The Reserve Bank of India (RBI) announced a revised regulatory framework for Non-Baking Finance Companies (NBFCs) which pertain to initial share sale, capital requirements and bad loan recognition in order to reduce risk to the broader financial system.
Among other measures, beginning April 1, 2022, NBFCs won’t be allowed to lend over Rs 1 crore to high-net worth individuals (HNIs) to buy stocks in initial public offerings (IPOs).
“There shall be a ceiling of Rs 1 crore per borrower for financing subscription to Initial Public Offer (IPO). NBFCs can fix more conservative limits,” said RBI in a notification on Friday.
The move is aimed at curbing leveraged bidding that involves buying IPO shares with funds borrowed from NBFCs and then dumping the same after realising listing gains and paying the finance back.
According to ET report, the new rules will not be applicable to upcoming Paytm and Nykka IPOs.
The move is likely to cut astronomical oversubscription of IPOs, said experts.
The broader regulatory framework announced by RBI encompass different facets of regulation of NBFCs covering capital requirements, governance standards, prudential regulation, etc. These regulations also include categorising NBFCs into four layers Top, Upper, Middle based on based on their size, activity, and perceived riskiness.
Under the new norms, the net owned funds requirement for all NBFCs was also raised to Rs 10 crore form Rs 2 crore- Rs 5 crore currently. This will be applicable to NBFCs marked as investment and credit companies, micro finance institutions, and. Factoring companies.
The last-mile lenders will also be required to recognise loans overdue for more than 90 days as non-performing assets (NPAs) by March 2026 and over 150 days by March 2024.
“The contribution of NBFCs towards supporting real economic activity and their role as a supplemental channel of credit intermediation alongside banks is well recognised. Over the years, the sector has undergone considerable evolution in terms of size, complexity, and interconnectedness within the financial sector. Many entities have grown and become systemically significant and hence there is a need to align the regulatory framework for NBFCs keeping in view their changing risk profile,” the RBI said.
