What changed
RBI issued a master circular consolidating all existing corporate governance instructions for NBFCs as of June 30, 2013. It reiterated requirements for Audit Committees (assets ≥₹50 crore), suggested Nomination Committees for deposit-taking NBFCs with deposits ≥₹20 crore and systemically important non-deposit NBFCs (assets ≥₹100 crore), and recommended (may form) Risk Management Committees for NBFCs with public deposits ≥₹20 crore or assets ≥₹100 crore. The circular also mandated regular board-level disclosures on risk management and governance compliance.
What it means for you
NBFCs must strengthen board oversight through mandatory committees, improving governance and transparency. Lenders should expect stricter compliance checks from NBFC borrowers, especially on committee composition and disclosure practices. This may increase operational costs for NBFCs but reduces governance risks for banks extending credit to them.
What you must do
- Review your NBFC borrowers' compliance with Audit Committee requirements (assets ≥₹50 crore) and Nomination Committee guidelines (deposits ≥₹20 crore or systemically important NBFCs).
- Ensure NBFC counterparties provide regular board-level disclosures on risk management systems and governance committee compositions.
- Update internal credit assessment frameworks to factor in NBFC governance compliance as per this master circular.
- Advise NBFC clients to consider forming Risk Management Committees if they have public deposits ≥₹20 crore or assets ≥₹100 crore.
Who it affects
All deposit-taking NBFCs with deposit size of ₹20 crore and above, All non-deposit taking NBFCs with asset size of ₹100 crore and above (NBFC-ND-SI), NBFCs with assets of ₹50 crore and above (Audit Committee requirement), Banks and lenders extending credit to NBFCs
Which NBFCs are required to form a Nomination Committee?
Deposit-taking NBFCs with deposit size of ₹20 crore and above, and all systemically important non-deposit taking NBFCs (asset size ₹100 crore and above) may form a Nomination Committee to ensure directors are 'fit and proper'.
What are the disclosure requirements under this circular?
NBFCs should regularly report to their Board on progress in risk management systems, risk management policy and strategy, and conformity with corporate governance standards including committee compositions and their roles.