What changed
RBI updated Master Circular No. 116 (the 2007 Prudential Norms Directions) with instructions up to June 30, 2009. The circular consolidates existing prudential norms for deposit-accepting NBFCs and RNBCs, including definitions for asset quality (e.g., doubtful asset is an asset that remains sub-standard for a period exceeding 18 months) and investment valuation methods (break-up value, earning value). No new regulatory requirements were added; it is purely a compilation exercise.
What it means for you
For NBFCs and RNBCs, this circular serves as a single reference document for prudential compliance, reducing the need to track multiple circulars. The definitions (e.g., carrying cost, current investment, doubtful asset) remain unchanged, so existing classification and provisioning practices continue. Banks lending to or investing in these NBFCs can rely on this consolidated framework for assessing their counterparties' regulatory compliance.
What you must do
- Replace the old Master Circular No. 116 with this updated version for all compliance references.
- Ensure your NBFC clients are aware of the consolidated definitions, especially for asset classification (e.g., doubtful asset is an asset that remains sub-standard for a period exceeding 18 months).
- Review internal policies to align with the unchanged prudential norms, particularly for income recognition and investment valuation.
- Update training materials for staff dealing with NBFC exposures to reflect the latest circular reference.
Who it affects
Non-Banking Financial Companies (NBFCs) accepting/holding public deposits, Residuary Non-Banking Companies (RNBCs), Banks with exposure to deposit-taking NBFCs, RBI's Department of Non-Banking Supervision
Does this circular introduce any new prudential norms for NBFCs?
No. This is a consolidation of existing directions from the 2007 Prudential Norms Directions. No new norms or thresholds have been added.
What is the definition of a 'doubtful asset' under this circular?
A doubtful asset is any term loan, lease asset, hire purchase asset, or other asset that has remained a sub-standard asset for a period exceeding 18 months.
Which NBFCs are exempt from these directions?
Government companies as defined under Section 617 of the Companies Act, 1956 that accept/hold public deposits are exempt. Mutual benefit financial companies and mutual benefit companies are also excluded.