What changed
RBI amended the NBFC Prudential Norms Directions, 2007 to insert a definition for NOFHC as a non-deposit taking NBFC that holds shares of a banking company and all other financial services companies in its group. It also added a restriction that any NBFC held by an NOFHC cannot have exposure to promoters/promoter group, invest in equity/debt of other financial entities under the NOFHC, or invest in equity of other NOFHCs.
What it means for you
Banks and NBFCs must now recognize NOFHC as a distinct regulatory category with specific restrictions. Any NBFC under an NOFHC faces strict prohibitions on related-party exposures and cross-investments within the group, tightening governance and ring-fencing risks. Lenders dealing with promoter groups applying for bank licenses need to ensure compliance with these new NOFHC norms.
What you must do
- Update internal classification systems to identify NOFHC as a separate NBFC category.
- Ensure any NBFC under an NOFHC has no exposure to promoters, promoter group, or NOFHC itself.
- Verify that NBFCs under NOFHC do not invest in equity/debt of other financial entities within the same NOFHC group.
- Review loan and investment portfolios for any existing exposures that may violate the new restrictions.
- Apply to DBOD, Central Office, Mumbai for NOFHC registration after receiving in-principle bank license approval; certificate of registration is issued by DNBS.
Who it affects
Promoter groups applying for new private sector bank licenses, NBFCs that are or may become part of an NOFHC structure, Banks and financial institutions dealing with NOFHC-linked entities, RBI's Department of Non-Banking Supervision and Department of Banking Operations and Development
What is an NOFHC?
A Non-Operative Financial Holding Company is a non-deposit taking NBFC that holds shares of a banking company and all other financial services companies in its group, as per RBI's guidelines for licensing new private sector banks.
What restrictions apply to NBFCs under an NOFHC?
Such NBFCs cannot have any exposure to promoters/promoter group or the NOFHC, cannot invest in equity/debt of other financial entities under the same NOFHC, and cannot invest in equity of other NOFHCs.
How does a company register as an NOFHC?
The company must first receive in-principle approval for setting up a commercial bank from RBI. Then it applies to DBOD, Central Office, Mumbai with required documents. The certificate of registration is issued by DNBS.