C10 Flashcards by Pradeep raj

An NBFC is defined under _____________-

section 45 I(f) of the Reserve Bank of India Act, 1934 (‘RBI Act’)

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The term ‘financial institution’ is defined under Section

45I(c) of the RBI Act

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A company is treated as an NBFC, if its financial assets are more than ________- per cent (excluding fixed deposits20) of its total assets (netted off by intangible assets) and income from financial assets is more than ______________- per cent of the gross income.

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Mutual Benefit Companies, Nidhi Companies are regulated by

Ministry of Corporate Affairs (MCA)

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Chit Companies are regulated by

State Governments

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SEBI regulates

Alternative Investment Fund Companies, Merchant Banking Companies, Stock Broking or sub-broking Companies, Stock Exchanges

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Type I - NBFC

NBFC-NDs not accepting public funds / not intending to accept public funds in the future and not having customer interface / not intending to have customer interface in the future.

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The term “Public funds” shall include

funds raised either directly or indirectly through public deposits, commercial paper, debentures, inter- corporate deposits and bank finance but excludes funds raised by issue of instruments compulsorily convertible into equity shares within a period not exceeding 10 years from the date of issue.

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Type II - NBFC-ND

accepting public funds/intending to accept public funds in the future and/or having customer interface/intending to have customer interface in the future.

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Applications for registration of deposit accepting NBFCs (NBFC- D) are not considered since

1997

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Non-deposit taking NBFCs are categorised as Base Layer NBFC (NBFC-BL), if their asset size is less than

₹1000 crore

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Non-Deposit taking NBFCs with asset size of NBFCs with asset size of ___________- are categorised as Middle Layer NBFC(NBFC-ML).

₹1000 crore and above

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Given the sensitivity towards public deposits, deposit taking NBFCs (i.e., NBFC-Ds) categorised at least in the ______________ Layer irrespective of their size

Middle

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The top ____________- eligible NBFCs in terms of their asset size shall be categorised as Upper Layer NBFC (NBFC-UL).

ten

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The next category viz., Top Layer (NBFC-TL) is ideally expected to be

empty

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Today more than 96 per cent of NBFCs by number fall under

the NBFC-Investment and Credit Category (NBFC-ICC)

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NBFC-Investment and Credit Company (NBFC-ICC)

i) Lending (erstwhile Loan companies) ii) Financing of physical assets including automobiles, tractors and generators iii) Acquisition of securities (erstwhile Investment Companies) (erstwhile Asset Finance Companies)

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NBFC-Investment and Credit Company (NBFC-ICC) Includes Gold Loan companies which are NBFCs primarily engaged________________________ in lending against gold jewellery

(i.e., 50 per cent or more of financial assets)

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NBFC-Infrastructure Finance Company (NBFC-IFC)- Infrastructure loans should be at least ___________ per cent of total assets.

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Core Investment Company (CIC)- (i) Not less than ___________- per cent of net assets to be investments and loans to group companies and ____________ per cent of net assets to be in equity and similar investments of group companies

90, 60

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Core Investment Company (CIC)- (Does not trade in its investments in

shares, bonds, debentures, debt/loans of group companies except through block sale for dilution/disinvestment.

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Infrastructure Debt Fund – NBFC (IDF-NBFC)

Refinancing existing debt of completed infrastructure projects

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Infrastructure Debt Fund – NBFC (IDF-NBFC)- Refinance post commencement operations date (COD) infrastructure projects which have completed at least _____________ year of satisfactory commercial operation

one

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Infrastructure Debt Fund – NBFC (IDF-NBFC)- Finance ____________ projects as the direct lender

toll operate transfer (TOT)

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NBFC-Micro Finance Institutions (NBFC-MFI)

Collateral free loans to small borrowers

NBFC-Micro Finance Institutions (NBFC-MFI)- Deploys at least _________- per cent of total assets in microfinance loans

NBFC – Factors- Factoring business i.e. financing of receivables. Registered under section

section 3 of the Factoring Act

NBFC – Factors- Financial assets in factoring business at least __________ per cent of total assets and income derived there from not less than _____________ per cent of total income.

Mortgage Guarantee Companies (MGC)

Providing mortgage guarantees for housing loans

Mortgage Guarantee Companies (MGC)- At least __________ per cent of business turnover from mortgage guarantee business or at least ___________ per cent of gross income from mortgage guarantee business

Non-Operative Financial Holding Company (NOFHC)

For setting up new banks in private sector through its promoter/promoter groups

NBFC-Account Aggregator (NBFC-AA)

Providing under contract the service of retrieving, consolidating, organising and presenting financial information of its customer (with explicit consent).

NBFC-Peer-to-Peer Lending Platforms notified under

[notified under section 45I(f)(iii)]

Housing Finance Company (HFC) [notified

under section 45I(f)(iii

Housing Finance Company (HFC) [notified under section 45I(f)(iii)]- (i) Financial assets, in the business of providing finance for housing shall constitute at least _____________% of its total assets (netted off by intangible assets).

Housing Finance Company (HFC) [notified under section 45I(f)(iii)]- Out of the total assets (netted off by intangible assets), not less than __________% shall be by way of housing finance for individuals.

Standalone Primary Dealer (SPD)- At least ____________ per cent of total financial investments (both long term and short term) in G-Secs at any point of time.

Primary Dealers are expected to play an active role

in the G- Sec market, both in its primary and secondary market segments through various obligations like participating in Primary auctions, market making in G- Secs, achieving minimum secondary market turnover ratio, etc.

NBFCs called Residuary Non- Banking Companies (RNBCs). The principal business of such companies is

receiving deposits under any scheme or arrangement or in any other manner and deploying them in the specified manner. However, no fresh registrations for this category are being issued as also presently there is no RNBC registered with the Bank.

NBFCs that manage chit fund business22

Miscellaneous Non-Banking Companies (MNBCs)

The minimum NOF stipulated for ARC was increased from

₹2 crore to ₹100 crore, which has further been increased to ₹300 crore in October 2022 to be achieved by March 31, 2026

The minimum NOF stipulated for ARC was increased to ₹300 crore in October 2022 to be achieved by

March 31, 2026

RBI acquired regulatory and supervisory powers over NBFCs with the insertion of Chapter

III-B in the RBI Act in 1963

insertion of Chapter III-B in the RBI Act in

1963

1996 marked a watershed year for NBFCs with the failure of a large NBFC

(CRB Capital

Based on the recommendations of the __________________---), which had highlighted the need to expand the regulatory and supervisory focus of NBFCs, RBI’s regulatory and supervisory powers were strengthened with amendments to Chapter III B of the RBI Act.

Shah Committee (1992

Compulsory registration with RBI and maintenance of minimum Net Owned Fund (NOF) for companies satisfying the ‘principal business’ criteria (Sec

(Sec.45IA)

Maintenance of liquid assets by NBFCs accepting public deposits (Sec

(Sec.45IB)

Creation of a Reserve Fund by all NBFCs by transfer of 20 per cent of their net profit every year (Sec.

(Sec.45IC)

Creation of a Reserve Fund by all NBFCs by transfer of _________ per cent of their net profit every year

Powers of RBI to determine Policy and issue directions to NBFCs (Sec

(Sec.45JA

Conduct of Special Audit of the accounts of NBFCs, if necessary (Sec.

(Sec.45MA)

Power of RBI to prohibit acceptance of deposits and alienation of assets (Sec

Sec.45MB

Power of RBI to file winding up petition under Companies Act, 1956 (Sec

(Sec.45MC)

Introduction of nomination facility for depositors of NBFCs (Sec

Sec.45QB)

Prohibition of deposit acceptance by unincorporated bodies engaged in financial business

(Sec.45S)

Power of RBI to impose fine on NBFCs for violations/contraventions of guidelines

(Sec.58G)

Further, in 1999, NOF requirement for fresh registration was enhanced from ₹25 lakh to

₹2 crore.

Requirement of minimum NOF of ___________- for legacy NBFCs

₹2 crore

Revision of the threshold of systemic significance from ₹100 crore to_______________________ and inclusion of multiple NBFCs within the same group for reckoning systemic significance threshold

₹ 500 crore

At one end of the spectrum, entities with asset size less than ________ and not accessing public funds with no customer interface were exempted from prudential and business conduct regulations.

₹500 crore

Reserve Bank may notify different amount of NOF to different categories of NBFCs with minimum NOF between

₹.25 lakh and ₹.100 crore

RBI can remove Directors of NBFC (other than Government owned NBFCs) – (Sec

(Sec.45ID)

Reserve Bank may notify different amount of NOF to different categories of NBFCs with minimum NOF between ₹.25 lakh and ₹.100 crore (Sec

(Sec.45IA)

RBI can supersede the BOD of NBFC (other than Government owned NBFCs) – (Sec.45

(Sec.45 IE)

RBI can remove or debar an auditor of NBFC for a max. period of 3 years at a time (Sec.

(Sec.45MAA)

RBI can remove or debar an auditor of NBFC for a max. period of ___________ years at a time

Resolution of NBFCs through amalgamation, reconstruction, splitting into various activities, etc. (Sec

Sec.45MBA

Power to call for information of Group Companies and inspection of Group Companies (Sec.

(Sec.45NAA

Further, ________________ has amended the National Housing Bank Act, 1987 transferring the registration and regulation of HFCs to RBI

the Finance (No.2) Act, 2019 (23 of 2019)

With the notification of the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 by the Government of India, the Bank is also entrusted with insolvency resolution process of NBFCs (including HFCs) under the Insolvency and Bankruptcy Code (IBC) from

November 2019.

NBFCs being financial service intermediaries are exposed to risks arising out of

counterparty failures, funding and asset concentration, interest rate movements and risks pertaining to liquidity and solvency

Further, the interconnectedness of NBFCs with other participants in financial markets has increased over time with greater access to public funds through

NCDs, CPs, borrowings from banks and financial institutions.

Broadly regulatory objectives are twin fold i.e.

(i) fostering financial system stability and (ii) consumer protection.

Based on these objectives, regulations applicable to NBFCs may be classified as

Prudential (i.e., those that foster financial system stability) and Conduct of Business (i.e., those that provide for consumer protection)

While Prudential Regulations include prescribing of

capital adequacy requirements, single/group borrower exposure norms, income recognition, asset classification and provisioning norms, prescribing Loan-To- Value (LTV) ratios, Leverage Ratio, regulations governing acceptance of public deposits, etc

Capital Adequacy- Base Layer NBFCs

No CRAR. Leverage Ratio of 7 times

Capital Adequacy- Middle Layer NBFCs-

NBFC-ML and all MFIs- Min. CRAR of 15 per cent

NBFC- UL are also required to maintain Common Equity Tier 1 Capital (CET 1) of _____________ per cent.

Capital Adequacy- Banks

Min CRAR of 9 per cent + Capital Conservation Buffer +Counter cyclical Buffer

Credit concentration- Limits reckoned as percentage of Tier I capital NBFC-ML-

Single Counterparty Limit: 25 per cent Group of Counterparties Limit: 40 per cent

Credit concentration- Limits reckoned as percentage of Tier I capital NBFC-UL-

Single Counterparty Limit: 20 per cent + 5 per cent with approval of Board. Group of connected Counterparties Limit: 25 per cent

Credit concentration- Specified dispensations are available for

(i) NBFC-ML and NBFC-UL for infrastructure exposures and (ii) NBFC-IFCs

Credit concentration - Banks

Large exposure framework –Limit reckoned as per centage of Tier I capital Single counterparty: 20 per cent Groups of connected counterparties: 25 per cent

Liquidity Coverage Ratio (LCR)- Liquidity Risk Management Framework is applicable for all NBFCs-D and non-deposit taking NBFCs with asset size of

₹100 crore and above.

LCR is applicable to all NBFCs-D and non-deposit taking NBFCs, with asset size of

₹5,000 crore or more

Accounting Norms- Based primarily on

Companies Act, 2013

Accounting Norms- Listed NBFCs and other NBFCs with net worth of ____________ or more are required to prepare financial statements as per IFRS converged Indian Accounting Standards (Ind AS)

₹ 250 crore

In accordance with the roadmap for transition to IFRS converged Indian Accounting Standards (Ind AS) drawn up by the Ministry of Corporate Affairs, NBFCs with a net worth of ₹500 crore or above have already transitioned to Ind AS from April 1, 2018 followed by NBFCs with a net worth of ___________ or above and other listed NBFCs transitioning from April 1, 2019.

₹ 250 crore

Ind AS sets a benchmark where if payments on a financial asset are more than ______________ days late (past due), it's presumed that the credit risk has significantly increased.

Ind AS sets a benchmark where if payments on a financial asset are more than 30 days late (past due), it's presumed that the credit risk has significantly increased. Even if an NBFC or ARC can argue against the 30-day presumption, they cannot delay recognizing a significant increase in credit risk for accounts that are more than __________________

60 days overdue.

If the provisioning under Ind AS is lower than IRACP norms, the difference can't be used for dividends. Instead, it must be placed into an ________________-.

Impairment Reserve

Under Ind AS, when a significant increase in credit risk is assessed, the ECL allowances move from ______________ month to lifetime ECL

Under Ind AS, when a significant increase in credit risk is assessed, the ECL allowances move from 12 month to lifetime ECL

There are __________ NBFC-P2P platforms registered with the Bank as on March 31, 2024.

Reserve Bank derives its powers under Section ______________in case of ARCs to cause an inspection

Section 12B of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, (SARFAESI Acts) 2002

CAMELS

(Capital, Assets, Management, Earnings, Liquidity, and Systems and Controls)

Powers to inspect the books of an NBFC have also been vested with the Bank under Section

45-IA(4) of the RBI Act, 1934

SLCCs were reconstituted in

May 2014.

The Reserve Bank launched a mobile friendly portal______________ to help the public as well as regulators to ensure that only regulated entities accept deposits from the public.

Sachet

The Reserve Bank launched a mobile friendly portal Sachet (sachet.rbi.org.in) on

August 4, 2016.

On October 24, 2019 Sachet portal was made available in ______________more prominent regional languages besides Hindi and English to further its penetration in general public.

Scale Based Regulation: A Revised Regulatory Framework For NBFCs. These guidelines are effective from

1 October 2022.

Further RBI vide circular dated 11 April 2022, issued a framework for Compliance Function and Role of Chief Compliance Officer in

NBFC-Upper layer and NBFC-Middle layer

NBFC-ICC- NOF(Current NOF By March 31, 2025 By March 31, 2027_

₹2 crore ₹5 crore ₹10 crore

NBFC-MFI- NOF(Current NOF By March 31, 2025 By March 31, 2027_

₹5 crore (₹2 crore in NER*) ₹7 crore (₹5 crore in NER) ₹10 crore

NBFC-Factors - NOF(Current NOF By March 31, 2025 By March 31, 2027_

₹5 crore ₹7 crore ₹10 crore

However, for NBFC-P2P, NBFC-AA, and NBFCs with no public funds and no customer interface, the NOF shall continue to be

₹2 crore.

A glide path is provided to NBFCs in Base Layer to adhere to the 90 days NPA norm as under 150 days overdue

By March 31, 2024

A glide path is provided to NBFCs in Base Layer to adhere to the 90 days NPA norm as under 120 days overdue

By March 31, 2025

A glide path is provided to NBFCs in Base Layer to adhere to the 90 days NPA norm as under 90 days overdue

By March 31, 2026

There shall be a ceiling of ___________-- per borrower for financing subscription to Initial Public Offer (IPO)

₹1 crore

ICAAP)

Internal Capital Adequacy Assessment Process

This internal assessment shall be on similar lines as ICAAP prescribed for commercial banks under

Pillar 2.

The objective of ICAAP is to ensure

availability of adequate capital to support all risks in business as also to encourage NBFCs to develop and use better internal risk management techniques for monitoring and managing their risks

In order to enhance the quality of regulatory capital, NBFC-UL shall maintain Common Equity Tier 1 capital of at least ___________ per cent of Risk Weighted Assets.

As per the guidelines, NBFCs are required to constitute a _______________- , which will be responsible for framing, reviewing and implementing the compensation policy.

nomination and remuneration committee (NRC)

The PCA Framework for NBFCs shall come into effect from

October 1, 2022,

For NBFCs-D and NBFCs-ND,_______________ would be the key areas for monitoring in PCA Framework.

Capital and Asset Quality

For CICs, ______________ would be the key areas for monitoring in PCA Framework

Capital, Leverage and Asset Quality

For NBFCs-D and NBFCs-ND, indicators to be tracked would be ___________________-).

Capital to Risk Weighted Assets Ratio (CRAR), Tier I Capital Ratio and Net NPA Ratio (NNPA

For CICs, indicators to be tracked would be _______________________

Adjusted Net Worth/Aggregate Risk Weighted Assets, Leverage Ratio and NNPA.

C10 Flashcards

(121 cards)