Nbfc Legal Framework

RBI`s current approach is based on the size of NBFCs, and the failure of a large and deeply interconnected NBFC is capable of transmitting shocks throughout the financial sector and even disrupting the operations of small and medium-sized NBFCs. For this reason, the RBI decided to establish a legal framework for a scale-based regulatory structure (SBR) for NBFCs consisting of four layers depending on their size. Activity and perceived risk. However, NBFC-UL may withdraw from the enhanced regulatory framework within five years if the move is due to a voluntary strategic move to readjust operations in accordance with a policy approved by the Commission. [15] Disclaimer – This document is provided for informational purposes only and the opinions expressed herein are personal to the author and should not be reproduced as legal advice or opinions to anyone, and therefore no legal advice can be implied. The Note is not intended to cause anyone to refrain from committing or acting in any particular manner and that you should seek legal advice before acting on any information or opinion expressed herein. We expressly disclaim any financial or other liability arising from any action taken by any person based on this notice. The SBR framework covers various aspects of NBFC regulation, including capital requirements, governance standards, regulatory regulation, etc., and so on.22 Scale-based regulation (SBR) will be introduced in October 2021: A revised regulatory framework for NBFCs will be introduced, providing an overview of the SBR structure, a set of new regulations that will be introduced and the corresponding timelines. Detailed guidelines, as described in the Appendix, will be published at a later date. Following the completion of the above-mentioned working document on 22.10.2021, the RBI published the integrated regulatory framework in the SBR framework for NBFCs and the corresponding timelines. In addition, detailed guidelines are then published by RBI. These guidelines will come into effect on October 1, 2022.

The regulatory regime for the NBFC sector is based on the principle of proportionality, which allows the sector adequate operational flexibility through calibrated regulatory measures. However, there have been rapid developments in recent years that have led to a significant increase in the size and interconnection of the NBFC sector. It is therefore necessary to review the regulatory framework in light of the evolution of the NBFC`s risk profile. The new digital lending policies introduced by RBI are certainly a welcome step in how the industry should adhere to a framework when handling customer data, said Yashoraj Tyagi, CTO and CBO, CASHe, at the 4th edition of the CXO ETBFSI Conclave. Over the past 5 years, the way customers process digital loans has changed significantly. This has inevitably led to a shift in the way companies access data. “Ultimately, as the guidelines dictate, customers should be at the center of how they choose to provide access to data,” he said. In addition, Tyagi spoke about how BNPL has operated as a financial product in the Indian economy. “It has worked so far because India has moved from a taboo economy to an economy driven by a healthy combination of savings and credit.

However, the possibility of exponential growth of BNPL is doubtful. Finally, Tyagi acknowledged that the relationship between the bank and fintech is a positive-sum game. Both companies bring their own strengths and key values. Thus, when such cooperation takes place, both parties tend to benefit. According to the Reserve Bank`s circular on the removal of exemptions for sovereign NBFCs dated May 31, 2018, state-owned NBFCs are still in transition to reach the minimum CRAR. It was therefore decided not to subject these NBFCs to the upper class regulatory framework at this time. The decision to include eligible state NBFCs that meet the criteria set out in the top tier will be made at a later date, and until that date, the NBFC-ML guidelines will apply. According to RBI, the NBFC industry has evolved significantly over the years in terms of size, complexity and interconnectedness within the financial sector.