What changed
RBI issued an updated version of the Non-Banking Financial (Deposit Accepting or Holding) Companies Prudential Norms Directions, 2007, incorporating all amendments up to June 30, 2011. This replaces the earlier 1998 prudential norms directions and consolidates current instructions in one place.
What it means for you
NBFCs and RNBCs must now follow the consolidated 2007 directions as amended, ensuring uniformity in prudential norms. The updated definitions for asset classification (e.g., doubtful asset is an asset that remains sub-standard for more than 18 months) and investment valuation (e.g., earning value capitalization rates for predominantly manufacturing companies at 8%, predominantly trading companies at 10%, and any other company including NBFC at 12%) directly impact provisioning and capital adequacy calculations.
What you must do
- Review the updated 2007 directions to ensure compliance with all amendments up to June 30, 2011.
- Align asset classification and provisioning policies with the new definitions, especially for doubtful assets (18-month sub-standard period).
- Update internal systems to reflect the earning value capitalization rates for investments in manufacturing (8%), trading (10%), and other companies (12%).
- Ensure that the directions are applied to all deposit-accepting NBFCs (except mutual benefit companies and government companies) and RNBCs.
Who it affects
Non-Banking Financial Companies (NBFCs) accepting or holding public deposits, Residuary Non-Banking Companies (RNBCs), RBI's Department of Non-Banking Supervision
What is the effective date of these updated directions?
The directions came into force with immediate effect as per the original notification dated February 22, 2007, and the circular dated July 1, 2011 updates the notification as of June 30, 2011.