What changed
RBI issued a new master circular (DOR.CRE.REC.No.77/21.04.172/2021-22) replacing the 2015 version, consolidating all instructions up to January 4, 2022. The ceiling on bank credit linked to Net Owned Fund (NOF) for registered NBFCs has been withdrawn, allowing need-based working capital and term loans. Restrictions on bridge loans, advances against shares, and guarantees for fund placement with NBFCs remain in force.
What it means for you
Banks now have greater operational freedom to extend credit to RBI-registered NBFCs without the earlier NOF-linked cap, subject to board-approved policies and prudential exposure norms. However, sensitive activities like interim finance and guarantees for NBFC fund placement continue to be prohibited. This circular reinforces the need for banks to maintain robust due diligence and compliance frameworks.
What you must do
- Review and update your bank's loan policy for NBFC financing to align with the new master circular and board approval requirements.
- Ensure all credit exposures to NBFCs comply with prudential ceilings and exposure norms as per para 7 and 8 of the circular.
- Verify that no bridge loans, advances against shares, or guarantees for fund placement with NBFCs are extended, as per para 6 restrictions.
- Train credit officers on the withdrawn NOF ceiling and the expanded scope for need-based working capital and term loans to registered NBFCs.
Who it affects
All Scheduled Commercial Banks (excluding RRBs), Credit departments handling NBFC lending, Risk management and compliance teams, Board of Directors approving loan policies
Does this circular apply to Regional Rural Banks?
No, the circular explicitly excludes Regional Rural Banks (RRBs) from its scope.
What is the status of the earlier NOF-linked ceiling for NBFCs?
The ceiling on bank credit linked to Net Owned Fund (NOF) has been withdrawn for all NBFCs registered with RBI, allowing banks to extend need-based facilities.
Are there any activities for which bank finance to NBFCs is still prohibited?
Yes, prohibitions remain on bridge loans/interim finance, advances against collateral security of shares, and guarantees for placement of funds with NBFCs.