RBI Circular - Master Circular – ';Non-Systemically Important Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2015';.

RBI/2014-15/630
DNBR (PD) CC No.038/03.01.001/2014-15

June 03, 2015

To

All Non-Systemically Important Non-Deposit taking NBFCs,

Dear Sirs,

Master Circular – ';Non-Systemically Important Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2015';.

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.DNBR.008/CGM (CDS)-2015 dated March 27, 2015 updated till the date as indicated above are reproduced below. The updated notification has also been placed on the RBI web-site (http://rbi.org.in/).

Yours faithfully,

(C.D.Srinivasan)
Chief General Manager

Table of Contents

RESERVE BANK OF INDIA
DEPARTMENT OF NON-BANKING REGULATION
CENTRAL OFFICE, CENTRE I, WORLD TRADE CENTRE 
CUFFE PARADE, COLABA, MUMBAI 400 005

NOTIFICATION No.DNBR.008/ CGM (CDS) - 2015 dated March 27, 2015

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 Notification No. DNBS. 193/ DG (VL)-2007 dated February 22, 2007 gives the Directions hereinafter specified.

Short title, commencement and applicability of the Directions:

1. (1) These Directions shall be known as the ';Non-Systemically Important Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2015';.

(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), (iv), (v), (vi) and (vii) hereinafter, shall apply to:

every non-banking financial company not accepting/ holding public deposits which is non-systemically important as defined in para 2 (xxviii) of these directions.

“Provided that para 16 of these directions shall be applicable only to NBFC-MFIs as defined in the Non-Banking Financial Company- Micro Finance Institutions (Reserve Bank) Directions 2011 and Infrastructure Finance Companies as defined at clause 2(xi) of these Directions”.

(ii) These directions except para 15 shall not apply to a non-deposit taking non-banking financial company having asset size of less than Rs. 500 crore Providedthat, it does not accept/ hold any public funds.

(iii) These Directions, except the provisions of paragraph 26 shall not apply to non-banking financial company being a Government company as defined under clause (45) of Section 2 of the Companies Act, 2013 (18 of 2013) and not accepting / holding public deposit.*

(iv) 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 17 of these Directions shall not apply to a Systemically Important Core Investment Company (between asset size Rs. 100 crore and Rs. 500 crore) as defined in clause (h) of sub-paragraph (1) of paragraph 3 of the CIC Directions, 2011,.

(vii) The provisions of paragraph 8, 9 and 17 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.

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) “companies in the group” means an arrangement involving two or more entities related to each other through any of the following relationships: Subsidiary – parent (defined in terms of AS 21), Joint venture (defined in terms of AS 27), Associate (defined in terms of AS 23), Promoter-promotee (as provided in the SEBI (Acquisition of Shares and Takeover) Regulations, 1997) for listed companies, a related party (defined in terms of AS 18), Common brand name, and investment in equity shares of 20% and above.”

(iv) “conduct of business regulations” means the directions issued by the Bank from time to time on Fair Practices Code and Know Your Customer guidelines.

(v) “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;

(vi) “customer interface” means interaction between the NBFC and its customers while carrying on its NBFI business.

(vii) “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;

(viii) “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:

1. in case of predominantly manufacturing company, eight per cent;
2. in case of predominantly trading company, ten per cent; and
3. in case of any other company, including non-banking financial company, twelve per cent;

Note: If, an investee company is a loss making company, the earning value will be taken at zero;

(ix) “fair value” means the mean of the earning value and the break up value;

(x) “hybrid debt” means capital instrument which possesses certain characteristics of equity as well as of debt;

(xi) “Infrastructure Finance Company” means a non-deposit taking NBFC that fulfills the criteria mentioned below:

1. a minimum of 75 per cent of its total assets should be deployed in “infrastructure loans”;

2. Net owned funds of Rs. 300 crore or above;

3. minimum credit rating 'A' or equivalent of CRISIL, FITCH, CARE, ICRA or equivalent rating by any other accrediting rating agencies;

4. CRAR of 15 percent (with a minimum Tier I capital of 10 percent)

A credit facility extended by lenders (i.e. NBFCs) to a borrower for exposure in the following infrastructure sub-sectors will qualify as ';Infrastructure lending”.

(xii) “Leverage Ratio” means the total Outside Liabilities/ Owned Funds.

(xiii) “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:

(2) 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).

(3) 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;

1“Qualifying assets” 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. 1,00,000 or urban and semi-urban household income not exceeding Rs. 1,60,000;

ii. loan amount does not exceed Rs. 60,000 in the first cycle and Rs. 1,00,000 in subsequent cycles;

iii. total indebtedness of the borrower does not exceed Rs.1,00,000;

Provided that loan, if any availed towards meeting education and medical expenses shall be excluded while arriving at the total indebtedness of a borrower.

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 50 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.

(xiv) “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 50 percent of its total assets and its income derived from factoring business is not less than 50 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.

(xv) “Non-Operative Financial Holding Company” (NOFHC) means a non-deposit taking NBFC referred to in the2 ';Guidelines for Licensing of New Banks in the Private Sector'; issued by the Reserve Bank, which holds the shares of a banking company and the shares of all other financial services companies in its group, whether regulated by Reserve Bank or by any other financial regulator, to the extent permissible under the applicable regulatory prescriptions.

(xvi) “loss asset” means:

1. 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

2. 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;

(xvii) “long term investment” means an investment other than a current investment;

(xviii) “net asset value” means the latest declared net asset value by the mutual fund concerned in respect of that particular scheme;

(xix) “net book value” means:

1. 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;

2. 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.

(xx) “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;

(xxi) “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;

(xxii) “outside liabilities” means total liabilities as appearing on the liabilities side of the balance sheet excluding 'paid up capital' and 'reserves and surplus', instruments compulsorily convertible into equity shares within a period not exceeding 5 years from the date of issue but including all forms of debt and obligations having the characteristics of debt, whether created by issue of hybrid instruments or otherwise, and value of guarantees issued, whether appearing on the balance sheet or not.

(xxiii) “public funds” means “funds raised directly or indirectly through public deposits, commercial papers, 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 5 years from the date of issue”.

(xxiv) “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;

(xxv) “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 27 of these Directions;

(xxvi) ';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:

to the extent such discounted value does not exceed fifty per cent of Tier I capital;

(xxvii) “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;

(xxviii) “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. 500 crore and above as shown in the last audited balance sheet;

(xxix) “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 non-deposit taking non-banking financial company with assets between Rs. 100 crore and Rs. 500 crore as per the last audited balance sheet 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;

(xxx) “Tier II capital” includes the following:

1. preference shares other than those which are compulsorily convertible into equity;

2. revaluation reserves at discounted rate of fifty five per cent;

3. 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;

4. hybrid debt capital instruments;

5. subordinated debt; and

6. perpetual debt instruments issued by a non-deposit taking non-banking financial company with assets between Rs. 100 crore and Rs. 500 crore as per the last audited balance sheet 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 and not defined in these directions but 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 meanings respectively assigned to them under that Act or Directions. Any words or expressions used and not defined in these directions or the RBI Act or any of the Directions issued by the RBI, shall have the meanings respectively assigned to them under the Companies Act, 2013 (18 of 2013).

Income recognition

3. (1) The income recognition shall be based on recognised accounting principles.

(2) Income including interest/ discount/ hire charges/ lease rentals or any other charges on NPA shall be recognised only when it is actually realised. Any such income recognised before the asset became non-performing and remaining unrealised shall be reversed.

Income from investments

4. (1) Income from dividend on shares of corporate bodies and units of mutual funds shall be taken into account on cash basis:

Provided that the income from dividend on shares of corporate bodies may be taken into account on accrual basis when such dividend has been declared by the corporate body in its annual general meeting and the non-banking financial company’s right to receive payment is established.

(2) Income from bonds and debentures of corporate bodies and from Government securities/ bonds may be taken into account on accrual basis:

Provided that the interest rate on these instruments is pre-determined and interest is serviced regularly and is not in arrears.

(3) Income on securities of corporate bodies or public sector undertakings, the payment of interest and repayment of principal of which have been guaranteed by Central Government or a State Government may be taken into account on accrual basis.

Accounting standards

5. Accounting Standards and Guidance Notes issued by the Institute of Chartered Accountants of India (referred to in these Directions as “ICAI”) shall be followed in so far as they are not inconsistent with any of these Directions.

Accounting of investments

6. (1) (a) The Board of Directors of every non-banking financial company shall frame investment policy for the company and implement the same;

(b) The criteria to classify the investments into current and long term investments shall be spelt out by the Board of the company in the investment policy;

(c) Investments in securities shall be classified into current and long term, at the time of making each investment;

(d) In case of inter-class transfer:

1. there shall be no such transfer on ad-hoc basis;

2. transfer, if warranted, shall be effected only at the beginning of each half year, on April 1 or October 1, with the approval of the Board;

3. the investments shall be transferred scrip-wise, from current to long-term or vice-versa, at book value or market value, whichever is lower;

4. the depreciation, if any, in each scrip shall be fully provided for and appreciation, if any, shall be ignored;

5. the depreciation in one scrip shall not be set off against appreciation in another scrip, at the time of such inter-class transfer, even in respect of the scrips of the same category.

(2) (a) Quoted current investments shall, for the purposes of valuation, be grouped into the following categories, viz.

1. equity shares,

2. preference shares,

3. debentures and bonds,

4. Government securities including treasury bills,

5. units of mutual fund, and

6. others.

(b) Quoted current investments for each category shall be valued at cost or market value whichever is lower. For this purpose, the investments in each category shall be considered scrip-wise and the cost and market value aggregated for all investments in each category. If the aggregate market value for the category is less than the aggregate cost for that category, the net depreciation shall be provided for or charged to the profit and loss account. If the ag­gregate market value for the category exceeds the aggregate cost for the category, the net appreciation shall be ignored. Depreciation in one category of investments shall not be set off against appreciation in another category.

(3) Unquoted equity shares in the nature of current investments shall be valued at cost or breakup value, whichever is lower. However, non-banking financial companies may substitute fair value for the breakup value of the shares, if considered necessary. Where the balance sheet of the investee company is not available for two years, such shares shall be valued at one Rupee only.

(4) Unquoted preference shares in the nature of current investments shall be valued at cost or face value, whichever is lower.

(5) Investments in unquoted Government securities or Government guaranteed bonds shall be valued at carrying cost.

(6) Unquoted investments in the units of mutual funds in the nature of current investments shall be valued at the net asset value declared by the mutual fund in respect of each particular scheme.

(7) Commercial papers shall be valued at carrying cost.

(8) A long term investment shall be valued in accordance with the Accounting Standard issued by ICAI.

Explanation- Unquoted debentures shall be treated as term loans or other type of credit facilities depending upon the tenure of such debentures for the purpose of income recognition and asset classification.

Need for policy on demand/call loans

7. (1) The Board of Directors of every non-banking financial company granting/ intending to grant demand/ call loans shall frame a policy for the company and implement the same.

(2) Such policy shall, inter alia, stipulate the following,-

1. A cut off date within which the repayment of demand or call loan shall be demanded or called up;

2. The sanctioning authority shall, record specific reasons in writing at the time of sanctioning demand or call loan, if the cut off date for demanding or calling up such loan is stipulated beyond a period of one year from the date of sanction;

3. The rate of interest which shall be payable on such loans;

4. Interest on such loans, as stipulated shall be payable either at monthly or quarterly rests;

5. The sanctioning authority shall, record specific reasons in writing at the time of sanctioning demand or call loan, if no interest is stipulated or a moratorium is granted for any period;

6. A cut off date, for review of performance of the loan, not exceeding six months commencing from the date of sanction;

7. Such demand or call loans shall not be renewed unless the periodical review has shown satisfactory compliance with the terms of sanction.

Asset classification

8. (1) Every non-banking financial company shall, after taking into account the degree of well defined credit weaknesses and extent of dependence on collateral security for realisation, classify its lease/hire purchase assets, loans and advances and any other forms of credit into the following classes, namely:

1. Standard assets;

2. Sub-standard assets;

3. Doubtful assets; and

4. Loss assets.

(2) The class of assets referred to above shall not be upgraded merely as a result of rescheduling, unless it satisfies the conditions required for the upgradation.

Provisioning requirements

9. Every non-banking financial company shall, after taking into account the time lag between an account becoming non-performing, its recognition as such, the realisation of the security and the erosion over time in the value of security charged, make provision against sub-standard assets, doubtful assets and loss assets as provided hereunder:-

Loans, advances and other credit facilities including bills purchased and discounted-

(1) The provisioning requirement in respect of loans, advances and other credit facilities including bills purchased and discounted shall be as under:

(2) Lease and hire purchase assets -The provisioning requirements in respect of hire purchase and leased assets shall be as under:

(i) Hire purchase assets - In respect of hire purchase assets, the total dues (overdue and future instalments taken together) as reduced by

1. the finance charges not credited to the profit and loss account and carried forward as unma­tured finance charges; and

2. the depreciated value of the underlying asset, shall be provided for.

Explanation: For the purpose of this paragraph,

1. the depreciat­ed value of the asset shall be notionally computed as the original cost of the asset to be reduced by deprecia­tion at the rate of twenty per cent per annum on a straight line method; and

2. in the case of second hand asset, the original cost shall be the actual cost incurred for acquisition of such second hand asset.

Additional provision for hire purchase and leased assets

(ii) In respect of hire purchase and leased assets, additional provision shall be made as under:

(iii) On expiry of a period of 12 months after the due date of the last instalment of hire purchase/ leased asset, the entire net book value shall be fully provided for.

Notes:

1. The amount of caution money/ margin money or security deposits kept by the borrower with the non-banking financial company in pursuance of the hire purchase agreement may be deducted against the provisions stipulated under clause (i) above, if not already taken into account while arriving at the equated monthly instalments under the agreement. The value of any other security available in pursuance to the hire purchase agreement may be deducted only against the provisions stipulated under clause (ii) above.

2. The amount of security deposits kept by the borrower with the non-banking financial company in pursuance to the lease agreement together with the value of any other security available in pursuance to the lease agreement may be deducted only against the provisions stipulated under clause (ii) above.

3. It is clarified that income recognition on and provisioning against NPAs are two different aspects of prudential norms and provisions as per the norms are required to be made on NPAs on total outstanding balances including the depreciated book value of the leased asset under reference after adjusting the balance, if any, in the lease adjustment account. The fact that income on an NPA has not been recognised cannot be taken as reason for not making provision.

4. An asset which has been renegotiated or rescheduled as referred to in paragraph (2) (1) (xxv) (b) of these Directions shall be a sub-standard asset or continue to remain in the same category in which it was prior to its renegotiation or reschedulement as a doubtful asset or a loss asset as the case may be. Necessary provision is required to be made as applicable to such asset till it is upgraded.

5. The balance sheet to be prepared by the NBFC may be in accordance with the provisions contained in sub-paragraph (2) of paragraph 11.

6. All financial leases written on or after April 1, 2001 attract the provisioning requirements as applicable to hire purchase assets.

7. In case of NBFC-MFIs, if the advance covered by Credit Risk Guarantee Fund Trust for Low Income Housing (CRGFTLIH) guarantee becomes non-performing, no provision need be made towards the guaranteed portion. The amount outstanding in excess of the guaranteed portion should be provided for as per the extant guidelines on provisioning for non-performing advances.

Provision for standard assets

10. Every Non-Banking Financial Company shall make provision for standard assets at 0.25 percent of the outstanding, which shall not be reckoned for arriving at net NPAs. The provision towards standard assets need not be netted from gross advances but shall be shown separately as ‘Contingent Provisions against Standard Assets’ in the balance sheet.

Disclosure in the balance sheet

11. (1) Every non-banking financial company shall separately disclose in its balance sheet the provisions made as per paragraph 9 above without netting them from the income or against the value of assets.

(2) The provisions shall be distinctly indicated under separate heads of account as under:-

1. provisions for bad and doubtful debts; and

2. provisions for depreciation in investments.

(3) Such provisions shall not be appropriated from the general provisions and loss reserves held, if any, by the non-banking financial company.

(4) Such provisions for each year shall be debited to the profit and loss account. The excess of provisions, if any, held under the heads general provisions and loss reserves may be written back without making adjustment against them.

Accounting year

12. Every non-banking financial company shall prepare its balance sheet and profit and loss account as on March 31 every year. Whenever a non-banking financial company intends to extend the date of its balance sheet as per provisions of the Companies Act, it should take prior approval of the Reserve Bank of India before approaching the Registrar of Companies for this purpose.

Further, even in cases where the Bank and the Registrar of Companies grant extension of time, the non-banking financial company shall furnish to the Bank a proforma balance sheet (unaudited ) as on March 31 of the year and the statutory returns due on the said date. Every non-banking financial company shall finalise its balance sheet within a period of 3 months from the date to which it pertains.

Schedule to the balance sheet

13. Every non-banking financial company shall append to its balance sheet prescribed under the Companies Act, 2013, the particulars in the schedule as set out in Annex I.

Transactions in government securities

14. (1) Every non-banking financial company shall undertake transactions in Government securities through its CSGL account or its demat account.

(2) The non-banking financial company shall not undertake any transaction in government security in physical form through any broker.

Submission of a certificate from Statutory Auditor to the Bank

15. (1) Every non-banking financial company shall submit a Certificate from its Statutory Auditor that it is engaged in the 3[business] of non-banking financial institution requiring it to hold a Certificate of Registration under Section 45-IA of the RBI Act and is eligible to hold it. A certificate from the Statutory Auditor in this regard with reference to the position of the company as at end of the financial year ended March 31 may be submitted to the Regional Office of the Department of Non-Banking Supervision under whose jurisdiction the non-banking financial company is registered, within one month from the date of finalization of the balance sheet and in any case not later than December 30th of that year. Such certificate shall also indicate the asset/ income pattern of the non-banking financial company for making it eligible for classification as Asset Finance Company, Investment Company or Loan Company.

(2) For an NBFC-MFI, such Certificate should also indicate that the company fulfills all conditions stipulated to be classified as an NBFC-MFI in the notification DNBS.PD.No.234/CGM (US)-2011 dated December 02, 2011.

(3) For an NBFC-Factor, such Certificate shall indicate the requirement of holding the certificate under Section 3 of the Factoring Act. The certificate shall also indicate the percentage of factoring assets and income, that it fulfills all conditions stipulated under the Act to be classified as an NBFC-Factor and compliance to minimum capitalization norms, if FDI has been received.

Requirement as to capital adequacy

16. (1) Every NBFC-MFI and Infrastructure Finance Company (IFC) shall maintain, a minimum capital ratio consisting of Tier I and Tier II capital which shall not be less than fifteen per cent of its aggregate risk weighted assets on balance sheet and of risk adjusted value of off-balance sheet items;

(2) The total of Tier II capital of an NBFC-MFI, at any point of time, shall not exceed one hundred per cent of Tier I capital.

(3) The Tier I capital of an IFC, at any point of time, shall not be less than 10%.

Explanations:

On balance sheet assets–

(1) In these Directions, degrees of credit risk expressed as percentage weightages have been assigned to balance sheet assets. Hence, the value of each asset/ item requires to be multiplied by the relevant risk weights to arrive at risk adjusted value of assets. The aggregate shall be taken into account for reckoning the minimum capital ratio. The risk weighted asset shall be calculated as the weighted aggregate of funded items as detailed hereunder: