What changed
RBI received suggestions on the connected lending instructions (paragraph 2(vi)) issued in the May 8, 2007 corporate governance circular. The central bank has decided to study these suggestions before making the connected lending rules operational. All other provisions of the May 8 circular must be complied with as originally directed.
What it means for you
NBFCs covered by the circular get temporary relief from implementing the specific connected lending requirements, but must still adhere to all other corporate governance norms. Lenders should not assume a relaxation of overall governance standards; the deferral is limited to one clause. Banks and NBFCs should continue to monitor for final guidelines on connected lending.
What you must do
- Comply meticulously with all corporate governance instructions from the May 8, 2007 circular except paragraph 2(vi) on connected lending.
- Do not implement connected lending norms until RBI issues final operational guidelines after reviewing suggestions.
- Review your NBFC's governance framework to ensure alignment with the effective parts of the circular.
- Track RBI announcements for the final decision on connected lending rules.
Who it affects
Deposit-taking NBFCs with deposit size of Rs 20 crore and above, Non-deposit taking NBFCs with asset size of Rs 100 crore and above (NBFC-ND-SI)
Which specific clause of the May 8, 2007 circular is deferred?
Paragraph 2(vi) of the circular, which contains instructions on connected lending, has been deferred pending review of suggestions.
Are all other corporate governance instructions still applicable?
Yes, all other instructions issued in the May 8, 2007 circular must be complied with meticulously as per RBI's directive.
When will the connected lending norms become operational?
RBI has not set a specific date. The norms will become operational after the central bank completes its evaluation of suggestions and any modifications considered necessary.