NON-BANKING FINANCIAL COMPANIES FOR ICSI-NIRC Vinod Kothari Vinod

NON-BANKING FINANCIAL COMPANIES FOR ICSI-NIRC Vinod Kothari Vinod

NON-BANKING FINANCIAL COMPANIES FOR ICSI-NIRC Vinod Kothari Vinod Kothari & Company Kolkata Delhi Mumbai 1006-1009, Krishna 224, AJC Bose Road Kolkata 700 017 A/11, Hauz Khas (Opp Vatika Medicare) New Delhi 110 016 403-406, Shreyas Chambers

175, D N Road, Fort Mumbai 400 001 Email: [email protected] Email: [email protected] Email: [email protected] Phone: 033 4001 0157/ 2281 3742/ 2281 7715 Phone: 011 6551 5340 Phone: 022 2261 4021/ 3044 7498 Email: [email protected] www.india-financing.com/ www.vinodkothari.com COPYRIGHT

The presentation is a property of Vinod Kothari & Company. No part of it can be copied, reproduced or distributed in any manner, without explicit prior permission. In case of linking, please do give credit and full link ABOUT US Vinod Kothari & Company Based out of Kolkata, Mumbai, Delhi We are a team of consultants, advisors & qualified professionals having an experience of over 25 years of practice. Our Organizations Credo: Focus on capabilities; opportunities follow

COVERAGE OF THIS PRESENTATION What is NBFC Basics of Secured Lending Regulatory Aspects WHAT IS NON-BANKING FINANCIAL COMPANY? INDIA WORKS ON A MULTIREGULATOR MODEL Reserve Bank of India

Ministry of Corporate Affairs State Registrar of Chit Funds NBFCs Nidhi Companie s Chit Funds National Housing Bank IRDA

SEBI HFC Insurance Companie s Merchant Banker Broker/ Subbroker Venture Capital Fund Company IC

AFC LC Facto r IDF IFC MFI RNB C CIC AA

Stock Exchange s WHAT IS AN NBFC? Sec 45I (c) of the RBI Act defines financial institution. A non-banking company carrying business of financial institution will be an NBFC. Activities included in the definition: Financing, Whether by giving loans, advances or otherwise Acquisition of shares, stocks or securities Hire purchase Insurance excluded by notification Management of chits, kuries, etc Money circulation schemes Exclusion to NBFC: If principal business is industrial, trading, etc., RBI circulars have specified majority of assets and majority of income as the criteria for

defining NBFC Principality of activity is what is important: assets and turnover are indicative, but not definite test of what is an NBFC PRINCIPAL BUSINESS TEST Was introduced by a Press Release 1998-99/1269 dated April 8, 1999 Came up with circular dated October 19, 2006 to define principal business as: financial assets are more than 50 per cent of its total assets (netted off by intangible assets) Financial assets to include all assets that are financial in nature Exception: cash, bank deposits, advance payment of taxes and deferred tax payments income from financial assets is more than 50 per cent of the gross income The criteria of income and assets are cumulative and both should be met

PRINCIPAL BUSINESS TEST CONTD.. However, qualitative factors are also important as principality of business cannot change year to year but figures do Following also to be examined: nature of the business of an entity, its principal thrust

areas, schematic and consistent distribution of assets, resources and activities. PRINCIPAL BUSINESS TEST CONTD.. Some thinkers: What if the company has multiple lines of business and consequently a number of principal financial businesses? Due to income fluctuations, income in year 1 is more than 50%, in year 2 is less than 50% and in year 3 is again more than 50% of gross income. Does this mean that in the first year, company shall obtain CoR in year 1, surrender in year 2 and again obtain in year 3? REGISTRATION OF NBFCS

In order to carry on the business of NBFC, a company has to register itself with the Reserve Bank of India under section 45-IA of the Reserve Bank of India Act, 1934 Following categories of NBFCs are not required to obtain registration with the RBI Core Investment Companies having asset size of less than Rs. 100 crores or not holding public funds Housing Finance Companies, Merchant Banking Companies, Stock Exchanges, Companies engaged in the business of stock-broking/sub-broking,

Venture Capital Fund Companies, Nidhi Companies, Insurance companies and Chit Fund Companies OPERATIONS OF STOCK-BROKERS/ SUB-BROKERS Stock Brokers require registration with Stock Exchanges Specific requirements for minimum base capital based on the nature of services provided. No restrictions on the nature of business activities, except for the following Shall not deal with unregistered sub-broker Sub-brokers acts as an agent of a Stock Broker Requires registration with Stock Exchange Requires affiliation with a stock broker No base minimum capital requirements No restrictions on the nature of business activities BANKS VS. NBFCS

Particulars Banks NBFCs Definition Definition: Banking is acceptance of deposits withdrawable by cheque or demand; NBFCs cannot accept demand deposits NBFCs are companies carrying financial business Scope of business Scope of business for banks is limited by sec 6 (1) of the BR Act

There is no bar on NBFCs carrying activities other than financial activities Licensing requirements Licensing requirements are quite stringent. Transfer of shareholding also controlled by RBI It is quite easy to form an NBFC. Acquisition of NBFCs is procedurally regulated and are subject to approval Major limitations on business No non-banking activities can be carried Cannot provide checking facilities

Major privileges Can exercise powers of recovery under SARFAESI and DRT law None, except 196 NBFC, specified by Central Government, have powers under SARFAESI or DRT law Foreign investment Upto 74% allowed to private sector banks Upto 100% allowed (only 18 activities) BANKS VS. NBFCS Particulars

Banks NBFCs Regulations BR Act and RBI Act lay down stringent controls over banks Controls over NBFCs are relatively lesser stringent SLR/CRR requirements Banks are covered by SLR/ CRR requirements NBFC-Ds have to maintain a certain ratio of deposits in specified

securities; no such requirement for non deposit taking companies Priority sector lending requirements Certain minimum exposure to priority sector required Priority sector norms are not applicable to NBFCs BASIC REGULATORY FRAMEWORK ON NBFCS Basic regulatory instruments: RBI Act, 1934 Master Direction - Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 2016 Master Direction - Core Investment Companies (Reserve Bank) Directions, 2016 Master Direction - Exemptions from the provisions of RBI Act, 1934 Master Direction - Miscellaneous Non-Banking Companies (Reserve Bank) Directions, 2016

Master Direction - Residuary Non-Banking Companies (Reserve Bank) Directions, 2016 Master Direction - Non-Banking Financial Company Non-Systemically Important Non-Deposit taking Company (Reserve Bank) Directions, 2016 Master Direction - Non-Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016 Master Direction- Non-Banking Financial Company - Account Aggregator (Reserve Bank) Directions, 2016 Master Direction- Non-Banking Financial Company Returns (Reserve Bank) Directions, 2016 Master Direction - Non-Banking Financial Companies Auditors Report (Reserve Bank) Directions, 2016 Master Direction - Monitoring of Frauds in NBFCs (Reserve Bank) Directions, 2016 Master Directions - Mortgage Guarantee Companies (Reserve Bank) Directions, 2016 TYPES OF NBFCS BY ASSETS Asset Finance Companies Loan companies Investment Companies Infrastructure debt fund companies

Micro Finance Companies Based on the nature of business Core Investment Companies Infrastructure Finance Companies NBFC-Factors Mortgage Guarantee Company Non-Operative Financial Holding Company Asset Aggregator TYPES OF NBFCS BY REGULATORY INTENSITY Based on acceptance or non-acceptance of deposit Deposit taking NBFC (D)

Non - Deposit taking NBFC (ND) NBFC- ND-SI NBFC ND-Non SI Core Investment Companies CIC - SI CIC - NSI DEFINITION OF DEPOSITS AND PUBLIC DEPOSITS FOR THE PURPOSE OF RBI REGULATIONS Definition of deposit as per section 45I(bb) of Reserve Bank of India Act, 1934

includes and shall be deemed always to have included any receipt of money by way of deposit or loan or in any other form However the following are excluded from the definition of deposits 1. Money received by way of share capital 2. Contribution to capital of partnership firm by partners. 3. Money received from scheduled banks, co-operative banks or any other banking company defined under Section 5 of the Banking Regulations Act, 1949 4. Monies received from 1. State Finance Corporation 2. Specified financial institutions under the Industrial Development Bank of India Act 1964 3. Other financial institutions specified by the RBI 5. Amounts received in ordinary course of business by way of 1. Security Deposit 2. Dealer Deposit 3. Earnest Money 4. Trade advances 6. Monies received from entities not being body corporates and registered under money lending act of the state. 7. Subscription amounts to chit, (Chit Funds)

DEFINITION OF DEPOSITS AND PUBLIC DEPOSITS FOR THE PURPOSE OF RBI REGULATIONS Public Deposit a deposit as defined under section 45-I(bb) of the Reserve Bank of India Act, 1934 (2 of 1934) Exclusions: Monies received from Central / State government, also includes amounts received from other sources to which the guarantee is provided by the State / Central Government Monies received from Notified financial institutions Inter company deposits Amounts received towards subscription to securities as per Companies Act 2013 Amounts received from directors, amounts received by private companies from shareholders provided the amount has not been borrowed by the director / shareholder Amounts received by issue of compulsorily convertible bonds / debentures Amounts brought in by promoters by way of unsecured loans provided the loan is brought in pursuance of the stipulation imposed by the lending public financial institution in fulfilment of the obligation of the promoters to contribute such finance, the loan is provided by the promoters themselves and/or by their relatives, and not from their friends and business associates, and the exemption under this sub-clause shall be available only till the loan of financial institution is

repaid and not thereafter; Contd. next slide DEFINITION OF DEPOSITS AND PUBLIC DEPOSITS FOR THE PURPOSE OF RBI REGULATIONS Amounts received by issue of non-convertible instruments having maturity less than 1 Year Amounts received from Mutual Funds regulated by SEBI Amounts collected by way of hybrid debt or subordinate debt with minimum maturity of not less than 60 months and the issuer has no option to recall Amounts received from relative of director of NBFCs Amounts received by issuance of commercial papers Amounts received by NBFC-ND-SI by issuance of perpetual debt instruments Amounts raised by infrastructure finance companies by issuance of infrastructure bonds

STATISTICS Over 95% of the registered NBFCs are either Investment Companies or Loan Companies Number of NBFCs in India 12400 12225 12200 12029 12000 11842 11800 11682 11555 11600 11400 11200

FY 2013 FY 2014 FY 2015 FY 2016 H1 FY 2017 AFC Factor Data source: RBI CIC-SI MFI IDF LC + IC

IFC FINANCIAL PERFORMANCE OF THE SEGMENT Consolidated B/S of NBFC-D Consolidated B/S of NBFC-ND Items Mar 2015 Items Mar 2016 Amount in INR billion Share Capital Share Capital

31 34 Reserves & Surplus 258 337 Public Deposits 270 379 Debentures 389

539 Bank Borrowings 552 659 16 23 2 6 Commercial Papers 58

66 Borrowings from Govt. 38 30 Sub-Debt 76 88 Other borrowings 157 224

Total Liabilities 1,847 2,386 Loans & Advances 1,590 2,117 Investments 69 85 Cash & Bank

120 98 Other Assets 68 87 1,847 2,386 678 Reserves & Surplus 2271

2550 Total borrowings 9411 10335 Current Liabilities 608 725 Total Liabilities 12920 14228

Borrowings from FIs Loans & Advances 9516 10709 Inter-corporate borrowings Investments 2042 2052 Cash & Bank 463

434 Other Assets 899 1093 12920 14228 Data source: RBI Mar 2016 Amount in INR billion 630 Total Assets

Mar 2015 Total Assets BASIC LAW OF SECURED LENDING BROAD FORMS OF SECURITY INTERESTS Forms of security interests Specific property Tangible property General property Quasisecurity interests

Intangible property Immovable property Movable property Possessio n Possessory Interest Future property Nature of interest

Non-possessory interest Mortgage Charge or lien CREATION OF MORTGAGES Forms of mortgage: Legal mortgage Usufructuary mortgage Simple mortgage Mortgage by deposit of title deeds or equitable mortgage

Mortgage by conditional sale Anomalous mortgage The most common form is mortgage by deposit of title deeds Usual course is to have a memo of deposit of title deeds recorded IMMOVABLE PROPERTIES MORTGAGES Mortgage is the transfer of interest in specific immovable property as security Mortgage and charge - distinction Mortgage is a transfer of interest in property; charge is merely a security interest Types of mortgages: simple mortgage: personal undertaking to pay coupled with right of mortgagee to sell the property

Mortgage by conditional sale Usufructuary mortgage - transfer of possession, rent and profits English mortgage - transfer of property Equitable mortgage Anomalous mortgage Most bankers mortgages fall under (a) or (e). Some mortgages fall under (f) MORTGAGE OF MOVABLE PROPERTY Mortgages of movable property can be created by conditional sale Borrower sells property to lender With an agreement on the part of the lender to either revoke the sale or retransfer property This creates a mortgage Being a transfer of title, mortgages are stronger than hypothecations CHARGE

Sec 100 of TP Act defines a charge as - any security interest other than a transfer of an interest Unregistered mortgage is not a charge Provisions of simple mortgage applicable to charges also Hence distinction is not important from viewpoint of recovery rights similar substantive and adjective law in Order XXXIV, rule 15 of CPC applies to charges FIXED VS. FLOATING CHARGES Essential distinction Whether the borrower has the right to deal with the property subject to charge or not? Where right to deal exists, charge is a floating charge. Macnaughtens famous comment in Houldsworth vs Yorkshire Woolcombers Floating charge does not crystallize until the end of the companys right to deal with the charged assets - Imperial Bank of India appointment of a receiver and company ceases to be going concern: sec. 123 of the Companies Act

company going into winding up event specified in the charge document Fixed charges created prior to crystallisation take priority - Narendra Kumar Maheshwari 1989 SC FIXED VS. FLOATING CHARGES (CONTINUED) In New Bulla Trading Ltd (1994), Court approved a clause under which lender had fixed charge on receivables not collected, and floating charge on those collected. New Bullas reversed by House of Lords in Brumark. In Brumarks case [Agnew vs. Inland Revenue Commissioners 2001 2 AC 710] House of Lords set important distinguishing criteria for fixed vs. floating charges on receivables

Unless the collection of receivables is actually controlled by the chargee, the charge must be a floating charge In the ruling in Cosslett this decision was extended to movable properties as well. PLEDGE OF MOVABLE PROPERTY Sec. 172 of Contracts Act covers bailment of pledges -that is, transfer of possession for security. Pledge means transfer of possession without property; the reverse case is a case of hypothecation. Pledge and hypothecation depends on who has effective control on possession - Gopal Singh Hira Singh v Punjab National Bank SC Actual or constructive delivery essential for a pledge; a mere license to take delivery is not a pledge in case of documents requiring endorsement, a mere delivery is not a pledge Rights of the pawnee: right to retain the pledged goods - sec. 173 right to claim expenses - sec. 175 right to sue for payment - sec 176 right to sell the pledged goods - sec 176

RULINGS ON PLEDGE In order to foreclose a pledged property it is mandatory for the Pawnee to serve notice u/s 176 of the Indian Contract Act, 1872 so as to give ample and reasonable chance to the pledgor to make the redemption prior to sale [Delhi High Court ruling on Gtl Limited vs Ifci Ltd. & Ors] Content of the notice u/s 176 - What is required is only the expression of the intention of the pledgee that if the pledgor does not wipe off the debt, the pledgee will exercise his right of sale. The Pawnee need not disclose the date, time and place of the intended sale in the notice. [Kerala High Court ruling on Syndicate Bank vs C.H.Muhammed] NEGATIVE PLEDGE Prohibition on a party from creating any security interests over or transfer of a certain property. Governed by the principles of Contract Laws.

HYPOTHECATION OF MOVABLES Simple mortgage of movables, not being a pledge, has been regarded as hypothecation - Cooperative H Bank v. Surrendra ILR 59 Cal 667 No specific provision in Contracts law Hypothecatee is supposed to be in legal possession of the goods though the debtor has physical possession. Right of repossession specifically conferred can be exercised without intervention of Court (however, more case law in recent times): AP High Court in State Bank of India v Shah Ali MP High Court in Chirangi Lal v. Central Bank of India Floating charges in case of non-corporate borrowers - applicability questioned in England on the doctrine of reputed ownership HYPOTHECATION OVER FIXED ASSETS Globally known as a lien, hypothecation is a non-possessory security interest where

the debtor agrees to make an asset available to discharge claims of the creditor There is no specific law relating to hypothecation: It is essentially contractual law SECURITY INTERESTS OVER RECEIVABLES Security interest over receivables can be created by assignment Assignment u/s 130 of TP Act can be for 2 purposes: Absolute assignment, that is, for sale Assignment by way of security Requisites: Written agreement (stamping implications) Notice to debtor General consensus is that absence of notice to debtor does not vitiate the assignment : remains valid as equitable assignment IS DEBT ASSIGNABLE? Assignment of a contract vs assignment of benefits under a contract

Benefit under a contract is a property, assignable at the free discretion of the assignor SC ruling in Indu Kakkar A contract contains mutual obligations: hence, contracts can be novated, not assigned If a right is subject to mutual obligations, such that the same are unseverable, the rights are not assignable without consent of the counterparty VARIOUS FORMS OF ASSIGNMENT From viewpoint of intent Assignment for the sale Assignment for security interest From viewpoint of completion Legal assignment Complete as against the debtor Equitable assignment Incomplete as against the debtor; obligor notice not given

SC ruling in Bharat Nidhi Ltd recognises equitable assignments, based on certain procedure VARIOUS FORMS OF ASSIGNMENT (CONTINUED) From viewpoint of applicable law Assignment of actionable claims Procedure of sec 130 of TP Act applicable Assignment of receivables other than actionable claims Essential procedure of law is still to be complied with to perfect the transfer Assignment under SARFAESI Act Very limited applicability, only to a securitisation company IMPLICATIONS OF ASSIGNMENT Written instrument for transfer is treated as conveyance, would need stamping Relaxation of stamp duty in several states Limited reduction of duty in several states Practices in other countries to avoid stamp duty

Declaration of trust Oral transfers Incomplete transfers Transfers in other jurisdictions WHETHER ASSIGNMENT LEGAL? Kotak Mahindra Bank vs IDBI III (2007) BC 302 (Del) (DB): Assignment legal Division Bench of Gujarat High court in Kotak Mahindra Bank vs APS Star Industries, ruling dated 12 Jan 2009, took a different view The ruling of SC in APS Star Industries [2010 10 SCC 1] has reversed the above finding RECOURSES FOR SECURITY INTEREST & RECOVERY AVAILABLE MEASURES Credit

recovery measures Civil proceedings Money suit under CPC Enforcement of security interest Criminal Proceedings Section 138 of NI Act Arbitration

proceedings Section 25 of PSS Act Proceedings under SARFAESI Act [For notified NBFCs] Proceedings under IBC as financial creditor INDIAN SECURITY INTEREST ENFORCEMENT LAW Law distinguishes between security interests based on the nature of the collateral: security interests on immovable properties

Chapter IV of Transfer of Property Act Registration provisions of the Registration Act Attachment provisions of the Civil Procedure Code; order XXXIV security interests on movable properties by corporate bodies: receivership in case of debentures by non-corporate bodies security interests being pledge security interests other than pledge interests in actionable claims Based on the security interest holder Security interests held by banks and financial institutions security interests held by State Finance Corporations REDEMPTION AND FORECLOSURE OF MORTGAGES Redemption - redemption of mortgage on satisfaction of debt - sec. 60 after principal money has become due redemption is a statutory right; anything to the contrary will be a clog on equity of redemption

as redemption is a statutory and permanent right, a foreclosure of such right is permitted only by decree Sec. 67 - a decree denying mortgagor of right of redemption or granting mortgagee right to sell: foreclosure - closure of the right of redemption and making the conditional transfer of property absolute sale - permitting the mortgagee to sell foreclosure and sale are distinct, and u/s 67 (a) mutually exclusive. Rule 2/3 of CPC deal with foreclosure; rule 4/5 deal with sale. REDEMPTION AND FORECLOSURE OF MORTGAGES (CONTD) Sec 69 - mortgage shall have power to sell without intervention of Court only in cases specifically covered by the section. 3 months notice in writing -sec 69 (2) power of the purchase not impeachable on ground of irregular sale In cases covered by sec 69, the mortgagee can appoint a receiver - sec. 69A

RIGHT OF FORECLOSURE/SALE Foreclosure- applicable to conditional sales only. Sale - not applicable to conditional sale and usufructuary mortgage - sec. 67 (a) Simple mortgages do not carry a right to foreclose or right to get possession a mortgage transferring the right to sell may be regarded as anomalous mortgage Equitable mortgages at par with simple mortgages - sec 96 Only after the mortgage money has become due Non-payment of interest does not accelerate the right to foreclose, unless specifically agreed - Yeo Htean Sew v Abdul Zaffar. Interest is accessory to principal and not separately recoverable Partial redemption/foreclosure - unless severed with consent of parties sec. 67A - multiple mortgages - mortgage should consolidate the mortgages ENFORCEMENT UNDER

Section 2(k) - Definition of financial assistance includes subscription to bonds and SARFAESI ACT, 2002 debentures Hence, the investor, being a secured creditor, has the right to enforce security interest in terms of Section 13 "secured creditor" means any bank or financial institution or any consortium or group of banks or financial institutions Central Government notified 196 NBFCs as financial institution for the purpose of SARFAESI Act debenture trustee appointed by any bank or financial institution; or Asset reconstruction company, whether acting as such or managing a trust set up by such asset reconstruction company, as the case may be; or any other trustee holding securities on behalf of a bank or financial institution, Debenture trustee appointed by any company for debt securities in whose favour security interest is created for due repayment by any borrower of any financial assistance; Debenture trustee appointed by any bank or financial institution: Misnotion - debenture trustees are appointed by the charge-creator and assented to by

the beneficiary could create confusion where debentures are held by non-banks as well KEY POINTS ABOUT SARFAESI ACT Subscription to debentures is covered by the law Purchase of debentures seemingly not covered Debenture trustee appointed by banks/financial institutions Does that mean all the debentureholders have to banks/financial institutions Seems to be the intent of the law Enforcement by trustee or debentureholder? Enforcement by trustee is clearly possible Enforcement by debentureholder also seems possible ENFORCEMENT OF SECURITY U/ S 13 Sec. 13 overrides sec. 69/ 69A of TP Act, not however, sec. 67 The specific mention of Sections 69 and 69A of the TP Act in the non obstante

clause indicate the exclusion of the other provisions in the TP Act from the purview of the non obstante clause. However, by sec 35, the SARFAESI Act overrides all inconsistencies of all other laws. Pushpangadan v. Federal Bank Ltd. [(2012) II BC 115 Ker. (FB)] Sec. 67 (a) puts an important distinction between right of foreclosure and right of sale. A normal charge holder has a right of sale, not right of possession Remedies under this law are not to the exclusion of other rights - e.g., DRT proceedings, decree of Civil Courts ENFORCEMENT OF SECURITY U/S 13 (CONTINUED) Requisites for action u/s 13: borrower, under liability to secured lender makes default in repayment of a secured debt or installment: any default of agreement cannot

trigger the power account classified as NPA under RBI norms: bankers books to be evidence creditor requires borrower in writing to discharge all his liability within 60 days of notice notice to specify amounts due and the details of secured assets effect of notice: freeze on sale lease or transfer u/s 13 (13) freeze in case of floating charges? Details of secured assets? Notice only demands payments. Does not amount to receivership. Rights under sec 13 (1): are rights to enforce security interest; do not confer any new rights not implied by the agreement between parties. It is only the interest created which can be enforced. principles of natural justice applicable NOTICE UNDER SEC. 13 (2) Minimum contents of the notice Transparency is quite important

In case after the notice, there have been discussions of settlement or MoU etc., it is advisable to serve a fresh notice: Shashi Agro Food v. Andhra Bank IV (2008) BC 294 (AP) MEASURES TO BE TAKEN Measures against the secured assets Taking possession of the secured assets of the borrower: does it include right to use assets - No transfer by way of lease, assignment or sale take over the management of the business of the borrower appoint a manager to manage the assets possession of which has been taken require by notice a person who has bought the secured assets to pay for such asset to the lender - this envisages payment for secured assets subject fo fixed charge measures u/s 13 (4) limited and cannot be expanded - for example, no power to force a sale without taking possession or management recover expenses for action u/s 13 (4) - sec 13 (7) MEASURES TO BE

TAKEN (CONTD) proceeding against guarantors/ pledged assets - primary right u/s 13 (11) proceeding for balance due under DRTs or competent Court - as the case may be implies RDB Act allocation Provisions in case of company under liquidation - sec. 529A of Companies Act to be applicable Limitation Act applicable - debts barred by limitation cannot be enforced under this law TAKING POSSESSION U/S 13 (4) Purpose of the law is to enforce security interest, not to allow a lender the interest of an asset owner. Taking of possession does not amount to transfer of title Taking of possession is only for the purpose of realisation of security position similar to receiverships under Order 40, rule 1 of CPC difference - Civil law receiverships are for preservation of subject matter; this law is for sale Use of reasonable force permitted for possession - Blade v. Higgs (1861) 10 CBNS 713.

Position of lender taking repossession and sale discussed in several English rulings: lender in possession is not a trustee for the borrower TAKING POSSESSION U/ S 13 (4) (CONTINUED) Sec 13 (4) to be read with sec 13 (7) - attempts of sale of the asset should follow forthwith upon possession In respect of sale proceeds, the lender is accountable to borrower Lender not allowed to use the asset: all usufructs belong to the borrower Bank cannot take physical possession from the tenant protected under Rent Control Act by invoking the provisions of Sections 13(4) and 14 of the SARFAESI Act, in the event the tenant is in bona fide occupation, thus implying that SARFAESI Act cannot over-ride rent control act. Indian Bank vs M/S Nippon Enterprises South (http://www.indiankanoon.org/doc/645192/.), 2011, Madras High Court. Pushpangadan v. Federal Bank Ltd. [(2012) II BC 115 Ker. (FB)] TAKING OVER MANAGEMENT OF

BUSINESS Right of taking over management also conditioned by the basic purpose of the law - security interest However, sale of assets is not permissible u/s 13 (6) without taking over possession or management, either of the two is a must As the purpose of possession is to make a sale, banks may be inclined to avoid difficulties of possession by appointing a manager instead Nature of the functions of a manager - asset-specific USUAL OBJECTIONS AND DEFENSES Tenancy Provisions of Transfer of Property Act; protective provisions of the Rent Control Acts of various States Partition or title suit Conveyance deed of property was defective/title disputes Bank cannot choose properties at its own discretion Legality/validity of the security interest OTS/restructuring offer

Legality/service of notice Questions on the right to representation MANNER OF SALE OR TRANSFER OF ASSETS Equity of redemption is an important right of a borrower and any clause putting a clog on equity is invalid. Present law gives to the borrower a right to pay within 60 days of notice In addition, at any time before sale or transfer, the borrower may clear his dues and prevent the asset from being sold - sec 13 (8) This implies the asset cannot be sold without notice to borrower borrower has a pre-emptive right to purchase the asset himself 30 days notice required before sale: Security Interest Enforcement Rules MANNER OF SALE OR TRANSFER OF ASSETS (CONTD) Also by implication, the sale cannot be made at the back of the borrower:

preferably a public sale sale at best price as the borrower gets discharge to the extent of amount paid sec. 13 (5) borrowers right to moneys collected by the seller after appropriation - sec 13 (7) Transferee to get all the rights as if the owner of the assets has transferred the same: subject to all the equities of the previous owner Can the lender sell the asset to himself - no as implicitly there is a trust between the lender and the borrower; adversary title to beneficiary not permitted PRIORITIES AND PARI-PASSU INTERESTS In case of financing of a financial asset by more than one lender, 3/4th sanction in value to be obtained before any or all right u/s 13 (4) is exercised. Wrong use - should be read as financing of the secured asset financing of the secured asset cannot be limited to a case where the acquisition of the asset was primarily funded by a lender

If lenders take such action, their mutual prioritisation not laid down. Rules of sec. 529 of Companies Act and insolvency laws [sec. 61 of Provincial Insolvency Act] to apply on priorities. Pari passu rule is an important rule of equity - contracting it out is against public policy -McMillan and Lockwoord 1992 NZ Court of Appeal Allahabad Bank vs Canara Bank does it undo the priorities? PRIORITIES AND PARIPASSU INTERESTS (CONTD) Financing of the secured asset confusing: proper meaning is, where security interest on a secured asset held by more than one lender

consent of 3/4th of the lenders required before any action u/s 13 (4) record date -meaning circular and inconclusive - the date is agreed upon at time when the determination of the date itself requires 3/4th sanction 3/4th in value refers to amount outstanding evidence of amount outstanding - books of the borrower made evidence stone-walling action possible: creation of subordinate charges in favour of a friendly lender question of priorities not at all considered by the law - lenders having subordinate charges put at par with other lenders PRIORITIES BETWEEN FIXED AND FLOATING CHARGES As a trite law, fixed charges will have a priority over floating charges. Determination of multiple financiers on an asset has no better answer than charge- holder holding charges. The most practical view, therefore, is chargeholders holding fixed charges on the asset need to take a decision (75% voting) on action under sec. 13 (4). Floating chargeholders cannot be said to be holding a security interest in the asset until

the charge crystallised. Will subordinate charge-holders rank equally for voting - apparently yes OVERRIDING PREFERENTIAL CLAIMS Provisions relating to preferential claims made applicable only where the company is in liquidation where the company is in liquidation, sec 28 (6) of Provincial Insolvency Act saves the rights of the secured creditors. This law appropriately overrides. However, subject to preferential claims. Appropriately, the provisions should be applicable even where the company is not in liquidation: sec 123 (1) of the Companies Act requires any receiver to forthwith pay the debts which are preferential claims in case of debentures, the provisions of sec 123 shall be applicable notwithstanding the SARFAESI Act Sec. 529A of the Companies Act also contains a notwithstanding clause OVERRIDING PREFERENTIAL

CLAIMS (CONTD) Sec 529A - workers dues and dues of secured creditors take priority over other debts Leave of Companies Court not required in case of companies under winding up - Allahabad Bank v. Canara Bank (SC) MANNER AND EFFECT OF TAKEOVER OF MANAGEMENT U/S 15 Amended sec 13 (4) (b) provides of takeover of management; no guidelines framed still Sec 15 clearly exceeds sec. 13 (4). Sec 15 also divergent from the scheme of the SARFAESI Act on enforcement of security: the powers granted under the law can be used only to enforce security and not to run businesses: Delhi High Court ruling in Micronix India 96 Comp Cas 950 - vestation of proeprty in the SFC only for enforcing security interest Takeover of management only in case of ARCs and securitisation companies u/s 9.

MANNER AND EFFECT OF TAKEOVER OF MANAGEMENT U/S 15 (CONTINUED) Takeover of assets u/s 13 (4) can only lead to sale of assets - not their running by the lender. Essential rule of foreclosure versus sale Appointment of directors/ administrator to be appointed by the secured creditors notice in newspapers on publication of notice, existing directors shall vacate office creditor-directors shall take over the office/ assets sec 15 (3) overrides the Companies Act. Sec 15 (4) - restoration of management APPEAL U/S 17 Proceedings u/s 17 of the Act are in lieu of the civil suit in the court of first instance under the CPC. Aas Mohmad v. Punjab National Bank & Anr., I (2009) BC 72 (DRAT) Even when the borrower is aggrieved by the action taken by the secured creditor u/s 13(4) or the

borrower is of the belief that the action taken by the creditor is not by law, the only recourse the borrower has through the appeal u/s 17 of the Act, where the DRT is entitled to restore status quo ante Sumantri Devi v. Canara Bank & Ors., II (2009) BC 511, (Jharkhand HC), the writ petition seeking quashing of issuance of notice u/s 13(2) of the Act not maintainable was dismissed. In Central Bank of India v. State of Kerala & Ors., I (2009) BC 705 (SC) it has been clarified that the communication of reasons to the borrower in terms of Section 13(3A) shall not constitute as the ground for filing application under Section 17(1) of the Act See also Amba Devi Paper Mills Ltd. v. State Bank of India & Anr [(2012) III BC 425 (DB) Uttarakhand] TIME LIMIT FOR APPEAL U/S 17 Statute lays a time limit of 45 days Kerala High court in J P Jayans case held that the power to condone the delay is given by the Act Sec 5 of the Limitation Act is not applicable However, SC in Nahar Industrial Corporation case has held: In P. Sarathy v. State Bank of India [(2000) 5 SCC 355], this Court opined that although there exists a distinction between a court and a civil court, but held that a Tribunal which has not merely the trappings of a court but has also the power to give a decision or a judgment which has finality and

authoritativeness will be court within the meaning of Section 14 of the Limitation Act, 1963. Hence, Limitation Act applies to DRTs Hence power to condone delay is applicable. TIME LIMIT FOR APPEAL U/S 17 (CONTINUED) Sec 5 of the Limitation Act applicable UCO Bank v. Kanji Manji Kothari & Co. [(2008) 3 Bom CR 290]; Ponnuswamy and Another v. DRT Coimbatore and Another [2009 (3) Bankers Journal 401]; State Bank of Patiala v. Chairperson, DRAT & Ors. [(2012) III BC All. 51]; State Bank of Patiala v. The Chairperson, DRAT & Ors. [(2012) II BC All. 212]; Surinder Mahajan vs Debts Recovery Appellate Tribunal & Others [http://www.indiankanoon.org/doc/127522619/, decided on 5th April, 2013] Contradictory view in Akshat Commercial Pvt. Ltd. & Anr. v. Kalpana Chakraborty &

Ors. [IV (2010) BC 267 Cal. (DB)] APPLICATION TO DRT Surprisingly, number of secured creditors may not come under DRT jurisdiction, but appellate powers conferred on DRTs. Appeal within 45 days of measures having been taken Jurisdiction - jurisdiction under sec. 19 (1) of DRT law is based on the borrowers residence Cannot do away with powers of making an appeal even before the measures are taken. Sec 19 (12) allows DRT to order injunction APPLICATION TO DRT (CONTINUED) Deposit of 75% of the notice amount DRTs may reduce amount to be deposited

Similar condition under RDB law upheld in Anant Mill vs State of Gujarat 1975 SC notice amount to be borne out by records of the lender Appeal to Appellate Tribunal within 30 days The appellate authorities may hold the possession unauthorised and order compensation. APPLICATION TO DRT/ DRAT Section 17(5) prescribes the time limit of sixty days within which an application made u/s 17 is required to be disposed off. The proviso to the sub-section envisages extension of time upto four months for adjudication of the application The Co-operative Banks cannot initiate proceeding under the provisions of SARFAESI Act or approach DRT, being aggrieved, as co-operative banks are consciously excluded from the purview of RDB Act Sri Basaveshwar Co-operative Bank ltd & Anr. v. Umesh & Ors., I (2009) BC 21 (DRAT) WHO CAN FILE AN APPEAL? In S Shalini vs DRT, ruling dated 17 April 2009, Madras High court held that a shareholder of

the company did not have a right to bring petition under sec 17. Any person is of wide import. It takes within its fold, not only the borrower but also the guarantor or any other person who may be affected by the action taken under section 13(4) or section 14 of the Act. United Bank of India v. Satyawati Tandon and Others [III (2010) BC 495 (SC)] A lessee in respect of a part of the entire property dragged into the main dispute between the land owner and the bank, was held to be a person aggrieved for the purpose of Section 17(1) Hindustan Petroleum Corporation Ltd. v. Debts Recovery Tribunal & Ors. [(2012) IV BC 737 Ori.(DB)] REGULATORY ASPECTS BASIC REGULATORY FRAMEWORK ON NBFCS Basic regulatory instruments: RBI Act, 1934

Master Direction - Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 2016 Master Direction - Core Investment Companies (Reserve Bank) Directions, 2016 Master Direction - Exemptions from the provisions of RBI Act, 1934 Master Direction - Miscellaneous Non-Banking Companies (Reserve Bank) Directions, 2016 Master Direction - Residuary Non-Banking Companies (Reserve Bank) Directions, 2016 Master Direction - Non-Banking Financial Company Non-Systemically Important Non-Deposit taking Company (Reserve Bank) Directions, 2016 Master Direction - Non-Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016 Master Direction- Non-Banking Financial Company - Account Aggregator (Reserve Bank) Directions, 2016 Master Direction- Non-Banking Financial Company Returns (Reserve Bank) Directions, 2016 Master Direction - Non-Banking Financial Companies Auditors Report (Reserve Bank) Directions, 2016 Master Direction - Monitoring of Frauds in NBFCs (Reserve Bank) Directions, 2016 Master Directions - Mortgage Guarantee Companies (Reserve Bank) Directions, 2016 JOURNEY OF IMPLEMENTATION OF REVISED REGULATORY FRAMEWORK FOR NBFCS

10th November, 2014 Circular on Revised Regulatory Framework 27th March, 2015 Notification for prudential norms for SIs and Non SIs 10th April, 2015 Notification for Corporate Governance Norms August November, 2016

Master Directions for various classes of NBFCs HIGHLIGHTS OF THE REVISED REGULATORY FRAMEWORK FOR NBFCS REVISED REGULATORY REGIME FOR NBFCS The 10th November, 2014 circular followed by two notifications, revising the regulatory framework by the RBI initiated a perestroika of NBFC regulatory reforms Primarily, following major changes were talked about: Definition of NBFC-ND-SI changed - to include only NBFC-ND with asset size of Rs. 500 crore and above Determination of asset size for NBFC-ND-SI to include total assets of NBFCs in a group. Group companies defined

Prudential norms applicable based on categories of asset size Capital requirements increased with 10% Tier 1 capital for NBFC-D and NBFC-ND-SI Change in asset classification norms Increased provision for standard assets to 0.40% Extensive corporate governance controls on NBFCs NOTIFICATIONS ON 27TH MARCH 2015 After a long wait for nearly 4 months, the Notifications were finally issued on 27 th March (much after close of business, approx 8.30 pm) The corporate governance guidelines were still not there in the text uploaded on 27 th March

Corporate governance guidelines were released during April, 2015 The new directions were supposedly effective with immediate effect Several of the provisions called for compliance on 31st March itself. Are we to read the 27th March notification along with 10th November circular on in place of it? Informal discussions with the RBI suggest it is to be read along KEY FEATURES OF THE REVISED REGULATORY FRAMEWORK Different regulatory instruments remain intact: March 27 Directions only override Prudential Directions 2007 Hence, separate Directions for MFIs, CICs, etc remain applicable Applicability of the regulations based on public funds Public funds is not the same as public deposits All ICDs are also public funds Additionally Commercial paper, bank finance, public deposits and debentures are public funds

New regulation on leverage limit on NSI companies Leverage, that is, TOL/NOF limited to 7 times Leverage includes guarantees as well DIFFERENCE FROM USHA THORAT & NACHIKET MORE COMMITTEE RECOMMENDATIONS Usha Thorat panel Deregistration of systematically unimportant companies, so as to clear the mass in the NBFC regulations. Liquidity Management Nachiket More Committee recommendations NBFCs be notified as secured creditors under the SARFAESI Act as to allow them access to the DRT Forum for recovery of their debts This is expected to be take care of as per Budget 2015 announcement REQUIREMENT OF MINIMUM NOF All NBFCs, irrespective of their date of existence are required to attain a minimum NOF

of Rs. 2 crores. Presently the same was applicable for NBFCs registered with the RBI from 21st April, 1999. For NBFCs in existence on before 21st April, 1999, the NOF had been retained at Rs. 25 lakhs. Existing NBFCs with NOF of less than 2 crores are required to submit a statutory auditor's certificate certifying compliance to the revised levels at the end of each of the two financial years as given in the adjacent table. Minimum NOF of Rs. 200 lakh to be attained by the end of March 2017, as per the milestones given below: Rs. 100 lakh by the end of March 2016 Rs. 200 lakh by the end of March 2017 MEANING OF NBFC-ND-SI CHANGED Currently non-deposit accepting NBFCs with asset size of Rs. 100 crores or more are

classified as NBFC-ND-SI. Henceforth, NBFCs-ND which have asset size of Rs. 500 crore and above as per the last audited balance sheet would be classified as NBFC-ND-SI for the purpose of administering prudential norms. Rs 500 crores is a reasonably big size Expectedly, a whole lot of companies will go out of complying with all or some of the prudential norms requirement AGGREGATION OF ASSETS OF MULTIPLE NBFCS IN THE SAME GROUP Was a part of the 10th November, 2014 circular

Was dropped from the final notifications of 27th March, 2015 Again re-instated in the Master Circular Miscellaneous Instructions to all NBFCs Now forms a part of the Master Directions MULTIPLE NBFCS IN THE SAME GROUP For ascertaining asset size of NBFCs-ND-SI, the total assets of NBFCs in a group (i.e. part of a corporate group or are floated by a common set of promoters), including NBFCs-D, if any, will be aggregated. That is, asset size will be clubbed as group level Accordingly consolidation will fall within the asset sizes of the two categories viz. NBFC-ND (with asset size of less than Rs. 500 crores); and NBFC-ND-SI (with asset size of Rs. 500 crore or more). Regulations as applicable to the two categories will be applicable to each of the NBFC-ND within the group, irrespective of its individual asset size. For NBFC-D, all applicable regulations would apply.

COMPANIES IN THE GROUP DEFINED The word group has a broad definition Companies in the Group, shall mean an arrangement involving two or more entities related to each other through any of the following relationships: Subsidiary parent (defined in terms of AS 21), Joint venture (defined in terms of AS 27), Associate (defined in terms of AS 23), Promoter - promotee [as provided in the SEBI (Acquisition of Shares and Takeover) Regulations, 1997], for listed entities A related party (defined in terms of AS 18),

Common brand name, and Investment in equity shares of 20% and above The word group would take the definition of applicable Accounting Standards. Accounting standards define group to mean holding, subsidiary and fellow subsidiaries DEFINITION OF GROUP AS PER RBI ACT RBI Act, 1934 Companies in the same group defined with reference to Companies Act 1956 Will still refer to the 1956 Act, as there is no similar definition in CA 2013 Hence, definition in sec 370 (1B) of the Companies Act will prevail RELEVANCE OF COMPANIES IN THE SAME GROUP Deduction from Tier 1 capital

Exposures in the group exceeding 10% of owned funds to be deducted from Tier 1 Notably, definition of group in the RBI Act remains unchanged Concentration limits Apply for loans/investments to a borrower, or borrower group In case of NBFCs held by NOFHCs, there is a separate definition of promoter group APPLICABILITY OF PRUDENTIAL NORMS CONTD. 1/2 NBFC-ND Asset Size > 500 crores Asset Size <= 500

crores Non holding public funds Holding public funds With customer interface Without customer interface With customer interface

Only Conduct of business regulations applicable. No prudential norms Without customer interface No prudential norms or conduct-of-business regulations (i.e. KYC, fair practices code (FPC) etc.) APPLICABILITY OF PRUDENTIAL NORMS CONTD. 2/2 NBFC-ND Asset Size > 500

crores Asset Size <= 500 crores Prudential regulations as applicable to NBFCs-ND-SI. Conduct of business regulation will be applicable if customer interface exists. With customer interface Limited Prudential regulations and conduct of business regulations.

Non holding public funds Holding public funds Without customer interface Limited Prudential regulations and conduct of business regulations. With customer interface Without

customer interface MASTER DIRECTIONS FOR NBFC-ND-SI AND NBFC-D APPLICABILITY NBFC-NDs having asset size of Rs. 500 crores, either singly or together with the asset size of other NBFCs in the group NBFC-D For Government Companies Only para 23 of the Master Directions shall apply Para 23 Intimation to RBI for change of address, directors etc. CONTENTS OF THE MASTER DIRECTIONS Chapter Content

Chapter II Definitions Chapter III Registration Chapter IV Capital Requirements Chapter V Prudential Regulations Chapter VI Fair Practice Code

Chapter VII Specific Directions to Factors Chapter VIII Specific Directions to IDF Chapter IX Specific Directions to MFIs Chapter X Acquisition/ Transfer of Control Chapter XI ODI by NBFCs

Chapter XII Corporate Governance Chapter XIII Miscellaneous Instructions Chapter XIII Reporting Requirements ASSET CLASSIFICATION Asset classification norms for NBFCs-ND-SI and NBFCs-D are being changed, in line with that of banks Substandard For other than leased assets: For FY 2016-17: 4 months

For FY 2017-18 and onwards: 3 months For leased assets For FY 2016-17: 6 months For FY 2017-18 and onwards: 3 months Doubtful: Account remaining substandard for For FY 2016-17: 14 months For FY 2017-18 and onwards: 12 months PROVISIONING NORMS Provisioning for Standard Assets Revised to 0.40% for NBFCs-ND-SI and for all NBFCs-D; This change is in line with that of banks The compliance to the revised 0.30% by the end of March 0.35% by the end of March 0.40% by the end of March norm will be phased in as given below: 2016 2017

2018 Provisioning for Substandard Assets: 10% Provisioning for Doubtful Assets: For unsecured portion 100% For secured portion 1st Year 20% 2nd and 3rd year 30% Thereafter 50% CONCENTRATION NORMS Credit/ investment concentration restriction: Lending Single borrower 15% Single group of borrowers 25% Investing in shares Single party 15% Single group of parties 25% Lending to/ Investing in Single party 25%

Single group of parties 40% Exposures in group companies, to the extent that the same has been reduced from owned funds to arrive at net owned funds, shall not be considered for the purpose of concentration norms CAPITAL ADEQUACY NORMS Tier 1 capital requirement increases to 8.5% on 31st March 2016, and 10% in 31st March 2017 Basel II or Basel III definitions are seemingly not being applied to NBFCs INCOME RECOGNITION Income recognition requirements Income to be recognised based on recognised accounting standards Income on NPAs should be recognised on cash basis, any income recognised before the asset became NPA remaining unrealised shall be reversed

Income from dividend on shares and mutual funds shall be recognised on cash basis Income from bonds and debentures of corporate bodies and from Government securities/ bonds may be recognised on accrual basis Income from securities of corporate bodies or PSUs, the payment of interest of repayment of principal of which has been guaranteed by the Central Government or State Government, may be recognised on accrual basis ACCOUNTING PRINCIPLES Accounting Standards AS and Guidance Notes issued by the ICAI to be followed Where the provisions of AS are inconsistent with the directions Directions to prevail Accounting of investments The Board of Directors of every company to frame investment policy It should contain the criteria to classify current and long term investments Classification of current and long term investments should be done at the time of making the

investment The quoted investments should be group into certain classes, as specified in the Directions, for the purpose of valuation Quoted instruments to be valued at cost or market value, whichever is lower Unquoted investments to be valued at cost or break up value, whichever is lower Unquoted preference shares, in the nature of current investments, shall be valued at cost or face value, whichever is lower Investments in unquoted Govt. Securities or Govt. Guaranteed bonds shall be the carrying cost. Unquoted units of mutual funds in the nature of current investments to be done based on the NAV Commercial papers to be valued at the carrying cost Long term investments shall be valued in accordance with AS 13, issued by the ICAI

ACCOUNTING YEAR & BALANCE SHEET RELATED PRINCIPLES Accounting year of an NBFC must end on 31 March every year and the balance sheet st must be drawn on that date Where an NBFC intends to extend the date of balance sheet prior approval of RBI needed before making the application to ROC Proforma balance sheet as on 31st March every year will have to submitted to the RBI, even if the balance sheet date is extended Statutory returns will have to be filed based on proforma balance sheet Finalisation of balance sheet must happen within 3 months from the date to which it pertains Every NBFC to append particulars, mentioned in Annex I, as Schedule to the balance sheet, major disclosures: Break up of credit obtained Break up of loans and advances extended based on security Break of assets based on nature of asset finance For AFCs Break up of investments Borrower group wise classification

Additional disclosures in the balance sheet Provisions for bad and doubtful debts SUBMISSION OF CERTIFICATE OF STATUTORY AUDITORS Submission of certificate from Statutory Auditor to the RBI Stating that it is engaged in the business non banking financial activity and holds the CoR under section 45-IA and is eligible to hold it Indicating the asset/ income pattern of the Company for making it eligible for classification as Asset Finance Company, Investment Company or Loan Company Within 1 month from the date of finalization of the Balance Sheet and in any case not later than 30 th December of that year. OTHER REQUIREMENTS Policy on Demand/ Call Loans Board of Directors to frame a policy on Demand/ Call Loans Cut off date within which the repayment of demand or call loan shall be demanded or

called up should be mentioned in the policy Rate of interest to be charged should be laid down in the policy Lending against gold Separate set of directions governing gold lending Information with respect to change of address, directors, auditors etc The company to inform the RBI the following within 1 month from the date of occurrence the complete postal address, telephone number/s and fax number/s of the registered/ corporate office the names and residential addresses of the directors of the company; the names and the official designations of its principal officers; the names and office address of the auditors of the company; and the specimen signatures of the officers authorised to sign on behalf of the company CORPORATE GOVERNANCE NORMS (1/10) Corporate governance directions, 2015 shall not apply toCIC-ND-SI

Board Committees: All NBFC-D and NBFC-ND-SI are now mandatorily required to constitute: Audit Committee, Nomination Committee Risk Committee Asset Liability Management Committee Under the Act, 2013, constitution of the Audit Committee and NRC is mandatory for only: Listed Companies; and Public Companies with:

Paid up capital of Rs. 10 crore or more, Turnover of Rs. 100 crore or more or Aggregate outstanding loans or borrowings or debentures or deposits exceeding Rs. 50 crore or more. However, all NBFC-D and NBFC-ND-SI, irrespective of whether they are public or private, are required to constitute these committees. CORPORATE GOVERNANCE NORMS (2/10) Audit Committee: The formation of the Audit Committee was mandatory under RBI Regulations earlier as well Shall consist of 3 members of the Board. In absence of any other requirement, the composition must comply with Act, 2013 and Listing Agreement (in case of listed NBFC) Majority independent under the Act, 2013 and 2/3rd independent under Listing Agreement

The Audit Committee must ensure that an Information Systems Audit of the internal systems and processes is conducted at least once in two years to assess operational risks faced by the company. In addition, the responsibilities as laid down under the Act, 2013 and/ or Listing Agreement will also need to be complied with CORPORATE GOVERNANCE NORMS (3/10) Nomination Committee: Constitution of this Committee was earlier recommendatory by the RBI for NBFC-D with deposit size of Rs 20 crore and above and NBFC-ND-SI Under the Act, 2013 the Nomenclature of the Committee shall be Nomination and Remuneration Committee, which shall perform dual responsibilities of a Nomination Committee as also a Remuneration Committee

Its constitution shall, in the absence of any provision laid under the RBI Circular, will be as per the Act, 2013 and / or Listing Agreement, which is, minimum 3 NEDs with half as IDs. The Committee shall ensure fit and proper status of proposed/existing Directors in addition to the responsibilities laid down under the Act, 2013 and Listing Agreement. CORPORATE GOVERNANCE NORMS (4/10) Risk Management Committee: Constitution of this Committee was earlier recommendatory by the RBI for NBFC-D with deposit size of Rs 20 crore and above and NBFC-ND-SI The Act, 2013 does not lay down its mandatory constitution. However, the Listing Agreement requires constitution of a Risk Management Committee only for the top 100 listed companies by market capitalisation Would be responsible to manage the integrated risk. For Listed NBFCs, composition to be as per Listing Agreement, in the absence RBI provisions

As per Listing Agreement - composition shall be as decided by the Board with Board members forming a majority. The Chairman of the committee shall be a Board Member. CORPORATE GOVERNANCE NORMS (5/10) Asset Liability Management Committee: Prior to CG Directions, 2015 the NBFCs were required to constitute the committee in accordance with the Guidelines on Asset Liability Management System for NBFC ALCO used to be the committee of the management of the company Post CG Directions, 2015 the ALCO has to be a subset of the Board of the Company CORPORATE GOVERNANCE NORMS (6/10) Mandatory rotation of Audit Partner All NBFC-D and NBFC-ND-SI are now mandatorily required to rotate the audit partners of their statutory audit firm every 3 years so that same partner does not conduct audit of the company continuously for more than a period of 3 years.

This is different from the rotation of auditors, as applicable to certain classes of companies under the Act, 2013 The Act also has a provision relating to rotation of auditing partner and his team which can be decided by the members. However it is a non-mandatory provision (Sec. 139 (3)) The audit partner so rotated will be eligible for conducting the audit of the NBFC after an interval of 3 years, if the NBFC, so decides Presently this was a recommendatory provision for NBFCs with public deposits/deposits of Rs 50 crore and above CORPORATE GOVERNANCE NORMS (7/10) Policy on fit and proper criteria for Directors All NBFCs-ND-SI and NBFCs-D, with effect from March 31, 2015, are required to put in place a policy for ascertaining the fit and proper criteria for its directors Under the Act, 2013 and the Listing Agreement, the NRC is required to frame criteria for identifying

persons who are qualified to become directors and who may be appointed in senior management. This is an additional requirement for these NBFCs The fit and proper criteria is to be ascertained both at the time of appointment of Directors and also on a continuing basis. Fit and proper person criteria replicates much of the current guidelines applicable to banks CORPORATE GOVERNANCE NORMS (8/10) Policy Guidelines Due Diligence To ascertain that the person being appointed / re-appointed as a director is suitable, based on qualification, expertise, track record, integrity and other fit and proper criteria. Declaration by Director Every director being appointed and as also every existing director shall, at the time of appointment or annually on 31st March, respectively, declare to the NBFC, requisite details regarding his qualification, list of relatives, relationships with other entities in which he is interested, proceedings against him etc. In case of any change in the declaration, intimation to be given forthwith

This declaration is in addition to the declarations to be given by the director under Section 184 and 164 of the Act, 2013 regarding their interest in other entities, contracts and arrangements and their disqualifications. CORPORATE GOVERNANCE NORMS (9/10) Deed of Covenant Additional requirement It is quite clearly an agreement of to be signed both by the director and the company For example, not evade responsibility in regard to matters entrusted to him / her by the Board In short, the covenant will expose independent directors to substantial risks Every director and the company to execute the deed which includes declarations to be provided by the director, information to be provided by the company to the director, the roles and responsibilities of the director and the like. Age of independent director IDs / NEDs should be between 35 to 70 years of age. No such restriction under the Act, 2013. Listing Agreement provides that ID should not be less than 21 years of age

Huge increase in the age limit from 21 years to 35 years to qualify as ID. Further ineligibility has been provided if the ID exceeds the age of 70 years CORPORATE GOVERNANCE NORMS (10/10) Declaration by NBFC Quarterly statement to be furnished by NBFCs to the RBI on change of Directors certified by the auditors and a certificate from the Managing Director that fit and proper criteria in selection of directors have been followed. PROCESS OF APPOINTMENT OF DIRECTORS IN NBFCS Due diligence by the NBFC Signing of a declaration by the director designate Consideration of the declaration by the Nomination Committee and opinion on fit and

proper person Appointment by the board/general meeting Signing of a covenant by the director Annual declaration as on 31st March every year If the appointment leads to a change of more than 30% of the Boards composition Prior approval of the RBI required MASTER DIRECTIONS FOR NBFC-ND-NON SI APPLICABILITY Category of NBFC Customer Interface Public Funds Applicability

NBFC-ND having asset size of less than Rs. 500 crores Yes Yes Entire Directions NBFC-ND having asset size of less than Rs. 500 crores Non No Entire Directions, except the following:

Chapter IV, Para 68 and Chapter V NBFC-ND having asset size of less than Rs. 500 crores No Yes Entire Directions, except the following: Para 68 and Chapter V NBFC-ND having asset size of less than Rs. 500 crores

Yes No Entire Directions, except the following: Chapter IV CONTENTS OF THE MASTER DIRECTIONS Chapter Content Chapter II Definitions Chapter III

Registration Chapter IV Prudential Regulations Chapter V Fair Practice Code Chapter VI Specific Directions to Factors Chapter VII Specific Directions to IDF Chapter VIII

Specific Directions to MFIs Chapter IX Acquisition/ Transfer of Control Chapter X ODI by NBFCs Chapter XI Miscellaneous Instructions Chapter XII Reporting Requirements LEVERAGE RESTRICTION ON NBFC ND NON SI

Leverage to be maintained at 7 times w.e.f 31st March, 2015 Leverage = Outside Liabilities Owned Funds Owned funds has been defined in the following manner owned fund means paid up equity capital, preference shares which are compulsorily convertible into equity, free reserves, balance in share premium account and capital reserves representing surplus arising out of sale proceeds of asset, excluding reserves created by revaluation of asset, as reduced by accumulated loss balance, book value of intangible assets and deferred revenue expenditure, if any; Outside Liabilities has been defined in the following manner outside liabilities means total liabilities as appearing on the liabilities side of the balance sheet excluding 'paid up capital' and 'reserves and surplus', instruments compulsorily convertible into equity shares within a period not exceeding 5 years from the date of issue but including all forms of debt and obligations having the characteristics of debt, whether created by issue of hybrid instruments or otherwise, and value of guarantees issued, whether appearing on the balance sheet or not. INCOME RECOGNITION Income recognition requirements Income to be recognised based on recognised accounting standards

Income on NPAs should be recognised on cash basis, any income recognised before the asset became NPA remaining unrealised shall be reversed Income from dividend on shares and mutual funds shall be recognised on cash basis Income from bonds and debentures of corporate bodies and from Government securities/ bonds may be recognised on accrual basis Income from securities of corporate bodies or PSUs, the payment of interest of repayment of principal of which has been guaranteed by the Central Government or State Government, may be recognised on accrual basis ACCOUNTING PRINCIPLES Accounting Standards AS and Guidance Notes issued by the ICAI to be followed Where the provisions of AS are inconsistent with the directions Directions to prevail Accounting of investments The Board of Directors of every company to frame investment policy It should contain the criteria to classify current and long term investments Classification of current and long term investments should be done at the time of making the

investment The quoted investments should be group into certain classes, as specified in the Directions, for the purpose of valuation Quoted instruments to be valued at cost or market value, whichever is lower Unquoted investments to be valued at cost or break up value, whichever is lower Unquoted preference shares, in the nature of current investments, shall be valued at cost or face value, whichever is lower Investments in unquoted Govt. Securities or Govt. Guaranteed bonds shall be the carrying cost. Unquoted units of mutual funds in the nature of current investments to be done based on the NAV Commercial papers to be valued at the carrying cost

Long term investments shall be valued in accordance with AS 13, issued by the ICAI ACCOUNTING YEAR & BALANCE SHEET RELATED PRINCIPLES Accounting year of an NBFC must end on 31 March every year and the balance sheet st must be drawn on that date Where an NBFC intends to extend the date of balance sheet prior approval of RBI needed before making the application to ROC Proforma balance sheet as on 31st March every year will have to submitted to the RBI, even if the balance sheet date is extended Statutory returns will have to be filed based on proforma balance sheet Finalisation of balance sheet must happen within 3 months from the date to which it pertains Every NBFC to append particulars, mentioned in Annex I, as Schedule to the balance sheet, major disclosures: Break up of credit obtained

Break up of loans and advances extended based on security Break of assets based on nature of asset finance For AFCs Break up of investments Borrower group wise classification Additional disclosures in the balance sheet Provisions for bad and doubtful debts ASSET CLASSIFICATION & PROVISIONING NORMS Asset Classification Standard Assets Sub-standard Assets 6 months overdue (12 months overdue for leased assets) Doubtful Assets 18 months overdue Loss Assets Provisioning requirements Standard Assets: 0.25% Sub-standard: 10%

Doubtful Assets: For the unsecured portion 100% for the unsecured portion For the secured portion 1st year 20% 2nd year 30% 3rd year onwards 50% SUBMISSION OF CERTIFICATE OF STATUTORY AUDITORS Submission of certificate from Statutory Auditor to the RBI Stating that it is engaged in the business non banking financial activity and holds the CoR under section 45-IA and is eligible to hold it Indicating the asset/ income pattern of the Company for making it eligible for classification as Asset Finance Company, Investment Company or Loan Company Within 1 month from the date of finalization of the Balance Sheet and in any case not later than 30 th December of that year. OTHER REQUIREMENTS 1/2

Policy on Demand/ Call Loans Board of Directors to frame a policy on Demand/ Call Loans Cut off date within which the repayment of demand or call loan shall be demanded or called up should be mentioned in the policy Rate of interest to be charged should be laid down in the policy Lending against gold Separate set of directions governing gold lending Information with respect to change of address, directors, auditors etc The company to inform the RBI the following within 1 month from the date of occurrence the complete postal address, telephone number/s and fax number/s of the registered/ corporate office the names and residential addresses of the directors of the company; the names and the official designations of its principal officers; the names and office address of the auditors of the company; and the specimen signatures of the officers authorised to sign on behalf of the company OTHER REQUIREMENTS 2/2

Norms for restructuring of advances As per the guidelines dated 23rd January, 2014 Submission of Branch Info Return All NBFCs having total assets of more than Rs. 50 crores to submit Branch Information on quarterly basis within 15 days from the expiry of relative quarter COMMON REGULATIONS FOR NBFC-D, NBFC-ND-SI & NBFC-ND-NON SI FAIR PRACTICE CODE 1/2 Applicable to NBFCs having customer interface Customer interface has been defined in the following manner: customer interface means interaction between the NBFC and its customers while carrying on its business. Provides for the following: Details to be mentioned in the application form

NBFCs should devise a system of giving acknowledgement of applications received Manner of loan appraisal Details to be disclosed in vernacular language Amount sanctioned, terms and conditions, annualised rate of return etc Grievance redressal mechanism has to be set up by the Board The following must be mentioned in all branches/ offices clearly Name and contact details of the Grievance Redressal Officer The option of appeal to the Officer in charge of the regional office of DNBS of RBI, where the grievance is not redressed within 1 month FAIR PRACTICE CODE 2/2 Fair Practice Code will have to adopted and mentioned at all places of business and website Loan agreements must have built in repossession clause and must also contain the following: notice period before taking possession; circumstances under which the notice period can be waived; the procedure for taking possession of the security; a provision regarding final chance to be given to the borrower for repayment of loan

before the sale / auction of the property; the procedure for giving repossession to the borrower; and the procedure for sale / auction of the property Interest rate policy must be adopted by the Board of Directors to set down the principles of determining interest rate on loans CHANGE OF CONTROL/ MANAGEMENT OF NBFCS NON-BANKING FINANCIAL COMPANIES (APPROVAL OF ACQUISITION OR TRANSFER OF CONTROL) DIRECTIONS, 2015 Prior approval from RBI For takeover or acquisition of control of an NBFC, which may or may not result in change of management For change in the shareholding of an NBFC, including progressive increases over time, which would result in acquisition/ transfer of shareholding of 26 per cent or

more of the paid up equity capital For change in the management of the NBFC which would result in change in more than 30 per cent of the directors, excluding independent directors Prior public notice For change in control or ownership MEANING OF NBFC FOR THE PURPOSE OF THESE DIRECTIONS "NBFC" means a non-banking financial company as defined in clause (f) of section 45-I of the Reserve Bank of India Act, 1934 Section 45 (I) (f) of the RBI Act, 1934 a financial institution which is a company; a non-banking institution which is a company and which has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner, or lending in any manner; such other non-banking institution or class of such institutions, as the Bank may, with the

previous approval of the Central Government and by notification in the Official Gazette, specify. Thus it includes all the NBFCs within the ambit and hence the circular will be applicable to all the NBFCs. The Directions make reference to section 45-I(f) and not 45-IA. Therefore, CICs, exempted from registration shall also have to comply with the provisions of these Directions PRIOR APPROVAL FROM RBI 1/3 Takeover or acquisition of control Meaning of control Same as the meaning assigned to it under SEBI (SAST) Regulations, 2011, which means right exercisable directly or indirectly: to appoint majority of directors; or to control management or policy decisions Individually or along with PAC [Meaning of PAC in the following

slide] By virtue of shareholding, management rights or agreements or any other manner MEANING OF PAC Person acting in concert (PAC) As per the SEBI (SAST) Regulations, 2011, PACs are persons with a common object of acquisition or control. Includes The company, its holding and subsidiary company, and company under the same management or control. The company, its directors, and any person entrusted with the management of the company. Deemed PACs have also been defined, and among others would include a collective investment scheme and its collective investment management company, trustees and trustee company, venture capital fund and its sponsor, trustees, trustee company and asset management company, are also treated as persons deemed to be acting in concert. Alternate investment fund, its sponsor, trustees, trustee company etc. Inserted w.e.f 21 st Dec, 2012.

PRIOR APPROVAL FROM RBI 2/3 Change in the shareholding of an NBFC, including progressive increases over time, which would result in change of shareholding of 26% or more of the paid up equity capital The transfer need not be at one go, it can be cumulative as well Includes progressive transfers over time but time period not mentioned Cue may be taken from SEBI (SAST) Regulations, 2011 Para 3(2) provides time period for creeping transfer A financial year Transfer of preference share capital will have no impact Does not cover change in shareholding due to buyback of shares/reduction of capital, which has been approved by competent court PRIOR APPROVAL FROM RBI 3/3 Change in management which would result in change in more than 30% of the composition of the Board of Directors For computation of total strength of the BOD Independent

Directors are to be excluded Does not cover re-election of directors subject to retirement by rotation APPLICATION FOR PRIOR APPROVAL Application in the letterhead of the company along with the following Information about the proposed directors/ shareholders; Sources of funds of the proposed shareholders acquiring the shares in the NBFC; Declaration by the proposed directors/ shareholders that they are not associated with any unincorporated body that is accepting deposits; Declaration by the proposed directors/ shareholders that they are not associated with any company, the application for Certificate of Registration (CoR) of which has been rejected by the Reserve Bank; Declaration by the proposed directors/ shareholders that there is no criminal case, including for offence under section 138 of the Negotiable Instruments Act, against them; and Bankers Report on the proposed directors/ shareholders. As per RBI FAQs on NBFCs, if the transfer takes place within the group, only an application in the letterhead of the company has to be submitted

PRIOR PUBLIC NOTICE At least 30 days public notice will have to be given In at least one leading national and one leading local regional language newspaper Required only for Change in control or change in ownership by transfer of shares Not required for Change in shareholding not resulting in change in control Change in management not due to change in control RBI DIRECTIONS ON MERGER AND AMALGAMATIONS OF NBFCS PRIOR APPROVAL FOR MERGERS AND AMALGAMATIONS Non-Banking Financial Companies (Approval of Acquisition or Transfer of Control) Directions, 2014 required prior approval for merger or amalgamations of NBFCs The aforesaid directions were repealed through Non-Banking Financial Companies (Approval of

Acquisition or Transfer of Control) Directions, 2015 2015 Directions do not require prior approval of RBI for mergers and amalgamations RBI FAQs on NBFCs require prior approval of RBI for mergers and amalgamations of NBFCs MERGERS AND AMALGAMATIONS 1/2 Merger NBFC A with NBFC B Prior approval of RBI required by NBFC A. If post-merger, shareholding of NBFC B changes by 26% or more prior approval is required NBFC A with Entity B

Prior approval of RBI required by NBFC A. If post-merger, Entity B meets definition of NBFC Prior approval plus registration. Entity with NBFC Prior approval of RBI required if , post merger i. shareholding of NBFC will change by 26% or more, or, ii. Management of NBFC will change resulting in change in 30% or more of the directors.

MERGERS & AMALGAMATION 2/2 Amalgamatio n NBFC with NBFC/entity Prior approval of RBI required. Such approval will be required before approaching Court/tribunal OVERSEAS DIRECT INVESTMENTS BY NBFCS GENERAL CONDITIONS Prior approval required for opening of branch /subsidiary/joint venture/representative office

or undertaking investment abroad Investment in non financial sector abroad not allowed Direct investment in activities prohibited under FEMA or in sectoral funds shall not be permitted The aggregate overseas investment shall not exceed 100% of the NOF. The overseas investment in a single entity, including its step down subsidiaries, by way of equity or fund based commitment shall not be more than 15% of the applicable NBFCs owned funds The level of NNPA must not be more than 5% The investing NBFC shall be earning profit for the last three years and its performance in general shall be satisfactory during the period of its existence An annual certificate from statutory auditors shall be submitted by the applicable NBFC to the Regional Office of Department of Non-Banking Supervision of the Bank where it is registered GOLD LENDING BY NBFCS

LOANS AGAINST GOLD JEWELLERY Not entitled under Agriculture sector when: Loans sanctioned to NBFCs for on lending to individuals or other entities against gold jewellery Investments made by banks in securitised assets originated by NBFCs, underlying assets are gold jewellery Purchase/assignment of gold loan portfolio from NBFCs No advances can be granted by the NBFCs* against bullion/ primary gold/ and gold coins. For purchase of gold in any form, including primary gold, gold bullion, gold jewellery, gold coins, units of gold exchange trade funds and units of gold mutual funds. *Restriction imposed by RBI Circular dated May 27, 2013 FURTHER RESTRICTIONS FOR NBFCS WITH REGARDS TO LENDING AGAINST GOLD RBI brought in clarification stating that NBFCs will not be able to advance for the purchase of

gold in any form, including primary gold, gold bullion, gold jewellery, gold coins, units of gold Exchange Traded Funds (ETF) and units of gold Mutual Funds. After the Working Group to Study the Issues Related to Gold Imports and Gold Loans NBFCs in India submitted their report, the RBI came out with the following The NBFCs carrying on the business of lending against gold will have to ensure that all its branches meet the minimum level of safety requirements. For the purpose of valuation of gold while lending against it, average of the closing prices of 22 Carat gold for the preceding 30 days quoted in the Bombay Bullion Association Ltd. are to be taken into account. The board of the company to lay down proper policy for the purpose of ascertaining the ownership of the gold collateral.

The NBFCs are to obtain PAN of the customer where the value of the transaction exceeds Rs. 5 Lakhs. Any disbursement over Rs. 1 Lakh will have to be made through cheque. All the branches should have standardised documents BANK FINANCE TO NBFCS BANK FINANCE TO NBFCS To lay down RBIs regulatory policy regarding financing of Registered NBFCs by banks Statutory guidelines issued under section 35A of Banking Regulation Act, 1949 Applicable to all Scheduled Commercial Banks, except Regional Rural Banks Banks can extend the working capital or term loan facilities to the NBFCs engaged in infrastructure financing, equipment leasing, hire purchase, loan, factoring and investment activities Banks may also extend finance against second hand assets financed by NBFCs Banks may formulate suitable loan policies with approval of their BOD within

prudential guidelines and exposure norms BANK FINANCE TO NBFCS CONTD.. Banks may take credit decisions on basis of factors like Purpose of credit Nature and quality of underlying assets Repayment capacity of borrowers Risk perception; while granting loan to NBFCs not requiring any registration. A few of them are: Insurance Companies Nidhi Companies Chit Fund Companies Stock Broking Companies Bank may finance to registered RNBCs. However, the finance to be restricted to their Net Owned Fund (NOF) BANK FINANCE TO NBFCS CONTD.. Bank finance to NBFCs not possible for the following: Bills discounted / rediscounted by NBFCs, except for rediscounting of bills discounted by

NBFCs arising from sale of commercial vehicles (including light commercial vehicles), and two wheeler and three wheeler vehicles, subject to the following conditions : Investments of NBFCs both of current and long-term nature, in any company / entity by way of shares, debentures, etc. However, Stock Broking Companies may be provided needbased credit against shares and debentures held by them as stock-in-trade. Unsecured loans / inter-corporate deposits by NBFCs to / in any company. All types of loans and advances by NBFCs to their subsidiaries, group companies / entities. Finance to NBFCs for further lending to individuals for subscribing to Initial Public Offerings (IPOs) and for purchase of shares from secondary market BANK FINANCE TO NBFCS CONTD.. Banks should not invest in Zero coupon bonds issued by the NBFCs unless the issuer NBFC builds

up sinking fund for all accrued interest and keeps it invested in liquid investments / securities Banks are permitted to invest in Non-Convertible Debentures (NCDs) with original or initial maturity up to one year issued by NBFCs Exposure limits: The exposure of a bank to a single NBFC / NBFC-AFC (Asset Financing Companies), which is not predominantly engaged in lending against collateral of gold jewellery, should not exceed 10 per cent / 15 per cent respectively, Where the end use of funds is on-lending to infrastructure sector, the exposure can go up to 15% / 20% respectively, of their capital funds provided the exposure in excess of 10% / 15% respectively, is on account of funds on-lent by the NBFC / NBFC-AFC to the infrastructure sector. Exposure of a bank to the NBFCs-IFCs (Infrastructure Finance Companies) should not exceed 15 per cent Where the same is used for on-lending to IFCs, exposure limits is 20 % FOREIGN INVESTMENTS IN NBFCS FDI IN NBFCS Before

Now FDI in NBFCs under automatic route only for following activities: For financial entities regulated by financial sector regulators, like, RBI, SEBI, NHB, PFRDA, IRDA 100% under automatic route For other than regulated financial entities Under approval route (i) Merchant Banking (ii) Underwriting (iii) Portfolio Management Services (iv) Investment Advisory Services (v) Financial Consultancy (vi) Stock Broking (vii) Asset Management (viii) Venture Capital (ix) Custodian Services (x) Factoring (xi) Credit Rating Agencies (xii) Leasing & Finance - covers only financial leases and not operating leases. FDI in operating leases is permitted up to 100 % on the

automatic route. (xiii) Housing Finance (xiv) Forex Broking (xv) Credit Card Business includes issuance, sales, marketing & design of various payment products such as credit cards, charge cards, debit cards, stored value cards, smart card, value added cards etc (xvi) Money Changing Business (xvii) Micro Credit (xviii) Rural Credit FDI IN NBFCS Before Now Capitalisation requirements: Capitalisation norms As specified by respective regulators - For NBFCs, Rs. 2 crores, for HFCs, Rs. 10 crores etc.

(i) US $0.5 million for foreign capital up to 51 % to be brought up front. (ii) US $ 5 million for foreign capital more than 51 % and up to 75% to be brought up front. (iii) US $ 50 million for foreign capital more than 75% out of which US $ 7.5 million to be brought up front and the balance in 24 months. (iv) Non-Fund based activities: US$ 0.5 million to be brought upfront for all permitted non-fund based NBFCs irrespective of the level of foreign investment. Following were regarded as Non-fund based activities: (a) Investment Advisory Services (b) Financial Consultancy (c) Forex Broking (d) Money Changing Business (e) Credit Rating Agencies ADDITIONAL CERTIFICATION FOR FDI COMPLIANCE- CIRCULAR DATED FEB 4, 2010 NBFCs having FDI whether under automatic route or under approval route required to

submit a certificate from their Statutory Auditors on half yearly basis certifying compliance with the existing terms and conditions of FDI To be submitted not later than one month from the close of the half year to which the certificate pertains DOWNSTREAM INVESTMENTS BY NBFCS Step down subsidiaries for specific NBFC activities can be set up by 100% foreign owned NBFCs or NBFCs having foreign investment above 75% and below 100% with a minimum capitalization of US$ 50

million No requirement of bringing in additional capital No limit on number of operating subsidiaries Minimum capitalization condition not applicable to such downstream subsidiaries EXTERNAL COMMERCIAL BORROWINGS BY NBFCS ECB BY NBFCS An NBFC is an eligible borrower as per ECB Guidelines All NBFCs can borrow under track III through automatic route and utilise the proceeds as

listed for that track ECBs can be raised from eligible borrowers under respective tracks International banks International capital market Multilateral financial institutions (such as IFC, ADB, CDC, etc.) Export credit agencies Suppliers of equipments Foreign collaborators Foreign Equity Holders ECB BY NBFCS NBFCs engaged in following can raise ECB under track I too: NBFC-IFC Up to USD 750 million or equivalent during a financial year NBFC-HFC upto USD 750 million or equivalent during a financial year All other terms and conditions as mentioned in ECB Guidelines are to be complied with regard to

having Board approved risk management policy and utilisation of proceeds only for infra sector development if raised through track I Has to follow 100% hedging requirements. ECB BY NBFCS-IFCS FOR INFRASTRUCTURE LEASING NBFC-HFC and NBFC-IFCs are allowed to raise ECB under automatic route through track I vide RBI circular date 30th March, 2016 with MAM of 5 years under track I To finance infrastructure projects Subject to a maximum of USD 700 million or its equivalent per financial year ECB by issue of FCCBs can be raised Subject to compliance with Financial Action Task Force (FATF) Guidelines MAM of five years to be maintained irrespective of the amount borrowed Only through approval route CICs also can raise ECB through all tracks Have to have board approved risk management policy if raises ECB under track I Has to have risk hedged 100% if raised under track I Can use proceeds only for on-lending to infra-SPVs if raised under track I

PRIVATE PLACEMENT OF NCDS BY NBFCS PROVISIONS OF ACT, 2013 INAPPLICABLE TO NBFCS Private placement of securities 42 14(5) [Companies (Prospectus and Allotment of Securities) Rules, 2014] Companies (Acceptance of Deposit) Rules, 2014

73 & 76 3(ii) [Companies (Acceptance of Deposit) Rules, 2014] Exemption I in respect of Investment and lending activities. 186 - Nothing contained in Section 186, except sub-section (1), shall apply to any acquisition (i) made by a non-banking financial company registered under Chapter IIIB of the Reserve Bank of India Act, 1934

and whose principal business is acquisition of securities: 71(4) 18(7)(b) [Companies(Share Capital and Debenture) Rules, 2014] No DRR to be maintained in case of privately placed debentures. Debenture Redemption Reserve Provisions of rule pertaining to private placement of securities that can be made by a Company to maximum 200 persons in the aggregate in a FY and investment size per person are not applicable. Rules prescribed for acceptance members and other persons.

of deposit from ISSUE OF DEBENTURES BY NBFCS BY PRIVATE PLACEMENT Regulations applicable Section 42 of Act, 2013 In absence of a proviso similar to Sec 67(3) of Act, 1956 Section 71 of Act, 2013 Provisions relating to security, DRR, payment of interest, petition to NCLT etc. SEBI (Issue and Listing of Debt Securities) Regulations, 2008 In case the issue is to be listed on SE Issuance of Non-Convertible Debentures (Reserve Bank) Directions, 2010 In case of issue of short term debentures issued by way of private placement SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009

In case of issue on convertible debentures on preferential basis by listed NBFCs Revised Guidelines on Private Placement In case of issue of long term debentures issued by way of private placement by NBFCs. RBI GUIDELINES ON PRIVATE PLACEMENT OF DEBENTURES Issued Notification on February 20, 2015 Guidelines on Private Placement of NCDs (maturity more than 1 year) by NBFCs in supersession of Guidelines issued on 27th June, 2013 and clarification issued on 2nd July, 2013 Not applicable to Tax exempt bonds offered by NBFC NBFCs to formulate a Board approved policy for resource planning, covering the planning perspective and periodicity of private placement RBI has stipulated the guidelines majorly for issuance of private placement of NCDs of 2 categories: a) With a maximum subscription of less than Rs. 1 crore (Category A) b) With a minimum subscription of Rs. 1 crore and above (Category B) QUICK COMPARISON OF

CATEGORY A & B: QUICK COMPARATIVE 1/3 Parameters Revised Guidelines Initial Guidelines Act, 2013 Minimum subscription per Investor Rs. 20,000 Rs. 20,000 of Face Value Limit of subscribers

Category A: 200 Category B: No limit Category A: Mandatory Category B: Optional Initial Rs. 25 lakh and in multiples of Rs.10 lakh thereafter 49 Security creation Meaning of Placement Private No such explanation

200 Mandatory, except in case of subordinated debt Mandatory means non-public offering of NCDs by NBFCs to such number of select subscribers and such subscription amounts, as may be specified by the Reserve Bank from time to time means any offer of securities or invitation to subscribe securities to a select group of persons by a company (other than by way of public offer) through issue of a private placement offer letter and which satisfies the conditions specified in

Section 42. QUICK COMPARATIVE 2/3 Parameters Amount to be secured Nature of Security to be created Revised Guidelines Amount of Debentures By the mortgage of any immovable property of the company; or by any other asset Initial Guidelines Amount of Debentures By the mortgage of any immovable property of the company; or by any other asset

Applicability to Tax exempt Bonds Exempted No such Exemption Act, 2013 Amount of Debentures and interest b) by way of a charge or mortgage shall be created in favour of the debenture trustee on(i) any movable property of the company ; or (ii) any specific immovable property wherever situate, or any interest therein. No such Exemption QUICK COMPARATIVE 3/3 Parameters Restriction on

deployment of funds Loan against security of debentures issued. Revised Guidelines Own balance sheet and not to facilitate resource requests of group entities/ parent company / associates. (Not applicable to Core Investment Companies) NBFC shall not extend loans against the security of its own debentures (issued either by way of private placement or public issue)

Initial Guidelines Own balance sheet and not to facilitate resource requests of group entities/ parent company / associates. (Not applicable to Core Investment Companies) An NBFC shall not extend loans against the security of its own debentures (issued either by way of private placement or public issue). Act, 2013 No such restriction specified No such restriction

FRAUD REPORTING BY NBFCS FRAUD REPORTING BY NBFCS Frauds Future approach towards monitoring of frauds in NBFCs issued by RBI on October 26th, 2005 classification of frauds, approach towards monitoring of frauds reporting requirements Applicable to NBFC-D & NBFC-ND-SI Threshold limit for fraud reporting 1 Crore (amended vide Circular No. RBI/2015-16/327 DNBR (PD)

CC.No.075/03.10.001/2015-16 dated February 18, 2016) Earlier this was 25 lakh Submission of quarterly reports on fraud To Central Fraud Monitoring Cell, Reserve Bank of India, Department of Banking Supervision Frauds below 1 crore to report to RO of the RBI, DNBS under whose jurisdiction the Registered Office of the NBFC falls Form - FMR-1 - within 21 days of detection of the fraud CHANGE IN INDAS SCENARIO OF CHANGES IN INDAS Applicability of IndAS to NBFCs Basis Phase I Phase II

Timeframe Accounting periods beginning on or after April 1, 2018 with comparatives for the year ending on March, 31, 2018 or thereafter Accounting periods beginning on or after April 1, 2019 with comparatives for the year ending on March, 31, 2019 or thereafter Applicable on NBFCs having net worth of Rs. 500 crores or more Holding, subsidiary, JV or associate companies of such

NBFCs NBFCs whose equity or debt are listed or are in the process of being listed on any stock exchanges in India or outside India and having net worth less than Rs. 500 crores Unlisted NBFCs having net worth less than Rs. 250 crores or more but less than Rs. 500 crores Holding, subsidiary, JV or associate companies of such NBFCS Where an NBFC is a parent it has to prepare CFS as per Ind-AS wef April 1, 2018 for FY beginning on or after 2018-19 SCENARIO OF CHANGE IN INDAS (CONTD)

Amendments in schedule III via notification no. G.S.R. 365 (E) dated April 6, 2016 Division I Deals with the cos who are required to prepare financial statements as per the Companies (Accounting Standards) Rules, 2006 No change in format Division II Deals with the cos who are required to prepare financial statements as per the Companies (Indian Accounting Standards) Rules, 2015 New format for preparation of financial statements for those cos who comply with IndAS CORE INVESTMENT COMPANIES REGULATIONS APPLICABLE TO CICS Whether NBFC? Yes Principal business investments? Yes

Qualifies to be a CIC? Yes Net assets >Rs. 100 crores? Yes Co has public funds? Yes Master Directions for CICs shall apply No It is an Investment Company and regulations applicable to such companies will become applicable No The company is not required to obtain registration with the RBI and prudential norms will not be applicable

No The company is not required to obtain registration with the RBI and prudential norms will not be applicable CORE INVESTMENT COMPANY CIC defined as: not less than 90% of their assets were in investments in shares, debt, loans in group companies for the purpose of holding stake in the investee companies Atleast 60% in equity of group companies not trading in these shares except for block sale (to dilute or divest holding) not carrying on any other financial activities, not holding / accepting public deposits OVERVIEW OF CIC NBFC? Yes

Investment Company? No Not regulated by the RBI No Normal regulations will apply Yes Belonging to a group? CIC? Yes Total Assets of the

Group Satisfies CRAR and Leverage? No Less than Rs. 100 crores? Yes No Yes Normal Regulations will apply Core Investment Companies Directions shall apply REGULATORY FRAMEWORK FOR CICS-SI Systemically important CIC Company having asset not less than Rs. 100 crore

Either individually or with other group CICs Which raises or holds public deposits Capital requirements Minimum Capital Ratio to be maintained at all times Adjusted Net Worth shall not be less than 30% of its aggregate risk weighted assets on balance sheet and risk adjusted value of off balance sheet items as on the date of the last audited balance sheet. REGULATORY FRAMEWORK FOR CICS-SI Leverage ratio The Outside liabilities of a CIC-ND-SI shall not exceed 2.5 times of its Adjusted Net Worth calculated as on the date of the last audited balance sheet; Adjusted Net worth means Aggregate of owned funds as appearing in the last balance sheet:

Increased /reduced by 50% of unrealized appreciation /diminution in the book value of quoted investments Increase /reduction, if any, in equity share capital Submission of Annual Statutory Auditors Certificate by CIC-ND-SI Compliance of requirements of the directions Within one month from date of finalisation of balance sheet EXEMPTIONS CICs exempted from: maintenance of statutory minimum NOF requirements of Prudential norms for non-deposit accepting NBFC. CICs-ND-SI required to submit an annual certificate from their statutory auditors regarding compliance with the Directions Whether NBFC? REGULATIONS APPLICABLE TO CICS

Yes Principal business investments? Yes No It is an Investment Company and regulations applicable to such companies will become applicable No The company is not required to obtain registration with the RBI and prudential norms will not be applicable Qualifies to be a CIC? Yes

Net assets >Rs. 100 crores? Yes No The company is not required to obtain registration with the RBI and prudential norms will not be applicable Co has public funds? Yes Net assets >= 500 crores? No Non-Systemically Important Non Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2015, except Clauses 15, 16, 17, will be applicable Systemically Important Non Banking Financial (Non-Deposit

Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2015, except Clauses 15, 16, 24, will be applicable ODI BY CORE INVESTMENT COMPANIES Specific directions were issued in 2012 for ODI by CICs ODI by CICs If CIC exempt from registration Making investment in financial sector Needs registration Making investment in non-financial sector Does not need registration If CIC covered by registration requirements Eligibility criteria for making overseas investments ACCOUNT AGGREGATOR

ACCOUNT AGGREGATORS NOVEL CONCEPT In press release of the RBI dated 2nd July, 2015 it expressed the intent to set up new kind of NBFC which would carry out the business of accounts aggregator Notified on 2nd September, 2016 IMPORTANT DEFINITIONS (1/3) Account Aggregator Account Aggregator means a non-banking financial company as notified under in sub-clause (iii) of clause (f) of section 45-I of the Act, that undertakes the business of an account aggregator, for a fee or otherwise, as defined at clause (iv) of sub-section 1 of section 3 of these directions. business of an account aggregator means the business of providing under a contract, the service of, retrieving or collecting such financial information pertaining to its customer, as may be specified by the Bank from time to time; and consolidating, organizing and presenting such information to the customer or any other financial information user as may be specified by the Bank;

Provided that, the financial information pertaining to the customer shall not be the property of the Account Aggregator, and not be used in any other manner. IMPORTANT DEFINITIONS (2/3) Financial Assets means bank deposits including fixed deposits, saving deposits, recurring deposits and current deposits, Deposits with NBFCs, Structured Investment Product (SIP), Commercial Paper (CP), Certificate of Deposit (CD), Government Securities (Tradable), Equity Shares, Bonds, Debentures, Mutual Fund Units, ETFs, Indian Depository Receipts, CIS (Collective Investment Schemes) units, Alternate Investment Funds (AIF) units, Insurance Policies, Balances under the National Pension System (NPS), Units of Infrastructure Investment Trusts,

Units of Real Estate Investment Trusts, Any other asset as may be identified by the Bank for the purposes of these directions, from time to time IMPORTANT DEFINITIONS (3/3) Financial Sector regulator means Reserve Bank of India Securities and Exchange Board of India Insurance Regulatory and Development Authority Pension Fund Regulatory and Development Authority Financial service provider means

bank, banking company, non-banking financial company asset management company Depository depository participant insurance company insurance repository and such other entity as may be identified by the Bank for the purposes of these directions, from time to time; HIGHLIGHTS OF THE DIRECTIONS (1/2) The business to be taken by companies registered with the Reserve Bank as NBFC

AA. The Net Owned Fund should not be less than 2 crore. Business of an AA will entirely be Information Technology (IT) driven Financial assets whose records are stored electronically will be considered Entities being regulated by financial sector regulators will be considered Pricing of services to as per AAs Board approved policy No financial asset related customer information pulled out by the AAs from the financial service providers should reside with the AAs. HIGHLIGHTS OF THE DRAFT DIRECTIONS (2/2) AA shall

not to undertake any other business other than the business of AA. share information only with the customer to whom it relates or any other person authorized by the customer. not support transactions in financial assets have a Citizen Charter that will explicitly guarantee protection of the rights of a customer. not part with any information that it may come to acquire from/ on behalf of a customer. have adequate safeguards built in their IT systems to ensure that they are protected against unauthorised access, alteration, destruction, disclosure or dissemination of records and data ASSET AGGREGATION AN NBFC ACTIVITY?

The activity of asset aggregation is a fee based business. It does not involve any movement of money either to or from the aggregator. The aggregator is simply aggregating information, and not the financial assets of the customer. There is no pooling of money at all with the AA. It is questionable as to how a fee based activity as this could be an NBFC activity, requiring registration with the RBI? CORPORATE DEBT RESTRUCTURING AND FRAMEWORK FOR REVITALISING DISTRESSED ASSETS NORMS ON RESTRUCTURING OF ADVANCES BY NBFCS COVERAGE OF THIS SESSION Project Loans Infrastructure Project Loans

Restructuring of Loans and Advances by NBFCs Non Infrastructure Project Loans (Commercial Real Estate) Advances CLASSES OF ASSETS THAT CAN BE RESTRUCTURED The assets with the following classifications can be restructured Standard Assets Sub-standard Assets Doubtful Assets METHODS OF RESTRUCTURING

Different methods of restructuring Bilateral Restructuring Here the restructuring is done between the lender and the borrower on one-on-one basis. The number of lenders may be more than one. Restructuring through CDR Mechanism Here application is made to the CDR cell by multiple lenders for restructuring. There should be more than one lenders making the application. PROCESS OF CDR 1/2 One or more creditors having at least 20% share in the working capital or term finance can make reference to the CDR Cell by way of a draft Flash report which contains the preliminary restructuring plan. The draft Flash Report is discussed in Joint Lenders Meeting & Final Flash Report is submitted with CDR Cell by the referring institution. The Cut-off-date is to be considered by lenders in the meeting and is of prime importance, primarily to decide broad contours of the proposed restructuring package. Note: Normally Cut-off-date is first day of the Quarter. The CDR Cell prepares the restructuring plan in terms of the general policies & guidelines and place for consideration of EG within 30 days for decisions. In the CDR EG Meeting the decision for admission of case is taken by Super Majority Vote. Super-Majority Vote shall mean votes cast in favour of a proposal by not less than sixty percent (60%) of number of Lenders

and holding not less than seventy-five percent (75%) of the aggregate Principal Outstanding Financial Assistance. PROCESS OF CDR 2/2 Holding on Operations On admission of Flash Report the borrower should open a Current Account with the Monitoring Institute (MI) to be designated as Pre-TRA Account and credits should be routed through this account only. After admission of case final restructuring proposal should be submitted with CDR EG at the earliest so that the final package can be approved within 90 days of admission. The time frame can be extended further by 90 days large and complicated cases. If final decision is not taken within 90/180 days. Upon approval of final package, CDR Cell issues Letter of Approval (LOA) conveying the decision of CDR EG. LOA contains detailed terms of Restructuring. As per RBI guidelines, approved CDR package should be implemented within 120 days from the date of LOA. RESTRUCTURING OF PROJECT LOANS INFRASTRUCTURE PROJECT LOANS WHEN WILL WE HAVE TO CLASSIFY THE ACCOUNT AS NPA?

WHEN CAN THE RESTRUCTURED ASSETS BE RETAINED AS STANDARD? Following conditions to be satisfied Restructuring has to be done within 2 years from the original DCCO At the time of making application for restructuring the asset is classified as Standard The Extension of DDCO For infrastructure projects involving court cases Total extension of not more than 4 years from the original DCCO. For infrastructure projects delayed for the reasons beyond the control of promoters Total extension of not more than 3 years from the original DCCO PROVISIONING REQUIREMENTS ON THE STANDARD RESTRUCTURED ASSETS Particulars Provisioning Requirement

Revised DCCO is within 2 years from the original DCCO 0.25 percent + Provision for diminution in fair value Revised DCCO is extended beyond 2 years and upto 4 years or 3 years from the original case, as the case may be For loans restructured after 24th January, 2014 5 percent for a period starting from the date of such restructuring till the revised DCCO or 2 years from the date of restructuring, whichever is later + Provision for diminution in fair value For stock of restructured loans as on 23rd January, 2014 2.75 percent - with effect from March 31, 2014 3.50 percent - with effect from March 31, 2015 (spread over the four quarters of 2014-15) 4.25 percent - with effect from March 31, 2016(spread over the four

quarters of 2015-16) 5 percent - with effect from March 31, 2017 (spread over the four quarters of 2016-17) starting from the date of such restructuring till the revised DCCO or 2 years from the date of restructuring, whichever is later + Provision for diminution in fair value MODIFICATIONS THAT DOES NOT AMOUNT TO RESTRUCTURING 1/2 If the revised DCCO falls within the period of two years from the original DCCO; and Shift in repayment period by equal or shorter duration than the extension of DCCO Such project loans will be treated as Standard Assets and will attract provision of 0.25 percent MODIFICATIONS THAT DOES NOT AMOUNT TO RESTRUCTURING 2/2 The project loan is under implementation and the DCCO is shifted

due to the inability of the Concession Authority to comply with the requisite conditions, subject to the following The project is an infrastructure project under public private partnership model awarded by a public authority The loan disbursement is yet to begin The revised date of commencement of commercial operations is documented by way of a supplementary agreement between the borrower and lender Project viability has been reassessed and sanction from appropriate authority has been obtained at the time of supplementary agreement RESTRUCTURING OF PROJECT LOANS NON - INFRASTRUCTURE PROJECT LOANS (OTHER THAN COMMERCIAL REAL ESTATE LOANS) WHEN WILL WE HAVE TO CLASSIFY THE ACCOUNT AS NPA? WHEN CAN THE RESTRUCTURED ASSETS BE RETAINED AS STANDARD?

Following conditions to be satisfied Restructuring has to be done within 1 year from the original DCCO At the time of making application for restructuring the asset is classified as Standard The DCCO has been extended for a period of not more than 3 years from the original DCCO PROVISIONING REQUIREMENTS ON THE STANDARD RESTRUCTURED ASSETS Particulars Provisioning Requirement Revised DCCO is within 1 years from the original DCCO 0.25 percent + Provision for diminution in fair value Revised DCCO is extended beyond 1 year and upto 2 years

For loans restructured after 24th January, 2014 5 percent for a period starting from the date of such restructuring for 2 years + Provision for diminution in fair value For stock of restructured loans as on 23rd January, 2014 2.75 percent - with effect from March 31, 2014 3.50 percent - with effect from March 31, 2015 (spread over the four quarters of 2014-15) 4.25 percent - with effect from March 31, 2016(spread over the four quarters of 2015-16) 5 percent - with effect from March 31, 2017 (spread over the four quarters of 2016-17) starting from the date of such restructuring for 2 years + Provision for diminution in fair value MODIFICATIONS THAT DOES NOT AMOUNT TO RESTRUCTURING If the revised DCCO falls within the period of one year from the original DCCO; and Shift in repayment period by equal or shorter duration than the extension of DCCO

Such project loans will be treated as Standard Assets and will attract provision of 0.25 percent OTHER PROVISIONS FOR RESTRUCTURING OF PROJECT LOANS 1/2 Change in the repayment schedule of a project loan caused due to increase in scope and size of the project, would not be treated as restructuring if The increase in scope and size of the project takes place before commencement of commercial operations of the existing project. The rise in cost excluding any cost-overrun in respect of the original project is 25% or more of the original outlay. The NBFC re-assesses the viability of the project before approving the enhancement of scope and fixing a fresh DCCO. On re-rating, (if already rated) the new rating is not below the previous rating by more than one notch. OTHER PROVISIONS FOR RESTRUCTURING OF PROJECT

LOANS 2/2 Restructuring of Commercial Real Estate (CRE) Loans Asset Classification benefits for restructure project loans not applicable for the CRE Loans Following shall not be considered as Restructuring The revised DCCO falls within the period of one year from the original DCCO; Shift of the repayment schedule and servicing of the loan is by equal or shorter duration compared to the period by which DCCO has been extended; and There is no change in other terms and conditions INCOME RECOGNITION FOR PROJECT LOANS Income from Standard Assets Accrual Basis Income from Sub-standard Assets Cash Basis

RESTRUCTURING OF ADVANCES AT WHAT STAGES CAN RESTRUCTURING BE DONE? Restructuring can be done in the following stages i. before commencement of commercial production / operation ii. after commencement of commercial production / operation but before the asset has been classified as 'sub-standard iii. after commencement of commercial production / operation and the asset has been classified as 'sub-standard' or 'doubtful' RESTRUCTURING OF ADVANCES UNDER CDR MECHANISM There should be more than one lender in order to proceed under the CDR

Mechanism Normal asset classification norms to apply till the restructuring proposal is under process. Application from the debtor or consent of the debtor required for restructuring Restructuring can be done Suo moto by NBFC in deserving cases NBFCs should assess the financial viability and should ensure there is reasonable certainty of repayment from the borrower from restructuring package. BIFR cases not eligible unless express approval from BIFR is obtained before the implementation stage RESTRUCTURING OF ADVANCES OUTSIDE CDR MECHANISM There may be one or more lenders in order to do a restructuring outside the CDR

Mechanism. Normal asset classification norms to apply till the restructuring proposal under process. Restructuring cannot take place unless alteration/ changes in the original loan agreement are made with the formal consent/ application of the debtor. Restructuring is not allowed with the borrowers indulged in frauds and malfeasance. NBFCs should assess the financial viability and should ensure there is reasonable certainty of repayment from the borrower from restructuring package. BIFR cases not eligible unless express approval from BIFR is obtained before the implementation stage CLASSIFICATION OF RESTRUCTURED ADVANCES 1/2 Assets classified as standard will have to be downgraded to downgraded

substandard on restructuring. NPA will remain NPA after restructuring (same asset classification) and the normal asset classification norms shall apply as would have been applicable prerestructuring. Up-gradation may happen in the asset classification only if the account performs satisfactorily during the specified period which has been defined in Appendix 2 of the notification as One year from commencement of first payment of interest or principal whichever is later on credit facility with longest period of moratorium under the terms of package. In case satisfactory performance not evidenced then normal extant asset classification norms to apply CLASSIFICATION OF RESTRUCTURED ADVANCES 2/2 Any additional finance advanced under the approved restructuring package shall be classified as standard asset during the specified period

In case the restructured asset, in respect of which the additional finance is advanced, does fails to become to standard at the end of the specified period, the additional finance will be downgraded as well and will assume the classification of the restructured asset. RECOGNITION OF INCOME FROM ADVANCES SUBSEQUENT RESTRUCTURINGS PROVISIONING REQUIREMENTS FOR RESTRUCTURED ADVANCES 1/2 For standard assets For stock of restructured assets as on 23rd January, 2014 and were standard Phased out provisioning starting from 2.75% as on 31st March, 2014

3.50 per cent - with effect from March 31, 2015 (spread over the four quarters of 2014-15) 4.25 per cent - with effect from March 31, 2016 (spread over the four quarters of 2015-16 5 percent - with effect from March 31, 2017 (spread over the four quarters of 2016-17) For assets to be restructured on or after 24th January, 2014 Where restructured asset is standard moratorium + 2 years NPA upgraded to standard 5% for 1st year from up-gradation For sub-standard and doubtful asset normal provisioning norms will apply In addition to the above, provision for diminution in fair value also has to maintained PROVISIONING REQUIREMENTS FOR RESTRUCTURED ADVANCES 2/2 Provision for diminution in fair value has to be done on the amount of erosion in fair value Erosion in fair value = Fair value of loan pre-restructuring Fair value of loan post restructuring Where Fair value of loan pre-restructuring = (PV of initial interest + principal) discounted at NBFCs base lending rate Fair value of loan post restructuring = (PV of restructured interest + principal) discounted at NBFCs

base lending rate In case NBFCs cannot provide for diminution in value and restructured accounts are less than 1 crore Provisioning has to be done at the rate of 5% CONVERSION OF PRINCIPAL IN TO DEBT OR EQUITY To be classified as current investments Valuation of the securities For the standard assets If equity is quoted the valuation is to be done as per the market value ii. If equity is not quoted the valuation is to be done as per break up value In case the Last balance sheet is not available the equity is to be valued at Re 1. For sub-standard and doubtful assets

If equity is quoted the valuation is to be done as per the market value If equity is not quoted the equity is to be value at Re. 1 Asset Classification Asset classification same as that of the restructured asset Movement is asset classification will be same as that of the restructured asset. Income recognition For standard assets on accrual basis

For sub-standard and doubtful assets on cash basis CONVERSION OF UNPAID INTEREST IN TO FITL/DEBT/EQUITY Classification A corresponding liability will have to be created which will have to be classified as Sundry Liabilities Account (Interest Capitalisation) Income recognition For standard assets on accrual basis For sub-standard and doubtful assets on cash basis TABULAR PRESENTATION ASSET CLASSIFICATION PROJECT LOANS Infrastructure Project Loans Particulars

Asset Classification Standard Assets Non Performing Assets Before Restructuring The restructured assets can be retained as Standard in If any of the conditions, for retaining the the books of the lender only if the following are satisfied: restructured assets as standard, are not 1. The restructuring is done within 2 years from the complied with. original DCCO 2. At the time of making application the asset should have been classified as Standard 3. The revised DCCO falls within 4 years of the original DCCO (this includes 2 years for making application) where the delay is occurred due to court pending litigation; or The revised DCCO falls within 3 years from the original

DCCO (this includes a 2 years for making application) where the delay is occurred due to reasons which are beyond the promoters control TABULAR PRESENTATION ASSET CLASSIFICATION PROJECT LOANS Particulars Asset Classification Standard Assets Non Performing Assets After Restructuring The restructured assets can be retained as Standard in the If any of the conditions, for retaining the books of the lender only if the following are satisfied: restructured assets as standard, are not

1. The restructuring is done within 2 years from the original complied with. DCCO 2. At the time of making application the asset should have been classified as Standard 3. The revised DCCO falls within 4 years of the original DCCO (this includes 2 years for making application) where the delay is occurred due to court pending litigation; or The revised DCCO falls within 3 years from the original DCCO (this includes a 2 years for making application) where the delay is occurred due to reasons which are beyond the promoters control ** When the revised DCCO falls within 2 years from the original DCCO and the consequential shift in repayment is for a period which is of equal or shorter duration than the restructured tenure, it is not considered as restructuring and the assets classified as Standard will have to be provided for at the rate of 0.25% TABULAR PRESENTATION ASSET CLASSIFICATION PROJECT LOANS

Non - Infrastructure Project Loans Particulars Asset Classification Standard Assets Non Performing Assets Before Restructuring As per record of recovery 1. At any time before the DCCO, based on the records of recovery, unless the asset becomes standard after restructuring. 2. If the borrower fails to commence the commercial operations within 1 year from the DCCO, even if it

has a regular record of recovery, unless the asset becomes standard after restructuring. TABULAR PRESENTATION ASSET CLASSIFICATION PROJECT LOANS Particulars Asset Classification Standard Assets Non Performing Assets After Restructuring The restructured assets can be retained as Standard in the If any of the conditions, for retaining the books of the lender only if the following are satisfied: restructured assets as standard, are not

1. The restructuring is done within 1 years from the original complied with. DCCO 2. At the time of making application the asset should have been classified as Standard 3. The revised DCCO falls within 3 years of the original DCCO (this includes 2 years for making application) where the delay is occurred due to court pending litigation; or The revised DCCO falls within 1 years from the original DCCO (this includes a 2 years for making application) where the delay is occurred due to reasons which are beyond the promoters control ** When the revised DCCO falls within 1 years from the original DCCO and the consequential shift in repayment is for a period which is of equal or shorter duration than the restructured tenure, it is not considered as restructuring and the assets classified as Standard will have to be provided for at the rate of 0.25% TABULAR PRESENTATION INCOME RECOGNITION PROJECT LOANS

Particulars Income Recognition Standard Assets Non Performing Assets For Infrastructure Project Loans and Non Infrastructure Project Loans On accrual basis On cash basis TABULAR PRESENTATION PROVISIONING NORMS PROJECT LOANS Infrastructure Project Loans Particulars

Provisioning Standard Assets Non Performing Assets When the revised DCCO falls within 2 years from the original DCCO Provisioning at the rate of 0.25% For loans restructured after 24th January, 2014 1. 5% for a period starting from the date of such restructuring till the revised DCCO or 2 years from the date of restructuring, whichever is later For stock of restructured loans as on 23 rd January, 2014 2. 2.75% - with effect from March 31, 2014 3. 3.50- with effect from March 31, 2015 (spread over the four quarters of 2014-15 4. 4.25%-with effect from March 31, 2016(spread over the four quarters of 2015-16) 5. 5%-with effect from March 31, 2017 (spread over the four quarters of 2016-17

Normal provisioning norms will be followed **In addition to the above mentioned provisions, the lender will also have to provide for diminution in fair value of the restructured asset separately TABULAR PRESENTATION PROVISIONING NORMS PROJECT LOANS Non Infrastructure Project Loans Particulars Provisioning Standard Assets When the revised DCCO falls within 1 year from the original DCCO Provisioning at the rate of 0.25% For loans restructured after 24th January, 2014 1. 5% for a period starting from the date of such restructuring for 2 years.

Non Performing Assets Normal provisioning norms will followed be For stock of restructured loans as on 23 rd January, 2014 2. 2.75%- with effect from March 31, 2014 3. 3.50%- with effect from March 31, 2015 (spread over the four quarters of 2014-15) 4. 4.25%-with effect from March 31, 2016(spread over the four quarters of 2015-16) 5. 5%-with effect from March 31, 2017 (spread over the four quarters of 2016-17) **In addition to the above mentioned provisions, the lender will also have to provide for diminution in fair value of the restructured asset separately TABULAR PRESENTATION

ASSET CLASSIFICATION ADVANCES Particulars Asset Classification Standard Assets Before Restructuring As per record of recovery After Restructuring 1. An asset which was originally classified as Standard at the time of making reference/ application, can be retained as Standard if a. The restructured package is implemented within 120 days from the date of approval under the CDR Mechanism b. The restructured package is implemented within 120 days from the date of receipt of the application by the NBFC, where the restructuring is done outside the CDR

Mechanism. 2. Upon satisfactory performance during the specified period, restructured NPAs are up-graded to Standard Assets. Non Performing Assets As per the record of recovery 1. Upon restructuring, the Standard Assets are downgraded to Non Performing. 2. NPAs shall continue to be classified as NPA even after restructuring TABULAR PRESENTATION INCOME RECOGNITION ADVANCES Particulars Income

Recognition Standard Assets Non Performing Assets For Infrastructure Project Loans and Non Infrastructure Project Loans On accrual basis On cash basis TABULAR PRESENTATION PROVISIONING ADVANCES Particulars Provisioning Standard Assets

Non Performing Assets For stock of restructured assets as on 23 rd January, 2014 and were standard 1. Phased out provisioning starting from 2.75% as on 31st March, 2014 2. 3.50%- with effect from March 31, 2015 (spread over the four quarters of 2014-15) 3. 4.25%- with effect from March 31, 2016 (spread over the four quarters of 2015-16 4. 5%- with effect from March 31, 2017 (spread over the four quarters of 2016-17) For assets to be restructured on or after 24 th January, 2014 5. Where restructured asset is standard moratorium + 2 years 6. NPA upgraded to standard 5% for 1st year from upgradation. Normal provisioning norms will be followed

**In addition to the above mentioned provisions, the lender will also have to provide for diminution in fair value of the restructured asset separately TABULAR PRESENTATION PROVISIONING ADVANCES Particulars Provisioning Standard Assets Non Performing Assets For stock of restructured assets as on 23 rd January, 2014 and were standard 1. Phased out provisioning starting from 2.75% as on 31st March, 2014 2. 3.50%- with effect from March 31, 2015 (spread over the four quarters of 2014-15) 3. 4.25%- with effect from March 31, 2016 (spread over the

four quarters of 2015-16 4. 5%- with effect from March 31, 2017 (spread over the four quarters of 2016-17) For assets to be restructured on or after 24 th January, 2014 5. Where restructured asset is standard moratorium + 2 years 6. NPA upgraded to standard 5% for 1st year from upgradation. Normal provisioning norms will be followed **In addition to the above mentioned provisions, the lender will also have to provide for diminution in fair value of the restructured asset separately FRAMEWORK FOR REVITALISING DISTRESSED ASSETS HIGHLIGHTS OF DISTRESS REPORTING Distressed Assets guidelines March 21 2014 To be read with Distressed Assets Framework of Jan 30, 2014

CRILC reporting made mandatory Constitution of a JLF where more than one lender involved and account reaches SMA 2 status Punitive accelerated provisioning in case of evergreening or failure to report SMA status of accounts Failure to convene JLF or agree on a corrective action plan also attracts punitive provisioning Provides for higher provisioning for non cooperative borrowers Brings certain new provisions about credit risk management Particularly against financing of equity in step-down companies Makes sale of NPAs easier Effective from 1st April 2014 CRILC REPORTING

CRILC reporting is mandatory for distressed loans of Rs 5 crores or above The amount is the current exposure Reporting is quarterly Additionally, when a large borrower turns into SMA 2, there is an immediate reporting required to the RBI This reporting is immediate Hence, SMA 2 status has to be monitored on a daily basis SMA CATEGORISATION Before a loan account turns into an NPA, NBFCs will be required to identify incipient stress in the account by creating a sub-asset category viz. Special Mention Accounts (SMA) The sub-categories are as follows SMA Sub-categories Basis for classification SMA-0

Principal or interest payment not overdue for more than 30 days but account showing signs of incipient stress as illustrated in the annex to the framework of Jan 30, 2014 SMA-1 Principal or interest payment overdue between 31-60 days SMA-2 Principal or interest payment overdue between 61-180 days Once the asset is classified as SMA-2, the Joint Lenders Forum has to be constituted for the purpose of formulating Corrective Action Plan NBFC-ND-SI, NBFC-D, NBFC-Factors or any other NBFC as may be notified by the RBI, will have to furnish relevant credit information of the **Large Borrowers to CRILC on quarterly basis, once the reporting mechanism is established ** Those having aggregate fund-based and non-fund based exposure of Rs.50 million and above with them JOINT LENDERS FORUM

Jan 30 2014 framework provides for framework for formation of JLFs Mandatory for exposures about Rs 100 crore This is aggregate exposure of all lenders IBA has framed a draft JLF agreement expected to be followed http://www.iba.org.in/Documents/IBA_Circular_on_Distressed_Assets0001.pdf CORRECTIVE ACTION PLAN (CAP) Jan 30 2014 framework gives details of the CAP 3 components: Rectification Can anything be done to restore the cashflow mismatch? If additional funding is required, can the borrower bring it? Can some other strategic investors be brought in to correct it? However, no additional lending by the NBFC

Restructuring Consider restructuring if account prima-facie viable and not wilful defaulter Signing of a DCA and ICA with a stand still clause Recovery If any of the above does not seems to be feasible, the JLF may decide the best recovery process. Timelines for JLF Within 30 days of SMA2 or reference by borrower, agree on CAP Within next 30 days, sign a detailed CAP RESTRUCTURING JLF to carry out techno economic viability study For exposures of Rs 500 crore or above, TEV to be evaluated by an Independent Evaluation Committee (IEC) Asset classification retention On the date of reference to JLF

Time limits for JLF 30 days for completing the TEV and finalise the restructuring page Restructuring must be implemented within 90 days of approval of the package INCIPIENT STRESS Incipient stress leads to categorisation as SMA-0. Delay in submission of statements or non renewal of facilities Sales or operating profits falling short of projections by 40% or more; single instance of non cooperation in stock audit etc; diversion of funds for unapproved purpose Return of 3 cheques/instructions over 30 days Devolvement of deferred payment guarantee or bank guarantee and non payment within 30 days 3rd request for extension of time for creation of securities or other non compliance with terms of sanction of the loan Borrower reporting stress in financial statements Promoter pledging/selling their shares due to financial stress IDENTIFICATION OF NON-COOPERATIVE BORROWERS NBFCs are required to identify Non-Co-operative Borrowers A non-co-operative borrower is defined as one who does not provide necessary information

required by a lender to assess its financial health even after 2 reminders; or denies access to securities etc. as per terms of sanction or does not comply with other terms of loan agreements within stipulated period; or is hostile / indifferent / in denial mode to negotiate with the NBFC on repayment issues; or plays for time by giving false impression that some solution is on horizon; or resorts to vexatious tactics such as litigation to thwart timely resolution of the interest of the lender/s. The borrowers will be given 30 days notice to clarify their stand before their names are reported as non-cooperative borrowers. NBFCs are required to report the details of such borrowers to CRILC. NBFCs will have provide for the new loans advanced to such borrowers in the following manner For Standard Assets 5% For Sub-standard Assets Accelerated Provisions ACCELERATED PROVISIONING Asset Classification Period as NPA Sub- standard

(secured) Up to 6 months 6 months to 1 year Period as NPA For NBFCs Current *provisioning (%) NBFCs 6 months to 1 and half For secured and unsecured year 10 Sub-standard (unsecured Up to 6 months - Ifab-initio) the NBFC fails to report the SMA

status of the accounts -6 months 1 year months to 1 and half provisioning has to to be done 6as deemed appropriate by10RBI. year 6 months to 1 and half 10 year Doubtful I 2nd year Upto One year 20 (secured portion)

Doubtful II 3rd & 4th year Doubtful III 5th year onwards Revised accelerated provisioning (%) for banks and proposed for NBFCs No change 25 to the CRILC, 25 accelerated 40 40 (secured portion) Up to one year

(unsecured portion) 100 100 (unsecured portion) 1-3 years 30 for secured portion and 100 for unsecured portion For NBFCs the above may be adopted i.e. 40 and 100 More than Three Years 100 for unsecured portion and 50 for secured portion 100 for both secured and unsecured

portions 100 OTHER PROVISIONS OF THE GUIDELINES 1/2 Board of directors of the NBFC to ensure the following necessary steps are taken to arrest the deteriorating asset quality the books and should focus on improving the credit risk management system a policy is put in place for timely provision of credit information to and access to credit information from CRILC, prompt formation of JLFs, monitoring the progress of JLFs and periodical review of the above policy. Credit Risk Management The NBFC should carry out the credit appraisal on its own and not depend on the credit appraisal reports prepared by the in-house consultants of the borrowers. The NBFCs should verify that the the names of any of the directors of the companies appear in the list of defaulters by way of reference to DIN/PAN etc The notified NBFCs should, with a view to ensure proper end-use of funds and preventing diversion/siphoning of funds by the borrowers, consider engaging their own auditors for such specific certification purpose without relying on certification given by borrowers auditors. Registration of Transactions with CERSAI

The NBFCs are required to register all types of mortgages with CERSAI OTHER PROVISIONS OF THE GUIDELINES 2/2 Purchase/Sale of Non-Performing Financial Assets to Other Banks/FIs/NBFCs NBFCs can sell their NPAs to other banks/FIs/NBFCs (excluding SCs/RCs) without any initial holding period The purchasing bank/FI/NBFC should hold the asset purchased in its books at least for a period of 12 months before it is sold to other banks/financial institutions/ NBFCs (excluding SCs/RCs) ADDITIONAL REQUIREMENTS RBI vide circular dated 23rd July, 2015 made several amendments to the Framework, which were originally applicable to the banks, applicable to the NBFCs as well. Following are the additional requirements The NBFC shall have to form a committee for the purpose of identification of non co-operative borrowers

The same shall be formed with the senior officers of the company and at least 1 ED, who shall act as the Chairperson of the Committee The NBFC shall have to form another committee which will review the decision of the above committee and give final verdict on whether to classify an account as NCB The same shall be formed with at least IDs and the Chairman/ CEO/ MD shall act as the chairperson of the committee Classification of borrowers as NCB is required only in case of such borrowers in which the exposure of the Company is Rs. 50 million or above ADDITIONAL REQUIREMENTS CONTD.

The classification of NCB shall be subject to review by the Board on half yearly basis Information about NCB shall have to be filed with CRILC on quarterly basis within 21 days from the end of the relevant quarter STRATEGIC DEBT RESTRUCTURING (SDR) CONDITIONS FOR SDR 1/2 To be initiated by JLF JLF must incorporate an enabling provision in the loan agreement to convert outstanding debt into equity JLF can initiate SDR only if the account fails to achieve the viability milestones as laid down at the time of restructuring At least 75% of the creditors by value and 60% of creditors by number should agree for

SDR Post said conversion, all lenders must collectively at least hold 51% or more of the equity shares of the borrower. Time limits SDR conversion package should be approved within 90 days from the date of deciding to undertake SDR. Conversion of debt into equity should be completed within 90 days from the date of approval of the SDR package by the JLF. CONDITIONS FOR SDR 2/2 Pricing of the shares Lower of the following subject to a minimum of Face Value of the equity shares as on the reference date Market value (for listed companies): Average of the closing prices of the instrument on a recognized stock exchange during the ten trading days preceding the reference date Break-up value: Book value per share to be calculated from the company's latest audited balance sheet (without considering 'revaluation reserves', if any) adjusted for cash flows and financials post the earlier restructuring

Such investment shall not be treated as investment in associate as per applicable AS. Acquisition of shares due to such conversion will be exempted from regulatory ceilings/restrictions on Capital Market Exposures The lenders will have to divest the shareholding completely within 18 months from the reference date Process of Strategic Debt Restructuring by Banks and Financial Institutions [JLF > Restructuring > SDR] Account becomes SMA-2? Yes No Exposure in the Account exceeds Rs. 1000 million? No need to form JLF

Yes Formation of Joint Lenders Forum Corrective action plan by JLF Rectification Restructuring Through CDR Cell Recovery Whether the account has been restructured? Yes JLF to review achievement/ non achievement of viability milestones

Milestones not achieved JLF may consider Strategic Debt Restructuring if 75% of creditors by value and 60% of creditors by number agree By JLF itself Milestones achieved JLF cannot initiate SDR CHANGE OF MANAGEMENT OUTSIDE SDR CHANGE OF MANAGEMENT (OUTSIDE SDR) This was brought in to enhance the banks ability to change the ownership/ management of such borrowers showing stress due to operational inefficiencies

RBIs notification dated 24th September, 2015 https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=10039&Mode=0 MANNER OF CHANGE OF OWNERSHIP Lenders can cause change in ownership by any of following ways Sale by the lenders, to a new promoter, of shares acquired by invocation of pledge or by conversion of debt of the borrower into equity outside SDR; or Bringing in a new promoter by issue of fresh shares by the borrowing entity; or Acquisition of the borrowing entity by another entity. STATUS OF ACCOUNT AND PROVISIONING On change of ownership, credit facilities of the borrower shall be upgraded to standard, subject to the following conditions The new promoter should not be a person/entity/subsidiary/associate etc. (domestic as

well as overseas), from/belonging to the existing promoter/promoter group. Banks should clearly establish that the acquirer does not belong to the existing promoter group; and The new promoter should have acquired at least 51 per cent of the paid up equity capital of the borrower company. If the new promoter is a non-resident, and in sectors where the ceiling on foreign investment is less than 51 per cent, the new promoter should own at least 26 per cent of the paid up equity capital or up to applicable foreign investment limit, whichever is higher, provided banks are satisfied that with this equity stake the new non-resident promoter controls the management of the company. Quantum of provision against the account shall not be reversed Can be reversed only once the same performs satisfactorily during the specified period Specified period refers to 1 year from the date of change of the ownership OTHERS The banks are allowed to refinance the outstanding the debt of the borrower, post change

in ownership, owing to the change in the risk profile of the owners If within the specified period, the account fails to perform satisfactorily, the restructuring norms shall apply COMPARISON BETWEEN SDR CASES AND NON SDR CASES APPLICABLE PROVISIONS OF CORPORATE LAWS Section/ Law/ Regulation Particulars Change of ownership by SDR Change of ownership outside SDR Section 62 of CA, 2013

Further issue of securities Applicable Not applicable, unless fresh shares are issued Section 42 of CA, 2013 Private placement of shares Applicable Not applicable, unless fresh shares are issued Shareholders resolution

For conversion of debt into equity Required Not required Section 56 of the CA, 2013 Transfer of shares Applicable Applicable SEBI (ICDR) Regulations For pricing of shares Not applicable (exempted)

Not applicable, unless fresh shares are issued SEBI (SAST) Regulations For substantial acquisition of shares Not applicable (exempted) Applicable SEBI LODR For change in ownership and management of the entity

Applicable Applicable PRICING OF ISSUE Non SDR Cases Pricing as per SEBI (ICDR) where applicable For SDR Cases Pricing to be done in the following manner Higher of Face Value of the shares; and Lower of the following Fair Market Value; and Net Asset Value TIMELINE FOR IMPLEMENTATION No timeline for non-SDR cases Timeline for SDR cases Review of performance of the account as per restructuring package 30 days 90 days

Lenders to decide whether to implement SDR 90 days 12 months Approval of SDR scheme Completion of conversion of debt into equity Divestment of entire stake by lenders ACCOUNT CLASSIFICATION AND PROVISIONING NORMS Particulars SDR Cases Non SDR Cases

Asset classification On conversion of debt to equity as approved under SDR, the existing asset classification of the account, as on the reference date shall prevail Account will be considered as standard, subject to certain conditions Shall be upgraded to standard only after divestment of shareholding after 18 months Reversal of provisioning Only after satisfactory performance for 1 year from the

date of divestment After satisfactory performance for 1 year SCHEME FOR SUSTAINABLE STRUCTURING OF STRESSED ASSETS ELIGIBILITY CRITERIA ALL TO BE SATISFIED MEASURES AVAILABLE UNDER S4A MODUS OPERANDI CALCULATION OF SUSTAINABLE DEBT VALUATION/ PRICING OF INSTRUMENTS

ASSET CLASSIFICATION AND PROVISIONING RETURNS AND CERTIFICATES Reporting requirements for Systemically Important, Deposit taking NBFC Sr. 1 Name of the Return NBS1 Periodicity Quarterly 2 NBS2

Quarterly 3 NBS3 Quarterly 4 ALM (NBFC-D) Half yearly 5 Branch Information return Quarterly

6 Statutory Auditor Certificate Annual 7 Reporting to Central Repository of Information on Large Credits (CRILC) Quarterly 8 Reporting of Special Mention Account status (SMA-2 return) Statutory Auditor Certificate

Weekly 31st March/ 30th June/ 30th Sept./ 31st Dec. On Every Friday Annual 31st March 9 Reference Date 31st March/ 30th June/ 30th Sept./ 31st Dec. 31st March/

30th June/ 30th Sept./ 31st Dec. 31st March/ 30th June/ 30th Sept./ 31st Dec. 31st March/ 30th Sept. 31st March/ 30th June/ 30th Sept./ 31st Dec. 31st March Reporting Time 15 days 15 days

15 days 30 days Due on 15th April/ 15th July/ 15th Oct./ 15th Jan. 15th April/ 15th July/ 15th Oct./ 15th Jan. 15th April/ 15th July/ 15th Oct./ 15th Jan. 30th April/ 30th Oct.

15 days 15th April/ 15th July/ 15th Oct./ 15th Jan. One month from the date of finalisation of Balance Sheet 21 days 21st April/ 21st July/ 21st Oct/ 21st Jan One month from the date of finalisation of Balance Sheet. Not later than 31st December. Remarks NBFCs-D having public

deposit of > 20 crore Or 20 crore Or asset size of> 20 crore Or 100 crore Not later than 31st December Reporting requirements for Systemically Important, Non Deposit taking NBFC Sr. Name of the Return Periodicity 1 NBS7 Quarterly 2

NBFCs-ND-SI 500cr Quarterly 3 ALM-1 Quarterly 4 ALM-2 & 3 Half yearly 5 6 ALM-(NBFC-ND-SI)

Branch Info return Annual Quarterly 7 Reporting to Central Repository of Information on Large Credits (CRILC) Quarterly 8 Reporting of Special Mention Account status (SMA-2 return) Statutory Auditor Certificate Weekly

9 Annual Reference Date 31st March/ 30th June/ 30th Sept/ 31st Dec. 31st March/ 30th June/ 30th Sept./ 31st Dec. 31st March/ 30th June/ 30th Sept./ 31st Dec. 31st March/

30th Sept. 31st March 31st March/ 30th June/ 30th Sept./ 31st Dec. 31st March/ 30th June/ 30th Sept./ 31st Dec. On Every Friday 31st March Reporting Time Due on 15 days 15th April/

15th July/ 15th Oct./ 15th Jan. 15th April/ 15th July/ 15th Oct./ 15th Jan. 15th April/ 15th July/ 15th Oct./ 15th Jan. 30th April/ 30th Oct. 15th April 15th April/ 15th July/ 15th Oct./ 15th Jan. 21st April/ 21st July/

21st Oct/ 21st Jan 15 days 15 days 30 days 15 days 15 days 21 days One month from the date of finalisation of Balance Sheet. Not later than 31st December. Reporting requirements for NBFC with asset size between 100Cr. 500Cr. Sr No

Name of the Return Periodicit y Reference Date 1 2 NBS-9 Statutory Auditor Certificate Annual Annual 31st March 31st March

Reporting Time Due on 60 days 30th May One month from the date of finalisation of Balance Sheet. Not later than 31st December. Reporting requirements for NBFC with asset less than 100Cr. Sr No Name of the Return Periodicity Reference Date

Reporting Time Due on 1 NBS-8 Annual 31st March 60 days 30th May 2 Statutory Auditor Certificate

Annual 31st March One month from the date of finalisation of Balance Sheet. Not later than 31st December. SNAPSHOT OF APPLICABILITY OF VARIOUS REQUIREMENTS TO THE DIFFERENT CLASSES OF NBFCS NBFC-ND with no PF NBFC-ND with PF CIC CIC-SI with Asset 100 500 crs

CIC-SI with Assets > 500 crs NBFC-ND-SI with PF NBFC-ND-SI without PF Concentration Not Norms Applicable Capital Adequacy Not Applicable Not Applicable

Not Applicable Not Applicable Not Applicable Not Applicable Respective Directions Not Applicable Respective Directions Applicable

Applicable Applicable Applicable Provisioning norms Asset Classification Statutory Auditor Certificate Not Applicable Not Applicable Applicable Applicable

Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Applicable Applicable Applicable Applicable

Applicable Applicable Applicable Applicable Applicable Applicable Leverage Ratio Not Applicable Not Applicable 7 times

Not Applicable Not Applicable 2.5 times 2.5 times Not Applicable Not Applicable Not Applicable Applicable

Not Applicable Applicable Corporate Governance Norms Applicable Applicable Not Applicable

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