NBFC Master Directions 2016 - both integration and disintegration

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Customer Care No. 91-11-45562222
NBFC Master Directions 2016 - both integration
and disintegration
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• On 1st September, 2016, the Reserve Bank of
  India(RBI) has issued two new sets of master
  directions, namely Master Direction - Non-Banking
  Financial Company - Non-Systemically Important
  Non-Deposit taking Company (Reserve Bank)
  Directions, 2016 and Master Direction -
  Non-Banking Financial Company - Systemically
  Important Non-Deposit taking Company and Deposit
  taking Company (Reserve Bank) Directions,
  2016 (Collectively referred to as Master
  Direction) for Non-Banking Financial Company
  (NBFCs) wherein RBI has compiled all earlier
  scattered regulations namely prudential norms,
  fair practice codes, registration requirements
  etc., applicable to an NBFC, under one umbrella.
• Few days earlier, RBI had come out with a similar
  direction for Core Investment Company (CIC),
  namely the Master Direction - Core Investment
  Companies (Reserve Bank) Directions, 2016)(CIC
  Directions 2016) wherein it had consolidated all
  regulations applicable to a CIC under one roof.
  With the new directions in place, now one will
  not have to look beyond the CIC Directions 2016
  to understand the provisions applicable to a CIC.
• Likewise, with the Master Directions in place one
  will not have to navigate from one circular to
  another to understand the various regulations
  applicable to an NBFC. Having said so, we can now
  establish that in order to understand the whole
  gamut of regulations applicable to an NBFC, one
  will not have to look beyond these new
  directions.

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• Multiple NBFCs
• Pursuant to Para 7.1 of the revised regulatory
  framework issued vide CC No. 002 dated November
  10, 2014 the concept of multiple NBFCs was
  introduced wherein total assets of NBFCs in a
  group including deposit taking NBFCs, if any,
  will be aggregated to determine if such
  consolidation falls within the asset sizes of the
  two categories viz., NBFCs-ND (those with assets
  of less than Rs. 500 crore) and NBFCs-ND-SI
  (those with assets of Rs. 500 crore and above).
  The consequence of this consolidation was
  far-reaching. Where the total of the assets of
  all NBFCs in the group would go beyond on Rs. 500
  crores, prudential norms as applicable to an
  NBFC-ND-SI would become applicable to all small
  NBFCs in the group as well. This meant that such
  small NBFCs had to comply with the stringent
  norms of capital adequacy, credit concentration
  norms etc. The introduction of this requirement
  was done with the purpose of curbing the
  malpractice of various corporates, who would
  float various NBFCs carrying on the same business
  merely to escape the rigid requirements laid down
  by RBI. The consolidation was faced with various
  hurdles, of which one pertained to the inclusion
  of assets of CICs in the group. Following were
  the views taken by the companies
• Aggregation of assets of NBFCs and all CICs (SIs
  and Non-SIs)
• 1. The rationale behind this approach is that
  CICs in their very foundation are nothing but
  NBFCs, therefore they are to be included in the
  asset aggregation process.
• Aggregation of assets of NBFCs and only CIC-Sis
• 2. The rationale was same as above, however, RBI
  vide its FAQs on NBFCs clarified that CICs that
  were exempted from registration shall not be
  included in the asset aggregation process. The
  text of FAQs is as follows

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• "Q 82. In terms of para 7.1 of the revised
  regulatory framework issued vide CC No. 002 dated
  November 10, 2014, total assets of NBFCs in a
  group including deposit taking NBFCs, if any,
  will be aggregated to determine if such
  consolidation falls within the asset sizes of the
  two categories viz., NBFCs-ND (those with assets
  of less than Rs. 500 crore) and NBFCs-ND-SI
  (those with assets of Rs. 500 crore and above).
  Regulations as applicable to the two categories
  will be applicable to each of the NBFC-ND within
  the group. Will this aggregation of assets apply
  to exempted category of CICs in the group?
• Ans. No, the group requires to aggregate total
  assets of only those NBFCs which have been
  granted Certificate of Registration by the Bank.
  However, it must be ensured that the capital of
  the exempted category of CIC has not come,
  directly or indirectly, from an entity/ group
  company which has accessed public
  funds."(Emphasis Supplied)
• Therefore, companies only included the assets of
  CIC-SIs.
• Aggregation of assets of only NBFCs in the group
• 3. The rationale behind this approach was that
  CICs, even though are NBFCs, but are governed by
  different set of directions, therefore are not to
  be included in the asset aggregation process.

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