NBFC Prudential Norms Update: July 2012

What changed

RBI issued a consolidated version of the Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms Directions, 2007, updated to June 30, 2012. This replaces the earlier 1998 directions (superseded by the 2007 directions) and brings all current instructions under one notification. The updated notification was placed on the RBI website for easy reference.

What it means for you

Banks and lenders dealing with NBFCs must ensure their counterparties comply with the updated prudential norms, especially on asset classification and capital adequacy. The circular clarifies which NBFCs are exempt from certain requirements, reducing compliance burden for smaller entities. It reinforces RBI's focus on systemic risk management for systemically important non-deposit taking NBFCs.

What banks were required to do at the time

• Review your NBFC counterparties' compliance with the updated prudential norms, especially capital adequacy and concentration limits.
• Update internal credit risk assessment frameworks to reflect the revised asset classification and provisioning rules.
• Ensure audit committees of NBFCs you finance or partner with are constituted as per the directions.
• Check if your NBFC clients are exempt from paragraphs 16 and 18 (capital adequacy and concentration norms) based on their classification.

Who it affects

Non-deposit taking NBFCs (including infrastructure finance companies), Loan companies, investment companies, and asset finance companies, Banks and lenders with exposure to NBFCs, Auditors and compliance teams of NBFCs