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Guidelines for NBFC-ND-SI as regards capital adequacy, liquidity and disclosure norms

DNBS (PD). CC. No. 125/03.05.002 / 2008-2009

August 1, 2008

All non-deposit taking NBFCs with asset size of Rs 100 crore and above

Guidelines for NBFC-ND-SI as regards capital adequacy, liquidity and disclosure norms

Please refer to paragraph 216 of Annual Statement on Monetary Policy for the Year 2008-09 in terms of which capital adequacy, liquidity and disclosure norms were to be reviewed in respect of systemically important non-deposit taking NBFCs(NBFCs-ND-SI).

2. To protect the interests of the depositors, deposit taking NBFCs (NBFC-D) were subject to prudential regulation on various aspects of their functioning. However, non-deposit taking NBFCs (NBFCs-ND) were subject to minimal regulation. In the light of the evolution and integration of the financial sector, it was felt that all systemically relevant entities offering financial services ought to be brought under a suitable regulatory framework to contain systemic risk. Therefore, as a first step, it was advised vide DNBS.PD/ CC. No. 86/ 03.02.089 /2006-07 dated December 12, 2006 that all NBFCs – ND with an asset size of Rs. 100 crore and more as per the last audited balance sheet would be considered as systemically important NBFC ND (NBFC-ND-SI) and specific regulatory framework involving prescription of capital adequacy and exposure norms was put in place from April 01, 2007 for such NBFCs-ND-SI.

3. On a review of the experience with the regulatory framework since April 2007, it is felt desirable to enhance the capital adequacy requirement and put in place guidelines for liquidity management and reporting, as also norms for disclosures. Accordingly, the Bank had placed on its web-site on June 2, 2008, the draft guidelines for NBFCs-ND-SI as regards the above aspects for receiving the comments of the public. After considering the comments received from public/NBFCs/Associations/banks, the guidelines have been modified suitably.

Capital adequacy
4. NBFCs – ND – SI were advised to maintain a minimum Capital to Risk- Assets Ratio (CRAR) of 10% with effect from April 01, 2007. However, in view of recent international developments, the risks associated with highly leveraged borrowings and reliance on short term funds by some NBFCs to fund long gestation assets, concerns have arisen regarding the enhanced systemic risk associated with the activities of these entities. Keeping in view the importance of providing adequate capital charge for the same in order to enhance the cushion for any shocks, it has been decided to increase the minimum capital to risk assets ratio (CRAR) for NBFCs-ND-SI from the present prescription of 10%. They are advised to achieve 12% CRAR by March 31, 2009 and further 15% CRAR by March 31, 2010.

Disclosure in the Balance Sheet
5. In the light of the concerns as expressed above, the disclosure norms in respect of NBFCs-ND-SI have been reviewed and it has been decided that such Systemically Important NBFCs-ND shall make additional disclosures in their Balance Sheet from the year ending March 31, 2009 relating to:

i. Capital to Risk Assets Ratio (CRAR)
ii. Exposure to real estate sector, both direct and indirect; and
iii. Maturity pattern of assets and liabilities

The format of disclosure of this additional information is furnished in Annex-I.

Asset Liability Management (ALM) – Reporting
6. To address concerns regarding Asset Liability mismatches and interest rate risk exposures, an ALM System was introduced for the Non-Banking Financial Companies (NBFCs) as part of their overall system for effective risk management in their various portfolios vide Company Circular DNBS (PD).CC.No.15 /02.01 / 2000-2001 dated June 27, 2001. While it was stated therein that the guidelines would be applicable to all NBFCs irrespective of whether they are accepting / holding public deposits or not, to begin with, NBFCs meeting the criteria of asset base of Rs.100 crore (whether accepting / holding public deposits or not) or holding public deposits of Rs. 20 crore or more (irrespective of their asset size) as per their audited balance sheet as of March 31, 2001 were required to put in place the ALM System. The companies were advised that the guidelines should be fully operationalised by the year ending March 31, 2002. A system of half yearly reporting was also put in place for NBFCs holding public deposits.

7. In view of the possibilities of leveraged investments, and asset liability mismatches resulting from use of short term sources to fund NBFC activities, it has now been decided to introduce a system of reporting for NBFCs-ND-SI in the format as prescribed in the Annex. The return will comprise of:

(i) Statement of short term dynamic liquidity in format ALM - Annexure – II [NBS-ALM1],
(ii) Statement of structural liquidity in format ALM - Annex – III [NBS-ALM2] and
(iii) Statement of Interest Rate Sensitivity in format ALM - Annexure – IV [NBS-ALM3].

8. To enable the above class of NBFCs to fine tune their existing MIS to meet the requirement of the reporting dispensation, such compilation would commence with effect from the period ending September 30, 2008. The periodicity of the Statement of short term dynamic liquidity [NBS-ALM1] shall be monthly and that of Statement of structural liquidity [NBS-ALM2] half-yearly. It shall be submitted within 10 days of the close of the month to which it relates and half yearly statement within 20 days of the close of the half year to which it relates to the Regional Office of the Department in whose jurisdiction the NBFC is registered. However, to enable the NBFCs to fine tune the system, the first return for the period ended September 2008 would be submitted by the 1st week of January 2009.

The compilation frequency of Statement of Interest Rate Sensitivity [NBS-ALM3] would be half yearly. As a first step, the same shall be put up to the Board of Directors of the NBFC at half yearly intervals. The statement shall be filed with the Bank later from the date to be announced.

9. A copy of Notification No. DNBS. 200 / CGM(PK)-2008 dated August 1, 2008 amending Notification No. DNBS. 193 DG(VL)-2007 dated February 22 , 2007 with respect to disclosure in balance sheet and requirement as to capital adequacy is enclosed.

Yours faithfully

(P Krishnamurthy)
Chief General Manager In-Charge

MUMBAI 400 005.

Notification No. DNBS. 200 / CGM(PK)-2008 dated August 1, 2008

The Reserve Bank of India, having considered it necessary in 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 amend the Non-Banking Financial (Non- Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 contained in Notification No. DNBS. 193/DG(VL)-2007 dated February 22, 2007 in exercise of the powers conferred by sections 45J, 45JA, 45K and 45L of the Reserve Bank of India Act, 1934 (2 of 1934) and of all the powers enabling it in this behalf, hereby directs that the said directions shall be amended with immediate effect as follows, namely -

1. In paragraph 10, after clause (4) following clause shall be inserted:
"(5) Every systemically important non-deposit taking non-banking financial company shall disclose the following particulars in its Balance Sheet

(i) Capital to Risk Assets Ratio (CRAR)
(ii) Exposure to real estate sector, both direct and indirect; and
(iii) Maturity pattern of assets and liabilities."

2. In paragraph 16(1), the following sentence shall be added at the end of the paragraph:
“such ratio shall not be less than 12% by March 31, 2009 and 15% by March 31, 2010.”

(P. Krishnamurthy)
Chief General Manager In-Charge

Appendix - I

Maturity Profile - Liquidity

Heads of Accounts                                                                      Time-bucket category

A. Outflows

1&2. Capital funds


a) Equity capital, Non-redeemable or perpetual preference capital, Reserves, Funds and Surplus

In the 'over 5 years' time-bucket.

b) Preference capital - redeemable/non-perpetual

As per the residual maturity of the shares.

3. Grants, donations and benefactions

The 'over 5 years' time-bucket. However, if such gifts, grants, etc. are tied to specific end-use, then these may be slotted in the time- bucket as per purpose/end-use specified.

4. Bonds and debentures


a) Plain vanilla bonds/debentures

As per the residual maturity of the instruments

b) Bonds/debentures with embedded call/put options (including zero-coupon/deep discount bonds)

As per the residual period for the earliest exercise date for the embedded option.

5. Inter Corporate Deposits:

These, being institutional/wholesale deposits, should be slotted as per their residual maturity

6. Borrowings


a) Short Term borrowings

As per the residual maturity

b)  Long Term Borrowings


7. Current liabilities and provisions:


a) Sundry creditors

As per the due date or likely timing of cash outflows. A behavioral analysis could also be made to assess the trend of outflows and the amounts slotted accordingly.

b) Expenses payable (other than interest)

As per the likely time of cash outflow.

c) Advance income received, receipts from borrowers pending adjustment

In the 'over 5 years' time-bucket as these do not involve any cash outflow.

d) Interest payable on bonds/deposits

In respective time buckets as per the due date of payment.

e) Provisions for NPAs

The amount of provision may be netted out from the gross amount of the NPA portfolio and the net amount of NPA portfolio be shown as an item under inflows in stipulated time-buckets.

f) Provision for Investments portfolio

The amount may be netted from the gross value of investments portfolio and the net investments be shown as inflow in the prescribed time-slots. In case provisions are not held security-wise, the provision may be shown on "over 5 years" time bucket.

g) Other provisions

To be bucketed as per the purpose/nature of the underlying transaction.

B. Inflows


1. Cash

In 1 to 14 day time-bucket.

2. Remittance in transit


3. Balances with banks (in India only)


a) Current account

The stipulated minimum balance be shown in 1-3 years bucket and the remaining may be shown under   1 to 14 day time-bucket. time bucket.

b) Deposit accounts/short term deposits

As per residual maturity.

4. Investments (net of provisions)


a) Approved Trustee securities, government securities, bonds, debentures and other instruments

Respective maturity bucket. Investment classified as non-performing should be shown under 3-5 year bucket (sub-standard) or over 5 years bucket (doubtful).

b) Unlisted securities (e.g. shares, etc.)

In the 'over 5 year' time bucket

c) Unlisted  securities having a fixed term maturity

As per residual maturity

d) Venture capital units

In the 'over 5 year' time bucket

e) Equity shares, convertible preference shares, non-redeemable/perpetual preference shares, shares of subsidiaries/joint ventures and units in open ended mutual funds and other investments.

(i) Shares which are part of current investments may be shown in appropriate time bucket below one year.
(ii) Shares classified as "long term" investments may be kept in "over 5 years time" bucket.
(iii) However, the shares of the assisted units/companies acquired as part of the initial financing package, may be slotted in the relative time bucket keeping in view the pace of project implementation/time-overrun, etc., and the resultant likely timeframe for divesting such shares.

5. Advances (performing)


a) Bill of Exchange and promissory notes discounted and rediscounted

As per the residual usance of the underlying bills.

b) Term loans (rupee loans only)

The cash inflows on account of the interest and principal of the loan may be slotted in respective time buckets as per the timing of the cash flows as stipulated in the original/revised repayment schedule.

c) Corporate loans/short term loans

As per the residual maturity

6. Non-performing loans
(May be shown net of the provisions, interest suspense held )


a) Sub-standard


i) All overdues and instalments of principal falling due during the next three years

In the 3 to 5 year time-bucket.

ii) Entire principal amount due beyond the next three years

In the over  5 years time-bucket

b) Doubtful and loss


 i) All instalments of principal falling due during the next five years as also all overdues

 In the over 5 year time-bucket

ii) Entire principal amount due beyond the next five years

In the over 5 year time-bucket

7. Assets on lease

Cash flows from the lease transaction may be slotted in respective time buckets as per the timing of the cash flow.

9.    Fixed assets (excluding leased assets)

In the 'over 5 year' time-bucket. Interim cash flow may be shown under respective maturity buckets.

10. Other assets


(a) Intangible assets and items not representing cash inflows.

In the 'over 5 year' time-bucket.

(b)Other items (such as accrued income, other receivables, staff loans, etc.)

In respective maturity buckets as per the timing of the cash flows.

C. Contingent liabilities


(a) Letters of credit/guarantees (outflow through devolvement)

Based on the past trend analysis of the devolvement vis-à-vis the outstanding amount of guarantees (net of margins held), the likely devolvement should be estimated and this amount could be distributed in various time buckets on judgmental basis. The assets created out of devolvement may be shown under respective maturity buckets on the basis of probable recovery dates.

(b) Loan commitments pending disbursal (outflow)

NBFC should undertake a study of the behavioural  and seasonal pattern of potential availments  in the accounts and the amounts so arrived may be shown under relevant maturity buckets up to 12 months. 

(c) Lines of credit committed to/by other Institutions (outflow/inflow)

As per usance of bills to be received under the lines of credit. 


a) Any event-specific cash flows (e.g. outflow due to wage settlement arrears, capital expenses, income  tax refunds, etc.) should be shown in a time bucket corresponding to timing of such cash flows and should be reported against “ Outflows – Others”.

b) All overdue liabilities be shown in the 1 to 30/31 days time bucket.

c) Overdue receivables on account of interest and instalments of standard loans /  hire purchase assets / leased rentals should be slotted as below:


Overdue for less than one month.

In the 3 to 6 month bucket.


Interest overdue for more than one month but less than seven months (i.e. before the relative amount becomes NPA)

In the 6 to 12 month bucket.


Principal instalments overdue for 7 months but less than one year

In 1 to 3 year bucket.

D. Financing of gaps:

1 to 30/31 days time-bucket should not exceed the prudential limit of 15 % of outflows of each time-bucket and the cumulative gap upto the one year period should not exceed 15% of the cumulative cash outflows upto one year period. In case these limits are exceeded, the measures proposed for bringing the gaps within the limit, should be shown by a footnote in the relative statement.