The Reserve Bank of India vide its notification dated 19th April 2022, has issued guidelines for non-banking financial companies in upper layer. The guidelines set out to identify large exposures, refine the criteria for grouping of connected counterparties and put in place reporting norms for large exposures.
The guidelines shall be applicable to NBFC-UL, both at the solo level and at the consolidated (group) level. The Exposure shall comprise both on and off-balance sheet exposures by the NBFC-UL.
An upper-layer NBFC must not have an exposure higher than 20 percent of its capital base to any entity, and its board can approve an additional 5 percent exposure limit to take it to 25 percent.
Provided that an Infrastructure Finance Company (IFC) may further exceed the exposure limit by 5 percent of Tier I capital for exposure to a single counterparty.
Provided further that an NBFC-UL may exceed the exposure limit by 5 percent of its Tier I capital for exposure to a single counterparty, if the additional exposure is on account of infrastructure ‘loan and/or investment’. However single counterparty limit shall not exceed 25% in any case for NBFC-UL (other than IFC) and 30% for NBFC-UL(IFC).
NBFC-UL shall report its Large Exposures to the Reserve Bank (Department of Supervision, Central Office). The LEF reporting shall cover the following:
- all exposures, meeting the definition of large exposure;
- all other exposures, measured as specified in paragraph 6 of this framework without offsetting exposure value with credit risk transfer instruments, where values stand equal to or above 10 percent of the NBFC-UL’s eligible capital base;
- all the exempted exposures with values equal to or above 10 percent of the NBFC-UL’s eligible capital base;
- 10 largest exposures included in the scope of application, irrespective of the values of these exposures relative to the NBFC-UL’s eligible capital base.
