RBI caps NBFC IPO Funding

The Reserve Bank of India (RBI) announced a scale-based regulation of non-banking finance companies on October 22, 2021.

Key Points

  • RBI’s regulation also comprises of a ceiling on IPO funding per borrower and changes in minimum net owned fund, capital requirements and classification of non-performing assets.
  • Under the new framework, RBI has kept a ceiling of Rs 1 crore per borrower to finance subscription of an initial public offering (IPO).
  • Overall guidelines will be effective from October 1, 2022, while the instructions related to the ceiling on IPO funding will come into effect from April 1, 2022.

What changes have been made?

Under the new framework, regulatory structure of non-banking financial companies (NBFCs) will comprise of four layers based on the size, activity, and perceived riskiness namely top layer, upper layer, middle layer, and base layer.

RBI’s discussion paper

RBI had also issued a discussion paper on the topic in January 2021 and had opened public comments on it. In the discussion paper, RBI noted that IPO financing of the individual NBFCs has come under scrutiny. There is a limit of Rs 10 lakh for banks for IPO financing while there is no such limit for NBFCs.

Sensitive Sector exposure norms

RBI has also proposed sensitive sector exposure norms for the middle and upper layers of NBFCs. NBFCs will fix board-approved internal limits for SSE for capital market as well as commercial real estate exposures, separately. A sub-limit within the commercial real estate exposure ceiling will also be fixed internally to finance land acquisition.

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