RBI caps IPO funding by NBFCs at ₹1 cr per borrower

Subject – Economy

Context – RBI caps IPO funding by NBFCs at ₹1 cr per borrower

Concept –

The Reserve Bank of India announced a scale-based regulation of non-banking finance companies, which include a ceiling on IPO funding per borrower as well as changes in the minimum net owned fund, classification of non-performing assets, and capital requirements.
Under the new framework, there will be a ceiling of ₹1 crore per borrower for financing subscription to an initial public offering (IPO).
“NBFCs can fix more conservative limits,” the RBI said in the ‘Scale Based Regulation (SBR): A Revised Regulatory Framework for NBFCs’.

Layer-based structure –

Under the new framework, the regulatory structure for NBFCs shall comprise four layers based on their size, activity, and perceived riskiness — base, middle, upper and top layer.

Note – There is a limit of ₹10lakh for banks for IPO financing.

Sensitive Exposure –

In the new framework, the RBI has also proposed sensitive sector exposure norms for NBFCs in the middle and upper layers.
“Exposure to the capital market (direct and indirect) and commercial real estate shall be reckoned as sensitive exposure for NBFCs. NBFCs shall fix board-approved internal limits for SSE separately for capital market and commercial real estate exposures,” the RBI said.
A sub-limit within the commercial real estate exposure ceiling shall be fixed internally for financing land acquisition.
Housing finance companies shall continue to follow specific regulations on sensitive sector exposure.
Further, the regulatory minimum net owned fund (NOF) for NBFC-Investment and Credit Companies, NBFC-MFI and NBFC-Factors shall be increased to ₹10 crore by March 2027 through a prescribed glide path.
The extant NPA classification norm also stands changed to the overdue period of more than 90 days for all categories of NBFCs. A glide path is provided to NBFCs in the base layer to adhere to the 90 days NPA norm, the RBI said.
Considering the need for professional experience in managing the affairs of NBFCs, the RBI said at least one of the directors should have relevant experience of having worked in a bank or an NBFC.

To know about NBFCs, please click here.