What changed
RBI introduced detailed regulatory restrictions on loans and advances for NBFCs in Middle and Upper Layers, as per the SBR framework announced in October 2021. These guidelines specify conditions for granting loans to directors, relatives, senior officers, and real estate borrowers, with a threshold of ₹5 crore for board approval and declaration requirements for director-related loans.
What it means for you
NBFCs in Middle and Upper Layers must tighten internal controls on lending to related parties and real estate. Loans above ₹5 crore to directors or their interests require board sanction, and all loans to senior officers must be reported to the board. Real estate disbursements are conditional on prior statutory clearances, impacting loan processing timelines.
What you must do
- Update loan sanction policies to require board approval for loans of ₹5 crore and above to directors, their relatives, or entities where they are interested.
- Ensure all loans to senior officers are reported to the board and that no senior officer sanctions credit to their own relatives.
- Implement a declaration process for borrowers to disclose relationships with directors or senior officers for loans of ₹5 crore and above.
- Verify that real estate borrowers have obtained all necessary government/statutory approvals before disbursing loans.
- Train credit teams on the new SBR lending restrictions and update internal delegation of powers accordingly.
Who it affects
NBFCs classified as Middle Layer (ML) and Upper Layer (UL), Directors and senior officers of NBFCs, Real estate borrowers seeking loans from NBFCs
What is the threshold for board approval on loans to directors?
Loans and advances aggregating ₹5 crore and above to directors, their relatives, or entities where they are interested require sanction from the Board of Directors or a committee of directors.
Are there any restrictions on loans to senior officers?
Yes, all loans to senior officers must be reported to the board. Additionally, no senior officer or committee including a senior officer can sanction a credit facility to a relative of that officer; such proposals must go to the next higher sanctioning authority.
What is the condition for disbursing real estate loans?
NBFCs must ensure that borrowers have obtained prior permission from government or local statutory authorities for the project before disbursement, though loan sanction can proceed in normal course.