What changed
RBI recommended that NBFC-D with deposits of ₹20 crore or more and NBFC-ND-SI with assets of ₹100 crore or more may consider forming a Nomination Committee to ensure directors are 'fit and proper'. It also suggested that NBFC-D with deposits of ₹20 crore or more may consider constituting an Audit Committee and a Risk Management Committee. Additionally, all covered NBFCs should regularly report to the board on risk management and corporate governance compliance, and adhere to connected lending norms.
What it means for you
These guidelines push NBFCs toward stronger governance frameworks, aligning them with banking sector standards. Banks lending to or partnering with these NBFCs can expect better transparency and risk management, reducing counterparty risk. However, compliance costs may rise for smaller NBFCs, potentially affecting their profitability and credit profiles.
What you must do
- Review your NBFC borrowers' compliance with these governance guidelines during credit assessment.
- Update internal policies to reflect enhanced disclosure and risk management expectations from NBFC counterparties.
- Monitor NBFCs' board committee compositions and connected lending disclosures as part of ongoing due diligence.
Who it affects
Deposit-taking NBFCs with deposits of ₹20 crore and above, Systemically important non-deposit-taking NBFCs (NBFC-ND-SI) with assets of ₹100 crore and above, Banks and financial institutions with exposure to these NBFCs
Which NBFCs are covered by these guidelines?
The guidelines apply to deposit-taking NBFCs with deposit size of ₹20 crore and above, and non-deposit taking NBFCs with asset size of ₹100 crore and above (NBFC-ND-SI).
What is the key requirement regarding director appointments?
Covered NBFCs may form a Nomination Committee to ensure that proposed and existing directors meet 'fit and proper' criteria, as per Section 45-IA(4)(c) of the RBI Act.
Do these guidelines affect banks directly?
Not directly, but banks with exposure to these NBFCs should assess their governance compliance to manage credit and counterparty risk effectively.