{"id":78065,"date":"2021-01-25T11:10:51","date_gmt":"2021-01-25T05:40:51","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=78065"},"modified":"2021-03-01T13:50:17","modified_gmt":"2021-03-01T08:20:17","slug":"4-tier-structure-for-regulation-of-nbfcs","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/4-tier-structure-for-regulation-of-nbfcs\/","title":{"rendered":"4-tier structure for regulation of NBFCs"},"content":{"rendered":"<p><strong>Why in News?<\/strong><\/p>\n<p>Reserve Bank of India (RBI) has proposed a tighter regulatory framework for non-banking financial companies (NBFCs) by creating a four-tier structure. The intensity of regulations will be greatest at the top layer and lowest at the base layer.<\/p>\n<p><strong>Objective:<\/strong> It is to keep the big NBFCs in good financial health. It has become important after the failure of extremely large NBFC like IL&amp;FS.<\/p>\n<p><strong>Four Tier Structure:<\/strong><\/p>\n<p><strong>Base layer: <\/strong>This layer will include the large number of small NBFCs in the country and will subject to the least regulation. It is because they have a limited impact on systemic stability. The proposals for this set of NBFCs include:<\/p>\n<ul>\n<li>Entry-level net owned funds required to be raised <strong>to Rs 20 crore from Rs 2 crore.<\/strong><\/li>\n<li>NPA classification norm of <strong>180 days will be harmonized to 90 days<\/strong>.<\/li>\n<li>Disclosure requirements will be widened by including disclosures on types of exposure, related party transactions, customer complaints.<\/li>\n<\/ul>\n<p><strong>Middle Layer: <\/strong>It will consist of NBFCs that currently fall in the \u2018systemically important\u2019 category along with deposit-taking non-bank lenders. <strong>Housing Finance Companies, Infrastructure Finance Companies, Infrastructure Debt Funds, Core Investment Companies<\/strong>. The proposals for this set of NBFCs include:<\/p>\n<ul>\n<li>It will be subjected to tighter corporate governance norms.<\/li>\n<li>No changes proposed in the <strong>capital-to-risk-assets ratio (CRAR)<\/strong> of 15% with a minimum Tier-I ratio of 10%.<\/li>\n<li>These NBFCs cannot provide loans to companies for buy-back of securities.<\/li>\n<li>NBFCs with 10 or more branches will be required to adopt core banking solutions.<\/li>\n<\/ul>\n<p><strong>Upper Layer: <\/strong>It will include about 25-30 NBFCs and will be subjected to bank-like regulation.<\/p>\n<ul>\n<li>It will have to implement <strong>differential standard asset provisioning<\/strong> and also the large exposure framework as applicable to banks.<\/li>\n<li>The concept of <strong>Core Equity Tier-1<\/strong> will be introduced for this category and is proposed to be set at 9%.<\/li>\n<li>They will also be subject to a <strong>mandatory listing requirement<\/strong>.<\/li>\n<\/ul>\n<p><strong>Top Layer:<\/strong> This layer will be empty for now and will be populated with NBFCs, where the RBI may see an elevated systemic risk.<\/p>\n<p><strong>Source: <a href=\"https:\/\/indianexpress.com\/article\/business\/economy\/rbi-proposes-4-tier-structure-for-tighter-regulation-of-nbfcs-7157880\/\">Indian Express<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Why in News? Reserve Bank of India (RBI) has proposed a tighter regulatory framework for non-banking financial companies (NBFCs) by creating a four-tier structure. The intensity of regulations will be greatest at the top layer and lowest at the base layer. Objective: It is to keep the big NBFCs in good financial health. It has&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/4-tier-structure-for-regulation-of-nbfcs\/\">Continue reading <span class=\"screen-reader-text\">4-tier structure for regulation of NBFCs<\/span><\/a><\/p>\n","protected":false},"author":61,"featured_media":78285,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1566,3127,9],"tags":[1278],"class_list":["post-78065","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-daily-factly-articles","category-economy","category-public","tag-eco_4","entry"],"jetpack_featured_media_url":"https:\/\/i0.wp.com\/forumias.com\/blog\/wp-content\/uploads\/2021\/01\/4-tier-structure-for-regulation-of-NBFCs.jpg?fit=1280%2C720&ssl=1","views":{"total":116,"cached_at":""},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/78065","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/61"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=78065"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/78065\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media\/78285"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=78065"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=78065"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=78065"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}