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RBI caps lending limits of NBFCs

April 22, 2022

RBI caps lending limits of NBFCs
In yet another move to close the regulatory gap between banks and shadow banks, the Reserve Bank of India (RBI) has mandated exposure limits to the non-banking finance companies, in line with commercial banks.

In the large exposure framework released on Tuesday, the regulator capped aggregrate exposure of NBFCs which are in the upper layer toward one entity at 20% of capital base. The limit can only be extended by another 5% with board’s approval. For a particular borrower group, the cap is at 25%, with additional 10% if exposure is towards infrastructure.
 
The upper-layer NBFCs are typically the top 10 ones in terms of asset size.
 
However, NBFCs which are into infrastructure finance can have exposure of 25 per cent, with an option of additional 5 per cent of Tier I capital to a single counterparty. For a group of connected counterparties, infrastructure companies can have an exposure of 35 per cent of Tier-I capital.
 
In case of breach of the large exposure limits, the NBFCs have to report to the department of supervision of RBI. Consequently, it will be barred to undertake any further exposure (at the entity or group level) until it is down within the limit. The RBI has also warned that any failure to comply with the exposure limit may lead to imposition of penalties on the NBFCs.
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