RBI notifies regulatory restriction on loans and advances in respect of NBFCs.

The Reserve Bank of India on 19^th April 2022, has notified the regulatory changes for NBFCs by amending its earlier circular dated October 2021 on scale based regulation and certain regulatory restrictions on lending were introduced in respect of NBFCs placed in different layers.

The guidelines shall be applicable to NBFC middle and upper layer and shall be effective from 1^st October 2022.

As per the guidelines, NBFC shall not grant loans and advances aggregating Rupees five crores and above to –

• their directors (including the Chairman/ Managing Director) or relatives of directors.
• any firm in which any of their directors or their relatives is interested as a partner, manager, employee or guarantor.
• any company in which any of their directors, or their relatives is interested as a major shareholder, director, manager, employee or guarantor.

Provided that a director or her relatives shall be deemed to be interested in a company, being the subsidiary or holding company, if she is a major shareholder or is in control of the respective holding or subsidiary company.

Provided that the director who is directly or indirectly concerned or interested in any proposal should disclose the nature of her interest to the Board when any such proposal is discussed. She should recuse herself from the meeting unless her presence is required by the other directors for the purpose of eliciting information and the director so required to be present shall not vote on any such proposal.

The proposals for credit facilities of an amount less than Rupees five crore to these borrowers may be sanctioned by the appropriate authority in the NBFC under powers vested in such authority, but the matter should be reported to the Board.

NBFCs shall have a Board approved policy on grant of loans to directors, senior officers and relatives of directors and to entities where directors or their relatives have major shareholding. The Board approved policy shall include a threshold beyond which loans to abovementioned persons shall be reported to the Board.