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/2013-14/49
DNBS.(PD)CC.No. 347 /03.10.38/2013-14
DNBS.(PD)CC.No. 347 /03.10.38/2013-14
July 1, 2013
To,
All NBFCs
(excluding RNBCs)
Dear Sirs,
Master Circular- Introduction of New
Category of NBFCs - ‘Non Banking Financial Company-Micro Finance
Institutions’ (NBFC-MFIs) - Directions
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 circular 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).
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 circular 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
Principal Chief General Manager
I. Introduction
As indicated in the Second Quarter Review of
Monetary Policy in November 2010, a Sub-Committee of the Central Board
of the Reserve Bank (Chairman: Shri Y. H. Malegam) was constituted to
study issues and concerns in the MFI sector. The Committee submitted
its report in January 2011. In the Monetary Policy Statement 2011-12,
it was announced that the broad framework of regulations recommended by
the Committee has been accepted by the Bank.
2. Creation of a Separate Category of NBFC-MFI
It has been decided to create a separate category
of NBFCs viz; Non Banking Financial Company-Micro Finance
Institution(NBFC-MFI). Consequently there would be following categories
of NBFCs:
i. Asset Finance Company (AFC)
ii. Investment Company (IC)
iii. Loan Company (LC)
iv. Infrastructure Finance Company (IFC)
v. Core Investment Company (CIC)
vi. Infrastructure Debt Fund- Non- Banking Financial Company (IDF-NBFC)
vii. Non-Banking Financial Company - Micro Finance Institution (NBFC-MFI).
3. The Sub-Committee had recommended a role for industry
associations in monitoring of compliance by NBFC-MFIs with the
regulations. Separate guidelines in this regard will follow.
4. The Notification DNBS.PD.No.234 CGM(US)2011 dated December
02, 2011 containing the regulatory framework for NBFC-MFIs, the
amending notifications DNBS.PD.No.235/CGM(US) 2011 dated December 02,
2011 amending the Non-Banking Financial (Non-Deposit accepting or
holding) Companies Prudential Norms (Reserve Bank) directions, 2007 and
DNBS.PD.No.236/CGM(US)2011 dated December 02, 2011 amending the
Non-Banking Financial Companies Auditor’s Report (Reserve Bank)
Directions, 2008 were issued for meticulous compliance.
i. These Directions shall be known as the Non-Banking Financial
Company -Micro Finance Institutions (Reserve Bank) Directions, 2011.
ii. These Directions shall come into force with effect from December 2, 2011.
These Directions shall apply to every Non Banking Financial
Company-Micro Finance Institution (NBFC-MFI) as defined in these
Directions.
An NBFC-MFI is defined as 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.”
1only
the assets originated on or after January 1, 2012 will have to comply
with the Qualifying Assets criteria. As a special dispensation, the
existing assets as on January 1, 2012 will be reckoned towards meeting
both the Qualifying Assets criteria as well as the Total Net Assets
criteria. These assets will be allowed to run off on maturity and
cannot be renewed.
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:-
a. 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;
b. loan amount does not exceed Rs. 35,000 in the first cycle and Rs. 50,000 in subsequent cycles;
c. total indebtedness of the borrower does not exceed Rs. 50,000;
d. tenure of the loan not to be less than 24 months for loan amount in excess of Rs. 15,000 with prepayment without penalty;
e. loan to be extended without collateral;
f. Deleted
Aggregate
amount of loans given for income generation should constitute at
least 70 per cent of the total loans of the MFI so that the remaining
30 per cent can be for other purposes such as housing repairs,
education, medical and other emergencies.
g. loan is repayable on weekly, fortnightly or monthly instalments at the choice of the borrower
iii. Further the income an NBFC-MFI derives from the remaining
15 percent of assets shall be in accordance with the regulations
specified in that behalf.
iv. An NBFC which does not qualify as an NBFC-MFI shall not
extend loans to micro finance sector, which in aggregate exceed 10% of
its total assets.
A. Entry Point Norms
i. Existing NBFCs
a. All registered NBFCs intending to convert to NBFC-MFI must
seek registration with immediate effect and in any case not later than
October 31, 2012, subject to the condition that they shall maintain Net
Owned Funds (NOF) at Rs.3 crore by March 31, 2013 and at Rs.5 crore by
March 31, 2014, failing which they must ensure that lending to the
Microfinance sector i.e. individuals, SHGs or JLGs which qualify for
loans from MFIs, will be restricted to 10 per cent of the total assets.
b. In order to provide encouragement to NBFCs operating in North
Eastern Region, the minimum NOF is to be maintained at Rs.1 crore by
March 31, 2012 and at Rs.2 crore by March 31, 2014.
ii. New Companies
All new companies desiring NBFC-MFI registration will need a
minimum NOF of Rs.5 crore except those in the North Eastern Region of
the country which will require NOF of Rs.2 crore till further notice, as
hitherto and would comply, from the beginning, with all other criteria
laid out in the following paragraphs.
B. Prudential Norms
a. Capital Adequacy
All new NBFC-MFIs shall maintain a capital adequacy ratio
consisting of Tier I and Tier II Capital which shall not be less than 15
percent of its aggregate risk weighted assets. The total of Tier II
Capital at any point of time, shall not exceed 100 percent of Tier I
Capital. The risk weights for on-balance sheet assets and the credit
conversion factor for off-balance sheet items will be as provided in
para 16 of the Non-Banking Financial (Non-Deposit Accepting or Holding)
Companies Prudential Norms (Reserve bank) Directions 2007.
Note:
i. Among the existing NBFCs to be classified as NBFC-MFIs, those
with asset size less than Rs. 100 crore will be required to comply
with this norm w.e.f April 01, 2012. Those with asset size of Rs. 100
crore and above are already required to maintain minimum CRAR of 15%.
ii. The CRAR for NBFC-MFIs which have more than 25% loan
portfolio in the state of Andhra Pradesh will be at 12% for the year
2011-2012 only. Thereafter they have to maintain CRAR at 15%.
For
the calculation of CRAR, the provisioning made towards AP portfolio
shall be notionally reckoned as part of NOF and there shall be
progressive reduction in such recognition of the provisions for AP
portfolio equally over a period of 5 years. Accordingly 100 per cent of
the provision made for the AP portfolio as on March 31, 2013 would be
added back notionally to NOF for CRAR purposes as on that date. This
add-back would be progressively reduced by 20 per cent each year i.e.
up to March 2017. An illustration of this has been provided in Annex-3. No write-back or phased provisioning is permissible.
Capital
adequacy on non-AP portfolio and the notional AP portfolio
(outstanding as on the balance sheet date less the provision on this
portfolio not notionally added back) will have to be maintained at 15
per cent of the risk weighted assets.
b. Asset Classification and Provisioning Norms:
With effect from April 01, 2012 all NBFC-MFIs shall adopt the
following norms(till then they shall follow the asset classification
and provisioning norms as given in the Non-Banking Financial
(Non-Deposit accepting or holding) Companies Prudential Norms (Reserve
Bank) Directions, 2007).
Asset Classification Norms:
-
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;
-
Nonperforming asset means an asset for which, interest/principal payment has remained overdue for a period of 90 days or more.
Provisioning Norms:
In
view of the problems being faced by MFIs in Andhra Pradesh many of
them have had to provide sizeable amounts towards the non-performing
assets in the state. To reflect the true and fair picture of the
financials of the NBFC-MFI in the Balance Sheet, the provisioning made
towards the AP portfolio should be as per the current provisioning
norms i.e. Non-Deposit accepting or holding) Companies Prudential Norms
(Reserve Bank) Directions, 2007.Provisioning for the non-AP portfolio
will be as per the December 02, 2011 which is as given below with
effect from April 1, 2013
The aggregate loan provision to be maintained by NBFC-MFIs at
any point of time shall not be less than the higher of a) 1% of the
outstanding loan portfolio or b) 50% of the aggregate loan instalments
which are overdue for more than 90 days and less than 180 days and 100%
of the aggregate loan instalments which are overdue for 180 days or
more.
c. All other provisions of the Non-Banking Financial
(Non-Deposit accepting or holding) Companies Prudential Norms (Reserve
Bank) Directions, 2007 will be applicable to NBFC-MFIs except as
indicated therein.
C. Other Regulations
a. Pricing of Credit
i. All NBFC-MFIs shall maintain an aggregate margin cap of not
more than 12%. The interest cost will be calculated on average
fortnightly balances of outstanding borrowings and interest income is to
be calculated on average fortnightly balances of outstanding loan
portfolio of qualifying assets.
The margin cap for all NBFCs irrespective of their size would be 12 % per cent till March 31, 2014. However, with effect from 1st April, 2014 margin caps as defined by Malegam Committee may not exceed 10 per cent for large MFIs (loans portfolios exceeding Rs.100 crore) and 12 per cent for the others.
The margin cap for all NBFCs irrespective of their size would be 12 % per cent till March 31, 2014. However, with effect from 1st April, 2014 margin caps as defined by Malegam Committee may not exceed 10 per cent for large MFIs (loans portfolios exceeding Rs.100 crore) and 12 per cent for the others.
ii. (Deleted)
NBFC-MFIs
will ensure that the average interest rate on loans during a financial
year does not exceed the average borrowing cost during that financial
year plus the margin, within the prescribed cap. Moreover, while the
rate of interest on individual loans may exceed 26%,the maximum
variance permitted for individual loans between the minimum and maximum
interest rate cannot exceed 4 per cent. The average interest paid on
borrowings and charged by the MFI are to be calculated on average
monthly balances of outstanding borrowings and loan portfolio
respectively. The figures may be certified annually by Statutory
Auditors and also disclosed in the Balance Sheet.
iii. Processing charges shall not be more than 1 % of gross loan
amount. Processing charges need not be included in the margin cap or
the interest cap.
iv. NBFC-MFIs shall recover only the actual cost of insurance
for group, or livestock, life, health for borrower and spouse.
Administrative charges where recovered, shall be as per IRDA guidelines.
b. Fair Practices in Lending
I. Transparency in Interest Rates
a. There shall be only three components in the pricing of the
loan viz., the interest charge, the processing charge and the insurance
premium (which includes the administrative charges in respect there
of).
b. There will be no penalty charged on delayed payment.
c. NBFC-MFIs shall not collect any Security Deposit/ Margin from the borrower.
d. There should be a standard form of loan agreement.
e. Every NBFC-MFI should provide to the borrower a loan card reflecting
(i) the effective rate of interest charged
(ii) all other terms and conditions attached to the loan
(iii) information which adequately identifies the borrower and
(iv) acknowledgements by the NBFC-MFI of all repayments including instalments received and the final discharge.
(v) All entries in the Loan Card should be in the vernacular language.
(ii) all other terms and conditions attached to the loan
(iii) information which adequately identifies the borrower and
(iv) acknowledgements by the NBFC-MFI of all repayments including instalments received and the final discharge.
(v) All entries in the Loan Card should be in the vernacular language.
f. The effective rate of interest charged by the NBFC-MFI should
be prominently displayed in all its offices and in the literature
issued by it and on its website.
II. Multiple-lending, Over-borrowing and Ghost-borrowers
a. NBFC-MFIs can lend to individual borrowers who are not member
of Joint Liability Group(JLG)/Self Help Group(SHG) or to borrowers
that are members of JLG/SHG.
b. a borrower cannot be a member of more than one SHG/JLG.
c. not more than two NBFC-MFIs should lend to the same borrower.
d. there must be a minimum period of moratorium between the
grant of the loan and the due date of the repayment of the first
instalment. The moratorium shall not be less than the frequency of
repayment. For eg: in the case of weekly repayment, the moratorium
shall not be less than one week.
e. recovery of loan given in violation of the regulations should be deferred till all prior existing loans are fully repaid.
f. All sanctioning and disbursement of loans should be done only
at a central location and more than one individual should be involved
in this function. In addition, there should be close supervision of the
disbursement function.
II A11Ensuring Compliance with Conditionalities
Membership of Credit Information Companies will facilitate
ensuring compliance with many of these conditionalities. Accordingly it
is reiterated that every NBFC-MFI has to be a member of at least one
Credit Information Company (CIC) established under the CIC Regulation
Act 2005, provide timely and accurate data to the CICs and use the data
available with them to ensure compliance with the conditions regarding
membership of SHG/ JLG, level of indebtedness and sources of
borrowing. While the quality and coverage of data with CICs will take
some time to become robust, the NBFC-MFIs may rely on self
certification from the borrowers and their own local enquiries on these
aspects as well as the annual household income.
III. Non- Coercive Methods of Recovery
-
NBFC-MFIs shall ensure that a Code of Conduct and systems
are in place for recruitment, training and supervision of field staff.
The Code of Conduct should also incorporate the Guidelines on Fair
Practices Code issued for NBFCs vide circular CC No.80 dated September
28, 2006 as amended from time to time.
-
Recovery should normally be made only at a central
designated place. Field staff shall be allowed to make recovery at the
place of residence or work of the borrower only if borrower fails to
appear at central designated place on 2 or more successive occasions.
-
All other elements of the Fair Practices Code issued for NBFCs vide CC No 80 dated September 28, 2006 as amended from time to time shall be adhered to.
c. Corporate Governance
The Master Circular issued for NBFCs on Corporate Governance
vide CC No. 187 dated July 01, 2011 shall be applicable to NBFC-MFIs
also.
d. Improvement of Efficiency
NBFC-MFIs shall review their back office operations and make the
necessary investments in Information Technology and systems to achieve
better control, simplify procedures and reduce costs.
e. Others
All NBFCs may refer to the circular RPCD.CO.Plan BC. 66 /04.09.01/2010-11 dated May 3, 2011
issued by the Rural Planning and Credit Department of RBI titled “Bank
loans to Micro Finance Institutions (MFIs) – Priority Sector status”
issued to banks with regard to guidelines on priority sector.
5. Existing NBFCs that satisfy the above
conditions may approach the Regional Office in the jurisdiction of
which their Registered Office is located, along with the original
Certificate of Registration (CoR) issued by the Bank for change in
their classification as NBFC-MFIs. Their request must be supported by
their Statutory Auditor's certificate indicating the asset (loan)
pattern as on March 31, 2011. The onus of including only eligible
assets for the purpose of classification as NBFC-MFI shall be that of
the company concerned. The change in classification would be
incorporated in the Certificate of Registration issued by the Bank as
NBFC-MFI.
6. In terms of paragraph 15 of the
Non-Banking Financial (Non-Deposit accepting or holding) Companies
Prudential Norms (Reserve Bank) Directions, 2007 all NBFCs are required
to submit Statutory Auditors Certificate with reference to the
position of the company as at end of the financial year ended March 31
every year. For an NBFC-MFI, such Certificate will also indicate that
the company fulfils all conditions stipulated to be classified as an
NBFC-MFI in this circular.
8. Taking into consideration the specific business nature of NBFC-MFIs, they are subject to specific guidelines issued vide DNBS.CC.PD.No 266 dated March 26, 2012 on Fair Practice Code (FPC) in addition to the general FPC applicable to all NBFCs. All elements of the Fair Practices Code issued by the Bank vide DNBS.PD.CC.No.286/03.10.042/2012-13 dated July 2, 2012
will need to be adhered to by the MFIs. NBFC-MFIs must also ensure
that greater resources are devoted to professional inputs in the
formation of SHG/ JLG and appropriate training and skill development
activities for capacity building and empowerment after formation of the
groups.
NBFC-MFIs may approach their Boards for fixing internal exposure
limits to avoid any undesirable concentration in specific geographical
locations.
The Malegam Committee has recommended greater responsibility to
be placed on industry associations for monitoring of regulatory
compliance. All NBFC-MFIs will have to become member of at least one
Self-Regulatory Organization (SRO) which is recognized by the Reserve
Bank and will also have to comply with the Code of Conduct prescribed
by the SRO. Guidelines on the SRO structure will follow shortly.
The responsibility for compliance to all regulations prescribed
for MFIs lies primarily with the NBFC-MFIs themselves. The industry
associations/SROs will also play a key role in ensuring compliance with
the regulatory framework. In addition, banks lending to NBFC-MFIs will
also ensure that systems practices and lending policies in NBFC-MFIs
are aligned to the regulatory framework.
All existing NBFCs intending to be registered as NBFC-MFIs must
seek registration with immediate effect as stipulated in para 2(i)(a)
in the enclosed format (Annex-1)
to the Regional Office in the jurisdiction of which their registered
office is located along with the original Certificate of Registration
(CoR) issued by the Bank for change in their classification as
NBFC-MFIs. The change in classification would be incorporated in the
CoR as NBFC-MFI. New companies will need to provide additional
information, as given in Annex – 2 in hard copy, while applying on-line for registration as NBFC-MFI.
Details to be submitted by the NBFCs existing
as on ……. for applying for re-classification as NBFC-MFI
as on ……. for applying for re-classification as NBFC-MFI
A Net Owned Funds as on the date of application :
B Capital Adequacy (CRAR) maintained as on March 31, 2012
C Loan Asset Profile as on the date of application :
Category
|
No. of accounts
|
Amount outstanding
|
|||
1)
|
Total Loans outstanding as on the date of application | ||||
i)
|
Of the item (1). above, loans sanctioned on or after January 01, 2012 for amounts of Rs.15, 000 and below | ||||
i)
|
Of the item at i. above, loans for tenure exceeding 1 year : | ||||
ii)
|
On the item (1). above, Loans sanctioned on or after January 01, 2012 with amount exceeding Rs.15,000/- | ||||
i)
|
for loans at item ii. above, loans for tenure less than 24 months | ||||
iii)
|
Loans extended towards income generation | ||||
iv)
|
Loans where the annual income of the household is | ||||
i)
|
more than Rs.60,000 (for rural areas) | ||||
ii)
|
more than Rs.1,20,000 (for semi urban and urban areas) | ||||
v)
|
where the borrower has borrowed from more than 2 MFIs | ||||
vi)
|
where the borrower is member of more than 1 SHG / JLG | ||||
vii)
|
where the borrower has availed loans in individual capacity as also as member of SHG / JLG | ||||
D Pricing
a. Average interest cost of borrowings of the NBFC-MFI as on March 31, 2011 and 2012
b. Average interest charged by the NBFC-MFI on advances extended as on March 31, 2011 and 2012
E Of the item C (1) above, Number and amount of loans outstanding in the state of Andhra Pradesh as on March 31, 2012
F Amount of provisions, if any, held against loans in the state of Andhra Pradesh as on March 31, 2012
G Name of the Credit Information Bureau / Company the applicant company is accredited to
Name :
Signature :
Date :
Details to be Submitted by New Companies
Applying for Certificate of Registration as NBFC-MFI
Applying for Certificate of Registration as NBFC-MFI
A. Net Owned Funds as on the date of application :
B. Projected business plan for 3 years indicating the following (year wise) :
i. Amount of loan assets to be originated
ii. Amount of loan assets to be extended for income generation
iii. Break up of amount of assets to be originated in rural areas and semi-urban and urban areas
iv. Activities the company intends to support in rural and semi-urban areas and urban areas
v. Projected profits
vi. Average cost of borrowings
vii. Average Return on Assets(ROA)
viii. Expected capital expenditure in
a) land and buildings and
b) IT resources
ix. Locations where the company intends to operate
x. Allocation of resources to training and skill development of SHGs / JLGs
Name :
Signature :
Date :
Calculation of CRAR after making provisions on AP portfolio
Provisions made and the AP portfolio added back and gradually reduced
|
||||||||
Year
|
Loss on account of provisions
|
Capital
|
Provisions Added back
|
Net Capital (3+4)
|
Required Capital (@15%)
|
Capital infusion required
|
Non-AP
|
AP
|
1
|
2
|
3
|
4
|
5
|
6
|
7
|
8
|
9
|
| Initial Position |
0
|
30
|
100
|
100
|
||||
| 2012-13 |
-100
|
-70
|
100
|
30
|
30
|
0
|
100
|
100
|
| 2013-14 |
-70
|
80
|
10
|
27
|
17
|
100
|
80
|
|
| 2014-15 |
-53
|
60
|
7
|
24
|
17
|
100
|
60
|
|
| 2015-16 |
-36
|
40
|
4
|
21
|
17
|
100
|
40
|
|
| 2016-17 |
-19
|
20
|
1
|
18
|
17
|
100
|
20
|
|
| 2017-18 |
-2
|
0
|
-2
|
15
|
17
|
100
|
0
|
|
| 2018-19 |
15
|
0
|
15
|
15
|
0
|
100
|
0
|
|
Total
|
85
|
|||||||
For the sake of simplicity, the above illustration is based on a few assumptions as given below :
a) The AP portfolio comprises 50% of total portfolio of the NBFC-MFI.
b) The entire AP portfolio is taken as loss asset
c) The portfolios have remained stagnant over the next five years.
Ozg NBFC Consultant
Ozg Center | Delhi | Mumbai | Chennai | Bangalore | Kolkata
Back Office Phone # 09811415831-37-61-72-84-92-94
