What changed
NBFC-ML can now offset exposures with credit risk transfer instruments including cash margins with right to set off, central government guaranteed claims at 0% risk weight, state government guaranteed claims at 20% risk weight, and guarantees under CGTMSE, CRGFTLIH, and NCGTC schemes, provided they are direct, explicit, irrevocable, and unconditional. Exemptions from concentration norms now include exposures to Government of India and State Governments eligible for zero percent risk weight and exposures fully guaranteed by Government of India. NBFC-BL must implement an internal Board-approved policy for credit/investment concentration limits for both single borrower/party and single group of borrowers/parties.
What it means for you
NBFCs in the Middle Layer get more flexibility to manage large exposures using recognized credit risk mitigation tools, potentially freeing up lending capacity. Base Layer NBFCs face new compliance requirements to formalize concentration limits through board policies. All NBFCs must ensure disclosures reflect the updated computation methods for exposure limits.
What you must do
- Update internal policies to recognize eligible credit risk transfer instruments for NBFC-ML exposure offsetting.
- Ensure NBFC-BL has an internal Board-approved policy for single borrower/party and single group of borrowers/parties concentration limits.
- Revise disclosure calculations in annual financial statements per the new exposure computation rules.
- Verify that guarantees used for offsetting by NBFC-ML and NBFC-UL meet the direct, explicit, irrevocable, and unconditional criteria.
Who it affects
NBFC-Middle Layer (NBFC-ML), NBFC-Base Layer (NBFC-BL), NBFC-Upper Layer (NBFC-UL) - indirectly via LEF consistency, Housing Finance Companies (HFCs)
What must NBFC-BL do under the updated norms?
NBFC-BL must put in place an internal Board-approved policy for credit/investment concentration limits for both single borrower/party and single group of borrowers/parties, as per the circular.