What changed
RBI replaced the earlier category of 'similar commitments with original maturity up to one year or unconditionally cancellable at any time' with a stricter definition: only commitments that are unconditionally cancellable by the NBFC without prior notice or that automatically cancel upon borrower credit deterioration qualify for zero capital charge. A new example clarifies that for staged drawdowns, the undrawn portion is computed only for the current stage, not the entire sanction, and credit conversion factors (CCF) of 20% (if stage ≤1 year) or 50% (if >1 year) apply.
What it means for you
NBFCs must now carefully assess each drawdown stage separately when calculating capital for undrawn commitments, avoiding the earlier practice of applying a single CCF to the total undrawn amount. This increases capital requirements for multi-stage project loans where later stages are not unconditionally cancellable. Lenders need to update their internal systems and credit approval processes to tag each stage's cancellation terms and maturity correctly.
What you must do
- Review all existing undrawn facility commitments and reclassify them based on the new definition of unconditionally cancellable commitments.
- Update internal capital adequacy calculation models to compute undrawn portions stage-wise for multi-tranche sanctions.
- Train credit and risk teams on the revised treatment of staged drawdowns and the applicable CCFs (20% for ≤1 year, 50% for >1 year).
- Ensure loan documentation explicitly states cancellation terms to support the chosen capital treatment.
Who it affects
All NBFCs (excluding RNBCs), Credit risk management teams, Capital adequacy and compliance departments, Project finance and infrastructure lending divisions
What is the key change in the definition of unconditionally cancellable commitments?
Earlier, commitments with original maturity up to one year or those unconditionally cancellable at any time were treated similarly. Now, only commitments that are unconditionally cancellable by the NBFC without prior notice or that automatically cancel due to borrower credit deterioration qualify for zero capital charge.
How should we calculate the undrawn portion for a multi-stage project loan?
For a loan sanctioned in stages, the undrawn portion is computed only for the current stage. For example, if Stage I allows Rs. 150 cr and Rs. 50 cr is already drawn, the undrawn is Rs. 100 cr. The CCF is 20% if Stage I completion is within one year, else 50%.
Does this circular apply to deposit-accepting NBFCs as well?
Yes, the RBI issued two parallel notifications—one for non-deposit taking NBFCs (Notification No. DNBS(PD).249) and one for deposit-accepting NBFCs (Notification No. DNBS(PD).248)—both effective August 1, 2012, with identical amendments.