1. As per Section 45-IA of the RBI Act, 1934, all the NBFCs are required to obtain a Certificate of Registration (CoR) from the RBI to commence/carry on business of NBFI. The said section also prescribes the minimum Net Owned Fund (NOF) requirement. Every NBFC is required to have an NOF of twenty-five lakh rupees or such other  amount, not exceeding two hundred lakh rupees, as the Bank may, by  notification in the Official Gazette, specify¹.
2. The minimum NOF requirement for new companies applying for grant of CoR to commence business of an NBFI was increased from Rs. 25 lakh to Rs. 200 lakh vide Notification No.DNBS.132/CGM(VSNM)-99 dated April 20, 1999. However, the minimum NOF for companies that were already registered with RBI or to such companies whose applications for a certificate of registration had been submitted on or before April 20, 1999 was retained at Rs. 25 lakh.
3. The position has been further revised to increase the NOF from Rs. 25 lakh to Rs. 200 lakh even for the companies that were allowed to keep their NOF at Rs. 25 lakh pursuant to Notification No.DNBS.132/CGM(VSNM)-99 dated April 20, 1999. As per the Revised Directions, it shall be mandatory for all NBFCs to attain a minimum NOF of Rs. 200 lakh by the end of March 2017, as per the milestones given below:
   1. Rs. 100 lakh by the end of March 2016
   2. Rs. 200 lakh by the end of March 2017
4. The NBFCs having NOF of less than Rs. 200 lakh are required to submit certificate from their statutory auditor certifying compliance to the revised levels at the end of each of the two financial years as given above.
5. Any NBFC failing to achieve the prescribed NOF of Rs. 200 lakh within the stipulated period shall be ineligible to hold the CoR which shall be liable for cancellation as per the process of cancellation initiated by RBI.

1. Unrated Asset Finance Company (AFC) having NOF of Rs. 25 lakh or more, complying with all the prudential norms and maintaining capital adequacy ratio of not less than fifteen per cent, is allowed to accept or renew public deposits not exceeding one and half times of its NOF or up to Rs. 10 crore, whichever is lower.
2. AFCs which are rated and complying with all the prudential regulations are allowed to accept deposits up to 4 times of their NOF.

Revised Regulations:

1. only rated deposit taking NBFCs having investment grade rating can access public deposits;
2. existing unrated AFCs are required to get rated by March 31, 2016.
3. AFCs not having investment grade rating by March 31, 2016 will not be allowed to renew existing or accept fresh deposits thereafter.
4. In the intervening period, i.e. till March 31, 2016, unrated AFCs or those with a sub-investment grade rating cannot accept fresh deposits and are only allowed to renew existing deposits on maturity unless an investment grade rating is obtained.
5. the limit for acceptance of deposits for rated AFCs has been reduced from 4 times to 1.5 times of NOF
6. AFCs holding deposits in excess of the revised limit are not allowed to access fresh deposits or renew existing deposits until they are in conformity with the revised limit

1. NBFCs-ND with assets less than Rs.100 crore, and
2. NBFCs-ND-SI with assets Rs.100 crore and above (categorised as non–deposit taking systemically important NBFCs).

NBFCs-ND will be considered systemically important upon reaching the threshold of asset size of Rs. 500 crore and above as per the last audited balance sheet.

Therefore, as per the Revised Directions, NBFCs-ND are categorised as follows:

1. NBFCs-ND with assets less than Rs. 500 crore, and
2. NBFCs-ND-SI with assets Rs. 500 crore and above.

It must be noted that, as per the Revised Directions, in order to determine the total assets of an NBFC, the assets of all the NBFCs in a group including deposit taking NBFCs, if any, will be aggregated. Therefore, regulations as applicable to the abovementioned two categories will also be applicable to each of the NBFC-ND within the group. The responsibility of certification of the asset size of all the NBFCs in the ²Group shall be that of the Statutory Auditors.

1. NBFCs-ND with an asset size of less than Rs. 500 crore:
   1. shall not be subjected to any regulation either prudential or conduct of business regulations viz., Fair Practices Code (FPC), KYC, etc., if they have not accessed any ³ public funds and do not have a customer interface.
   2. having customer interface will be subjected only to conduct of business regulations including FPC, KYC etc., provided they are not accessing public funds.
   3. accepting public funds will be subjected to limited prudential regulations but not conduct of business regulations if they do not have customer interface.
   4. having public funds and customer interface will be subjected both to limited prudential regulations and conduct of business regulations.
2. NBFCs-ND with assets of Rs. 500 crore and above, irrespective of whether they have accessed public funds or not, are required to comply with prudential regulations as applicable to NBFCs-ND-SI. They shall also comply with conduct of business regulations if customer interface exists.

   Prudential Regulations Applicable to NBFCs-ND-SI (asset of Rs. 500 crore and above) and all NBFCs-D:

   (i) Tier 1 Capital
   All NBFCs-ND which have an asset size of Rs. 500 crore and above, and all NBFCs-D, are required to maintain minimum Tier 1 Capital of 10%. The compliance to the revised Tier 1 capital has been phased in as follows:

   • 8.5% by end of March 2016.
   • 10% by end of March 2017.

   (ii) Asset Classification
   As per the existing regulations, an asset is classified as Non-Performing Asset (NPA) after remaining overdue for a period of:

   • six months or more for loans; and
   • twelve months or more in case of lease rental and hire purchase instalments.

   Which is in contrast with the period of 90 days for banks. In order to bring uniformity in asset classification norms for NBFCs and banks, the regulations have been revised which shall be applicable in a phased manner, as given below.
   Lease Rental and Hire-Purchase Assets shall become NPA:

   • if they become overdue for 9 months (currently 12 months) for the financial year ending March 31, 2016;
   • if overdue for 6 months for the financial year ending March 31, 2017; and
   • if overdue for 3 months for the financial year ending March 31, 2018 and thereafter.

   Assets other than Lease Rental and Hire-Purchase Assets shall become NPA:

   • if they become overdue for 5 months for the financial year ending March 31, 2016;
   • if overdue for 4 months for the financial year ending March 31, 2017; and
   • if overdue for 3 months for the financial year ending March 31, 2018 and thereafter.

   For all loan and hire-purchase and lease assets, sub-standard asset would mean:

   • an asset that has been classified as NPA for a period not exceeding 16 months (currently 18 months) for the financial year ending March 31, 2016;
   • an asset that has been classified as NPA for a period not exceeding 14 months for the financial year ending March 31, 2017; and
   • an asset that has been classified as NPA for a period not exceeding 12 months for the financial year ending March 31, 2018 and thereafter.

   For all loan and hire-purchase and lease assets, doubtful asset would mean:

   • an asset that has remained sub-standard for a period exceeding 16 months (currently 18 months) for the financial year ending March 31, 2016;
   • an asset that has remained sub-standard for a period exceeding 14 months for the financial year ending March 31, 2017; and
   • an asset that has remained sub-standard for a period exceeding 12 months for the financial year ending March 31, 2018 and thereafter.

   For the existing loans, a one-time adjustment of the repayment schedule, which shall not amount to restructuring will, however, be permitted.

   iii. Provisioning for Standard Assets
   The provision for standard assets for NBFCs-ND-SI has been increased to 0.40% of the outstanding from the existing 0.25%. The compliance to the revised norm will be phased in the following manner:

1. Board Committees
   1. As per the Revised Directions, all NBFCs-D and NBFCs-ND-SI are required to constitute an Audit Committee (earlier it was applicable only to NBFCs-D with deposits of Rs. 20 crore and above, and NBFCs-ND with asset size of Rs. 50 crore and above);
   2. As per the Revised Directions, the advise to consider constituting Nomination Committee to ensure ‘fit and proper’ status of proposed/existing Directors and Risk Management Committee has been made applicable to all NBFCs-D and NBFCs-ND-SI.
   3. Further, advise that it was desirable to stipulate rotation of partners of audit firms appointed for auditing the company every three years has been made applicable to all NBFCs-D and NBFCs-ND-SI.
   4. Additionally, the Audit Committee of all NBFCs-ND-SI and NBFCs-D are required to ensure that an Information Systems Audit of the internal systems and processes is conducted at least once in two years to assess operational risks faced by the company.
2. Fit and Proper Criteria for Directors
   The ‘fit and proper’ criteria of directors and shareholders responsible for steering the affairs of the companies has also been revised to include the following additional requirements that are applicable to all NBFCs-ND-SI and NBFCs-D with effect from March 31, 2015:
   1. It shall be mandatory to have a policy in place for ascertaining the fit and proper criteria at the time of appointment of Directors and on a continuing basis. The policy on the fit and proper criteria should be on the lines of the prescribed guidelines.
   2. A declaration and undertaking with respect to disclosures shall be obtained from the Directors in terms with the prescribed draft.
   3. In addition, the Directors shall sign a Deed of Covenant as prescribed.
   4. NBFCs shall, within 15 days of the close of the quarter, furnish to the Reserve Bank a quarterly statement on change of Directors certified by the auditors and a certificate from the Managing Director that fit and proper criteria in selection of directors have been followed.
3. Disclosures in Financial Statements – Notes to Account
   1. i. All the NBFCs-ND-SI and NBFCs-D are required to make additional disclosures in their balance sheets relating to CRAR, exposure to real estate sector (both direct and indirect), and maturity pattern of assets and liabilities respectively (earlier applicable only to NBFCs with assets of Rs. 100 crore and above).
   2. ii. In addition to the above-mentioned, all the NBFCs-ND-SI and NBFCs-D are shall additionally disclose the following in their Annual Financial Statements, with effect from March 31, 2015:
      • Registration/ licence/ authorisation obtained from other financial sector regulators;
      • Ratings assigned by credit rating agencies and migration of ratings during the year;
      • Penalties, if any, levied by any regulator;
      • Information viz., area, country of operation and joint venture partners with regard to Joint Ventures and Overseas Subsidiaries; and
      • Asset liability profile, extent of financing of parent company products, NPAs and movement of NPAs, details of all off-balance sheet exposures, structured products issued by them as also securitization/ assignment transactions and other disclosures as prescribed.

• ‘Notified NBFCs’ in the circular on Early Recognition of Financial Distress, Prompt Steps for Resolution and Fair Recovery for Lenders: Framework for Revitalizing Distressed Assets in the Economy (dated 21st March, 2014) shall henceforth be defined as a) NBFCs with assets of Rs. 100 crore and above, b) NBFCs-D, and c) all NBFC-Factors.
• The Revised Directions shall be applicable to NBFCs-MFI also except wherever in conflict with the provision of Non-Banking Financial Company- Micro Finance Institutions (Reserve Bank) Directions, 2011 (“MFI Directions”), in which case the MFI Directions will be followed.
• The minimum Tier 1 capital requirement for NBFCs primarily engaged in lending against gold jewellery remains unchanged for the present.
• The Revised Directions shall be applicable to registered Core Investment Companies except wherever contrary with the provisions of Core Investment Companies (Reserve Bank) Directions, 2011 (“CIC Directions”), in which case the CIC Directions will be followed.
  
  Application of other Laws not barred
  (i)   The Revised Directions are in addition to, and not in derogation of the provisions of any other law, rules, regulations or directions, for the time being in force.
  (ii) The RBI may, if it considers necessary for avoiding any hardship or for any other just and sufficient reason, exempt any NBFC or class of NBFCs, from all or any of the provisions of the Revised Directions either generally or for any specified period, subject to such conditions as the RBI may impose.