The Reserve Bank of India on Wednesday amended the concentration risk framework for non banking financial companies, withdrawing regulatory exemptions granted to government-owned NBFCs and bringing them under the layer-based exposure limits prescribed under the Scale-Based Regulatory framework.
The central bank said government-owned NBFCs will now be guided by the concentration norms and exposure limits applicable to the regulatory layer in which they are classified.
What has changed for government-owned NBFCs?
Government-owned NBFCs will no longer enjoy exemptions from credit and investment concentration norms. They will now have to comply with borrower and group exposure limits applicable to their respective regulatory layers.
What happens to existing breaches?
The RBI has allowed existing breaches, including already sanctioned limits, to continue until maturity. However, these entities will not be allowed to take any further exposure to such obligors.
Can government-owned NBFCs exceed exposure limits?
Yes, but only under specific conditions. Government-owned NBFCs in the Middle Layer and Upper Layer may take additional exposures beyond prudential limits provided the incremental exposure is fully covered by eligible credit risk transfer instruments, resulting in zero net incremental exposure.
How will State Government guarantees be treated?
Exposures backed by State Government guarantees will be treated as exposures to the guaranteeing State Government and will be exempt from prudential exposure limits. However, these exposures will attract a risk weight of 20 per cent.
What changes have been made for Infrastructure Finance Companies (IFCs)?
The RBI has increased the exposure limit for Infrastructure Finance Companies to a group of connected counterparties to 45 per cent of Tier-I capital. Earlier, IFCs could exceed the limit by 20 per cent of Tier-I capital, and the amendments formalise the enhanced limit.
When do these norms come into effect?
The revised concentration norms come into force immediately from the date of issuance.
