following rate:
(a) in case of predominantly manufacturing company, eight per cent;
(b) in case of predominantly trading company, ten per cent; and
(c) in case of any other company, including non-banking financial company,
NOTE : If, an investee company is a loss making company, the earning value will be taken at zero;
(vi)  “fair value” means the mean of the earning value and the break  up value;
(vii) “hybrid debt”  means capital instrument which possesses certain characteristics of equity as well as of debt;
“(viia) ‘Infrastructure Finance Company’ means a non-banking finance company which deploys at least 75 per cent of its total assets in infrastructure loans” 
Deleted (viii)"Infrastructure loan" means a credit facility extended by NBFCs to a borrower for exposure in the following infrastructure sub-sectors :
Sr. No.
Category
Infrastructure sub-sectors
1.
Transport
i
Roads and bridges
ii
Ports
iii
Inland Waterways
iv
Airport
v
Railway Track, tunnels, viaducts, bridges
vi
Urban Public Transport (except rolling stock in case of urban road transport)
2.
Energy
i
Electricity Generation
ii
Electricity Transmission
iii
Electricity Distribution
iv
Oil pipelines
v
Oil / Gas / Liquefied Natural Gas (LNG) storage facility
vi
Gas pipelines
3.
Water & Sanitation
i
Solid Waste Management
ii
Water supply pipelines
iii
Water treatment plants
iv
Sewage collection, treatment and disposal system
v
Irrigation (dams, channels, embankments etc)
vi
Storm Water Drainage System
4.
Communication
i
Telecommunication (Fixed network)
ii
Telecommunication towers
5.
Social and Commercial Infrastructure
i
Education Institutions (capital stock)
ii
Hospitals (capital stock)
iii
Three-star or higher category classified hotels located outside cities with population of more than 1 million
iv
Common infrastructure for industrial parks, SEZ, tourism facilities and agriculture markets
v
Fertilizer (Capital investment)
vi
Post harvest storage infrastructure for agriculture and horticultural produce including cold storage
vii
Terminal markets
viii
Soil-testing laboratories
ix
Cold Chain
Notes
1.
Includes supporting terminal infrastructure such as loading / unloading terminals, stations and buildings
2.
Includes strategic storage of crude oil
3.
Includes city gas distribution network
4.
Includes optic fibre / cable networks which provide broadband / internet
5.
Includes Medical Colleges, Para Medical Training Institutes and Diagnostics Centres
6.
Includes cold room facility for farm level pre-cooling, for preservation or storage of agriculture and allied produce, marine products and meat.
(Viiia) An NBFC-MFI means a non-deposit taking NBFC(other than a company licensed under Section 25 of the Indian Companies Act, 1956) that fulfils the following conditions:
i. Minimum Net Owned Funds of Rs.5 crore. (For NBFC-MFIs registered in the North Eastern Region of the country, the minimum NOF requirement shall stand at Rs. 2 crore).
ii. Not less than 85% of its net assets are in the nature of “qualifying assets.”
For the purpose of ii. above,“Net assets” are defined as total assets other than cash and bank balances and money market instruments.
“Qualifying asset” shall mean a loan which satisfies the following criteria:-
i. loan disbursed by an NBFC-MFI to a borrower with a rural household annual income not exceeding Rs. 60,000 or urban and semi-urban household income not exceeding Rs. 1,20,000;
ii. loan amount does not exceed Rs. 35,000 in the first cycle and Rs. 50,000 in subsequent cycles;
iii. total indebtedness of the borrower does not exceed Rs. 50,000;
iv. tenure of the loan not to be less than 24 months for loan amount in excess of Rs. 15,000 with prepayment without penalty;
v. loan to be extended without collateral;
vi. aggregate amount of loans, given for income generation, is not less than 75 per cent of the total loans given by the MFIs;
vii. loan is repayable on weekly, fortnightly or monthly instalments at the choice of the borrower
“(viiib) ‘Non-Banking Financial Company - Factor’ means a non-banking financial company as defined in clause (f) of section 45-I of the RBI Act, 1934 having financial assets in the factoring business at least to the extent of 75 percent of its total assets and its income derived from factoring business is not less than 75 percent of its gross income and has been granted a certificate of registration under sub-section (1) of section 3 of the Factoring Regulation Act, 2011.”
(ix)  “loss asset” means:
(a) an asset which has been identified as loss asset by the non-banking financial company or its internal or external auditor or by the Reserve Bank  of India during the inspection of the non-banking financial company, to the extent it is not written off by the non-banking financial company; and
(b)  an asset which is adversely affected by a potential threat of non-recoverability due to either  erosion in the value of security or non availability of security or due to any fraudulent act or omission on the part of the borrower;
(x) “long term investment” means an investment other than a current investment;
(xi) “net asset value” means the latest declared net asset value by the mutual fund concerned in respect of that particular scheme;
(xii) “net book value” means:
(a)  in the case of hire purchase asset, the aggregate of overdue and future instalments receivable as reduced by the balance of unmatured finance charges and further reduced by the provisions made as per paragraph 9(2)(i) of these Directions;
(b)  in the case of leased asset,  aggregate of  capital  portion  of overdue lease rentals accounted as receivable and depreciated book value of the lease asset as adjusted by the balance of lease adjustment account.
(xiii)  ‘non-performing asset’ (referred to in these Directions as “NPA”) means:
  1. an asset, in respect of which, interest has remained  overdue for a period of six months or more;
  2. a term loan inclusive of unpaid interest, when the instalment is overdue for a period of six months or more or on which interest amount remained overdue for a period of six months or more;
  3. a demand or call loan, which remained overdue for a period of six months or more from the date of demand or call or on which interest amount remained overdue for a period of six months or more;
  4. a bill which remains overdue for a period of six months or more;
  5. the interest in respect of a debt or the income on receivables under the head `other current assets’ in the nature of short term loans/advances, which facility remained overdue for a period of six months or more;
  6. any dues on account of sale of assets or services rendered or reimbursement of expenses incurred, which remained overdue for a period of six months or more;
  7. the lease rental and hire purchase instalment, which has become overdue for a period of twelve months or more;
  8. in respect of loans, advances and other credit facilities (including bills purchased and discounted), the balance outstanding under the credit facilities (including accrued interest) made available to the same borrower/beneficiary when any of the above credit facilities becomes non-performing asset:

    Provided that in the case of lease and hire purchase transactions, a non-banking financial company may classify each such account on the basis of its record of recovery;
(xiv) “owned fund” means paid up equity capital, preference shares which are compulsorily convertible into equity, free reserves, balance in share premium account and capital reserves representing surplus arising out of sale proceeds of asset, excluding reserves created by revaluation of asset, as reduced by accumulated loss balance, book value of intangible assets and deferred revenue expenditure, if any;
(xv) “standard asset” means the asset in respect of which, no default in repayment of principal or payment of interest is perceived and which does not disclose any problem nor carry more than normal risk attached to the business;
(xvi) “sub-standard asset” means:
  1. an asset which has been classified as non-performing asset for a period not exceeding 18 months;
  2. an asset where the terms of the agreement regarding interest and / or principal have been renegotiated  or rescheduled or restructured after commencement  of operations, until the expiry of one year of satisfactory performance under the renegotiated or rescheduled or restructured terms:

    Provided that the classification of infrastructure loan as a sub-standard asset shall be in accordance with the provisions of paragraph 20 of these Directions;
(xvii) "subordinated debt" means an instrument, which is fully paid up, is  unsecured and is subordinated to the claims of other creditors and is free from restrictive clauses and is not redeemable at the instance of the holder or without the consent of the supervisory authority of the non-banking financial company. The book value of such instrument shall be subjected to discounting as provided hereunder:
Remaining Maturity of the instruments
Rate of discount
(a)  Upto one year
100%
(b)  More than one year but upto two years
80%
(c) More than two years but upto three years
60%
(d) More than three years but upto four years
40%
(e) More than four years but upto five years
20%
 to the extent such discounted value does not exceed fifty per cent of  Tier capital;
(xviii) “substantial interest” means holding of a beneficial interest by an individual or his spouse or minor child, whether singly or taken together in  the shares of a company, the amount paid up on which exceeds ten per cent of the paid up capital of the company;  or the capital subscribed by all the partners of a partnership firm;
(xix) ‘Systemically important non-deposit taking non-banking financial company', means a non-banking financial company not accepting / holding public deposits and having total assets of Rs 100 crore and above as shown  in the last audited balance sheet."
(xx) “Tier I Capital” means owned fund as reduced by investment in shares of other non-banking financial companies and in shares, debentures, bonds, outstanding loans and advances  including hire purchase and lease finance made to and  deposits with subsidiaries and companies in the same group exceeding, in aggregate, ten per cent of the owned fund; and perpetual debt  instruments issued by a Systemically important non-deposit taking non-banking financial company in each year to the extent it does not exceed 15% of the aggregate Tier I  Capital of such company as on March 31 of the previous accounting year; 
(xxi) “Tier II capital” includes the following :-
(a) preference shares other than those which are compulsorily convertible into equity;
(b) revaluation reserves  at discounted rate of fifty five percent;
(c) "General Provisions (including that for Standard Assets) and loss reserves to the extent these are not attributable to actual diminution in value or identifiable potential loss in any specific asset and are available to meet unexpected losses, to the extent of one and one fourth percent of risk weighted assets;"
(d)  hybrid debt capital instruments;
(e)  subordinated debt; and
(f) perpetual debt instruments issued by a Systemically important non- deposit taking non-banking financial company which is in excess of what qualifies for Tier I Capital.
  to the extent the aggregate does not exceed Tier I capital.
(2)  Other words or expressions used but not defined herein and defined in the Reserve Bank of India Act, 1934 (2 of 1934) or the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998 shall have the same meaning as assigned to them  under that Act or that Directions.  Any other words or expressions not defined in that Act or that Directions, shall have the same meaning assigned to them in the Companies Act, 1956 (1 of 1956).

Ozg NBFC Consultant

Ozg Center | Delhi | Mumbai | Chennai | Bangalore | Kolkata

Back Office Phone # 09811415831-37-61-72-84-92-94

W: nbfc.in | Email: ask@nbfc.in