Master Circular on Bank Finance to NBFCs (2013)

What changed

The 2013 master circular supersedes the July 2012 version, integrating all instructions issued up to June 30, 2013. It retains the deregulated approach for bank credit to registered NBFCs, including the removal of the Net Owned Fund (NOF) ceiling for NBFCs engaged in asset financing, loan, factoring, and investment activities. It also permits banks to finance NBFCs against second-hand assets they have financed.

What it means for you

Banks now have greater flexibility to extend need-based working capital and term loans to registered NBFCs without the earlier NOF-linked cap, enabling more tailored credit support. However, restrictions on bridge loans, advances against shares, and guarantees for fund placements remain, requiring careful compliance. The circular reinforces the need for banks to have board-approved loan policies for NBFC exposure.

What banks were required to do at the time

• Review and update your bank's loan policy for NBFCs with board approval, incorporating the 2013 master circular's provisions.
• Ensure compliance with prudential exposure ceilings and restrictions on prohibited activities like bridge loans and guarantees for fund placements.
• Assess and document the eligibility of NBFC borrowers, confirming they are registered with RBI (unless exempted) and engaged in permissible activities.
• Monitor exposure to NBFCs against second-hand assets, ensuring proper valuation and risk assessment.

Who it affects

All Scheduled Commercial Banks (excluding RRBs), NBFCs registered with RBI (including those engaged in asset financing, loan, factoring, and investment activities), Residuary Non-Banking Companies (RNBCs)