What changed
The previous master circular from July 1, 2009 was updated by incorporating all instructions issued up to June 30, 2010. The ceiling on bank credit linked to Net Owned Fund (NOF) of NBFCs registered with RBI was withdrawn for those engaged in asset financing, loan, factoring, and investment activities. Banks can now extend need-based working capital and term loans to such NBFCs, and also finance against second-hand assets financed by them.
What it means for you
Banks gain more flexibility in lending to registered NBFCs, as the NOF-linked cap is removed, allowing credit decisions based on borrower needs and bank's own policy. However, restrictions on bridge loans, advances against shares, and guarantees for fund placements remain, so lenders must ensure compliance with prudential exposure norms. This circular consolidates all existing rules, making it a single reference for NBFC financing.
What you must do
- Review and update your bank's loan policy for NBFCs with board approval, incorporating the withdrawn NOF ceiling and need-based lending approach.
- Ensure all NBFC exposures comply with prudential ceilings and exposure norms prescribed by RBI.
- Continue to prohibit bridge loans, advances against shares to NBFCs, and guarantees for fund placements with NBFCs as per restrictions.
- Classify NBFC borrowers correctly as registered, unregistered, or RNBCs to apply the appropriate financing rules.
Who it affects
All scheduled commercial banks (except RRBs), NBFCs registered with RBI, Residuary Non-Banking Companies (RNBCs), Factoring companies
Can we now lend to any NBFC without a ceiling?
For NBFCs registered with RBI and engaged in asset financing, loan, factoring, or investment, the NOF-linked ceiling is withdrawn. However, banks must still follow prudential exposure norms and board-approved policies.
Are there any activities we cannot finance through NBFCs?
Yes, the circular lists activities not eligible for bank credit, and specifically prohibits bridge loans, advances against shares to NBFCs, and guarantees for placement of funds with NBFCs.
Does this circular apply to RRBs?
No, the application is to all scheduled commercial banks except Regional Rural Banks (RRBs).