NBFCs & AML/CFT: RBI, India
Introduction
The ‘Know Your
Customer’ guidelines were issued in February 2005 revisiting the earlier
guidelines issued in January 2004 in the context of the Recommendations made by
the Financial Action Task Force (FATF) on Anti Money Laundering (AML) standards
and on Combating Financing of Terrorism (CFT). These standards have become the
international benchmark for framing Anti Money Laundering and combating financing
of terrorism policies by the regulatory authorities. Compliance with these
standards by the banks/financial institutions/NBFCs in the country have become
necessary for international financial relationships. The Department of Banking
Operations and Development of Reserve Bank had issued detailed guidelines to
the banks based on the Recommendations of the Financial Action Task Force and
the paper issued on Customer Due Diligence (CDD) for banks by the Basel
Committee on Banking Supervision, with indicative suggestions wherever
considered necessary, a copy of same is enclosed as per Annex-VI. These guidelines are equally applicable to NBFCs. All
NBFCs were, therefore, advised to adopt the same with suitable modifications
depending on the activity undertaken by them and ensure that a proper policy
framework on ‘Know Your Customer’ and Anti-Money Laundering measures is
formulated and put in place with the approval of the Board. NBFCs were advised
to ensure that they are fully compliant with the instructions before December
31, 2005.
General Guidelines
While preparing
operational guidelines, NBFCs were advised to bear in mind that the information
collected from the customer for the purpose of opening of account should be
kept as confidential and any details thereof should not be divulged for cross
selling or any other purposes. NBFCs may, therefore, ensure that information
sought from the customer is relevant to the perceived risk, is not intrusive,
and is in conformity with the guidelines issued in this regard. Any other
information from the customer should be sought separately with his /her consent
and after opening the account.
Specific requirements for NBFCs were given by RBI vide MD dated July 01, 2015.
Guidelines
for NBFCs and persons authorised by NBFCs including brokers/agents etc.
As it is necessary that
the guidelines should be equally applicable to the persons authorised by NBFCs
including brokers/agents etc. collecting public deposits on behalf of NBFCs, it
was advised on October 11, 2005 that:
i.
Adherence to Know Your Customer (KYC) guidelines by NBFCs and persons
authorised by NBFCs including brokers/agents etc.
As regards deposits
collected by persons authorised by NBFCs including brokers/agents etc. in as
much as such persons are collecting the deposits on behalf of the NBFC, it
shall be the sole responsibility of the NBFC to ensure full compliance with the
KYC guidelines by such persons. The NBFC should make available all information
to the Bank to verify the compliance with the KYC guidelines and accept full consequences
of any violation by the persons authorised by NBFCs including brokers/agents
etc. who are operating on its behalf.
With regard to RNBCs a
separate CC No.46 dated December 30, 2004 was issued delineating a road map for
them wherein the guidelines were issued as under:
‘In respect of new
customers acquired after April 1, 2004, KYC guidelines as stated in the
circular CC No.48 should be complied with in all cases. However, for the
existing customers, initially, KYC guidelines should be complied in respect of
large customers whose aggregate deposit exceeds Rs.1 lakh. For the remaining
existing accounts, the companies should ensure that the details of the
customers are updated at the time of renewal of the deposit. This should,
however, not result in unnecessary harassment of customers.
As regards deposits
collected by agents / sub-agents in as much as the agent / sub-agent is
collecting the deposits on behalf of the RNBC, it shall be the sole
responsibility of the RNBC to ensure full compliance with the KYC guidelines by
its agents and sub-agents. The RNBC should make available all information to
the regulator or his nominee to verify the compliance with the KYC guidelines
and accept full consequences of any violation by the agent / sub-agent who is operating
on its behalf.’
ii Due
diligence of persons authorised by NBFCs including brokers/agents etc.
As an extension of the
KYC Guidelines, NBFCs are required to put in place a process of due diligence
in respect of persons authorised by NBFCs including brokers/agents etc.
collecting deposits on behalf of the company through a uniform policy for
appointment and detailed verification. Details of due diligence conducted may
be kept on record with the company for verification.
In the depositors’
interests and for enhancing transparency of operations, the companies should
have systems in place to ensure that the books of accounts of persons
authorised by NBFCs including brokers/agents etc, so far as they relate to
brokerage functions of the company, are available for audit and inspection
whenever required. RNBCs were also advised on the same lines vide CC No 46
dated December 30, 2004 mentioned above and were advised to report compliance
to RBI by January 31, 2005.
iii.
Customer service in terms of identifiable contact with persons authorised by
NBFCs including brokers/agents etc.
All deposit receipts
should bear the name and Registered Office address of the NBFC and must
invariably indicate the name of the persons authorised by NBFCs including
brokers/agents etc. and their addresses who mobilised the deposit and the link
office with the telephone number of such officer and/or persons authorised by
NBFCs including brokers/agents etc. in order that there is a clear indication
of the identifiable contact with the field persons and matters such as
unclaimed / lapsed deposits, discontinued deposits, interest payments and other
customer grievances are appropriately addressed. NBFCs should also have
suitable review procedures to identify persons authorised by them including
brokers/agents etc. in whose cases the incidence of discontinued deposits is
high for taking suitable action.
RNBCs were also advised
on the same lines vide CC No 46/02.02(RNBC)/2004-05 dated December 30, 2004.
In March, 2006, the
KYC procedure was further simplified for opening accounts by NBFCs for those
persons who intend to keep balances not exceeding rupees fifty thousand (Rs.
50,000/-) in all their accounts taken together and the total credit in all the
accounts taken together is not expected to exceed rupees one lakh (Rs.
1,00,000/-) in a year.
Accordingly, in case
a person who wants to open an account is not able to produce documents
mentioned in Annexure
VIII to this circular, NBFCs
may open accounts as described in paragraph 5 above, subject to
a) introduction from
another account holder who has been subjected to full KYC procedure. The
introducer’s account with the NBFC should be at least six month old and should
show satisfactory transactions. Photograph of the customer who proposes to open
the account and also his address needs to be certified by the introducer.
or
b) any other evidence
as to the identity and address of the customer to the satisfaction of the NBFC.
While opening
accounts as described above, the customer should be made aware that if at any
point of time, the balances in all his/her accounts with the NBFC (taken
together) exceed rupees fifty thousand (Rs. 50,000/-) or total credit in the
account exceeds rupees one lakh (Rs. 1, 00,000/-), no further transactions will
be permitted until the full KYC procedure is completed. In order not to
inconvenience the customer, the NBFC must notify the customer when the balance
reaches rupees forty thousand (Rs. 40,000/-) or the total credit in a year
reaches rupees eighty thousand (Rs. 80,000/-) that appropriate documents for
conducting the KYC must be submitted otherwise the operations in the account
will be stopped when the total balance in all the accounts taken together
exceeds rupees fifty thousand (Rs. 50,000/-) or the total credit in the
accounts exceeds rupees one lakh (Rs. 1,00,000/-) in a year. NBFCs were advised
to issue suitable instructions to their branches for implementation in this
regard.
In this regard, the
term 'being satisfied' as mentioned
in Annex
–VI means that the NBFC must
be able to satisfy the competent authorities that due diligence was observed
based on the risk profile of the customer in compliance with the extant
guidelines in place. An indicative list of
the nature and type of documents/ information that may be relied upon for
customer identification is given in the Annex-VIII to this circular. It may happen that Annex-VIII, which was clearly termed as an indicative list, may be
treated by some NBFCs as an exhaustive list as a result of which a section of
public may be denied access to financial services. NBFCs were, therefore,
advised to take a review of their extant internal instructions in this regard.
In case of close
relatives, e.g. husband, wife, son, daughter and parents, etc. who live with
their wife, husband, father/mother, daughter and son, who do not have
officially valid document for address verification, then, in such cases,
banks/FIs should obtain OVD for proof of address and identity of the relative
with whom the prospective customer is living together with a declaration from
the relative that the said person (prospective customer) proposing to open an
account is a relative and is staying with her/him. NBFCs can use any
supplementary evidence such as a letter received through post for further
verification of the address. While issuing operational instructions to the
branches on the subject, NBFCs should keep in mind the spirit of instructions
issued by the Reserve Bank and avoid undue hardships to individuals who are,
otherwise, classified as low risk customers.
It has been decided
to simplify the requirement of submission of 'proof of address' as follows:
a) Customers may submit
only one documentary proof of address (either current or permanent) while
opening a deposit account or while undergoing periodic updation. In case, the
address mentioned as per 'proof of address' undergoes a change, fresh proof of
address may be submitted to the NBFC within a period of six months.
b) In case, the proof
of address furnished by the customer is not the local address or address where
the customer is currently residing, the NBFC may take a declaration of the
local address on which all correspondence will be made by the NBFC with the
customer. No proof is required to be submitted for such address for
correspondence/local address. This address may be verified by the NBFC through
'positive confirmation' such as acknowledgment of receipt of (i) letter (ii)
telephonic conversation; (iii) visits; etc. In the event of change in this
address due to relocation or any other reason, customers may intimate the new
address for correspondence to the NBFC within two weeks of such a change.
Further, NBFCs,
need not seek fresh proofs of identity and address at the time of periodic
updation, from those customers who are categorised as 'low risk', in case of no
change in status with respect to their identities and addresses. A
self-certification by the customer to that effect should suffice in such cases.
In case of change of address of such 'low risk' customers, they could merely
forward a certified copy of the document (proof of address) by mail / post,
etc. If an existing KYC compliant customer of NBFC desires to open another
account in the same NBFC, there should be no need for submission of fresh proof
of identity and / or proof of address for the purpose.
In terms of extant
instructions, NBFCs are required to put in place a system of periodical review
of risk categorisation of accounts and the need for applying enhanced due
diligence measures in case of higher risk perception on a customer. Such review
of risk categorisation of customers should be carried out at a periodicity of
not less than once in six months. NBFCs were also
advised to introduce a system of periodical updation of customer identification
data (including photograph/s) after the account is opened. Accordingly, NBFCs
are required to undertake 'Client Due Diligence' and apply such measures to
existing clients based on risk categorization.
a) NBFCs would need to
continue to carry out on-going due diligence with respect to the business
relationship with every client and closely examine the transactions in order to
ensure that they are consistent with their knowledge of the client, his
business and risk profile and, wherever necessary, the source of funds.
b) Full KYC exercise
will be required to be done at least every two years for high risk individuals
and entities.
c) Full KYC exercise
will be required to be done at least every ten years for low risk and at least
every eight years for medium risk individuals and entities taking in to account
whether and when client due diligence measures have previously been undertaken
and the adequacy of data obtained. Physical presence of the clients may,
however, not be insisted upon at the time of such periodic updations.
d) Fresh photographs
will be required to be obtained from minor customer on becoming major.
KYC/AML guidelines
issued by the Bank shall also apply to NBFCs’ branches and majority owned
subsidiaries located outside India, especially, in countries which do not or insufficiently
apply the FATF Recommendations, to the extent local laws permit. In case, there
is a variance in KYC/AML standards prescribed by the Reserve Bank and the host
country regulators, branches/overseas subsidiaries of NBFCs are required to
adopt the more stringent regulation of the two.
Letter issued by Unique Identification Authority of India (UIDAI) containing
details of name, address and Aadhaar number
Subsequent to the
Government of India Notification No.14/2010/F.No.6/2/2007-ES dated December 16,
2010, the letter issued by Unique Identification Authority of India (UIDAI)
containing details of name, address and Aadhaar number, can be accepted as an
officially valid document as contained in Rule 2(1)(d) of the PML Rules, 2005.
While opening accounts based on Aadhaar also, NBFCs must satisfy themselves
about the current address of the customer by obtaining required proof of the
same as per extant instructions.
In order to reduce the
risk of identity fraud, document forgery and have paperless KYC verification,
UIDAI has launched its e-KYC service. Accordingly, it has been decided to
accept e-KYC service as a valid process for KYC verification under Prevention
of Money Laundering (Maintenance of Records) Rules, 2005. Further, the
information containing demographic details and photographs made available from
UIDAI as a result of e-KYC process ("which is in an electronic form and
accessible so as to be usable for a subsequent reference") may be treated
as an 'Officially Valid Document' under PML Rules. In this connection, it is
advised that while using e-KYC service of UIDAI, the individual user has to
authorize the UIDAI, by explicit consent, to release her or his identity /
address through biometric authentication to the NBFC branches. The UIDAI then
transfers the data of the individual comprising name, age, gender, and
photograph of the individual, electronically to the NBFCs, which may be
accepted as valid process for KYC verification. The broad operational
instructions to NBFCs willing to use the UIDAI e-KYC service on Aadhaar e-KYC
service are enclosed as Annex
IX. Such NBFCs are advised to have
proper infrastructure (as specified in Annex IX) in place to enable biometric
authentication for e-KYC. Physical Aadhaar card / letter issued by UIDAI
containing details of name, address and Aadhaar number received through post
would continue to be accepted as an 'Officially Valid Document'.
Further, NBFCs may accept
e-Aadhaar downloaded from UIDAI website as an officially valid document subject
to the following:
a) If the prospective
customer knows only his / her Aadhaar number, the NBFC may print the
prospective customer's e-Aadhaar letter in the NBFC directly from the UIDAI
portal; or adopt e-KYC procedure as mentioned above.
b) If the prospective
customer carries a copy of the e-Aadhaar downloaded elsewhere, the NBFC may
print the prospective customer's e-Aadhaar letter in the NBFC directly from the
UIDAI portal; or adopt e-KYC procedure as mentioned above; or confirm identity
and address of the resident through simple authentication service of UIDAI.
Allocation of Unique Customer Identification Code
In the context of
recommendations of Working Group constituted by the Government of India
regarding the introduction of unique identifiers for customers across different
Financial Institutions for setting up a centralized KYC Registry, non-deposit
taking NBFCs with asset size of Rs. 25 crore and above and all Deposit taking
NBFCs have been advised to allot UCIC while entering into new relationships
with individual customers as also the existing customers. A Unique Customer
Identification Code (UCIC) will help NBFCs to identify the customers, avoid
multiple identities, track the facilities availed, monitor financial
transactions in a holistic manner and enable NBFCs to have a better approach to
risk profiling of customers.
Provisions regarding PEPs, Client accounts opened by Professional intermediaries, Accounts of Individual, proprietary concerns and legal entities and Accounts of customers from specified jurisdictions need to have similar KYC process that is followed by banks and financial institutions.
Provisions regarding KYC Policy, Risk Profiling , Record maintenance, Reporting is also similar with major deviations being quoted in earlier paragraphs.
So also provisions regarding combating financing of terrorism , Operation of Money Mules, Inter-Governmental Agreement (IGA) with United States of America (US) under Foreign Accounts Tax Compliance Act (FATCA) - Registration, Sharing of information with special investigation Team(SIT) on black money etc are applicable to NBFCs as also to other RBI regulated entities.
In pursuance of the Hon’ble Supreme Court Judgment dated July 4, 2011, Government of India has constituted a Special Investigation Team (SIT) under the Chairmanship of Hon’ble Justice M.B. Shah and Hon'ble Mr. Justice Arijit Pasayat, former Judge as Vice Chairman. The SIT gives periodic reports about black money to Govt.
Investment in NBFCs from FATF non-compliant jurisdictions
RBI MC dated Feb 12,
2021, required NBFCs to take adequate precautions regarding investments in NBFCs from jurisdictions listed by FATF
The Financial Action
Task Force (FATF) periodically identifies jurisdictions with weak measures to
combat money laundering and terrorist financing (AML/CFT) in its following
publications: i) High-Risk Jurisdictions subject to a Call for Action, and ii)
Jurisdictions under Increased Monitoring. A jurisdiction, whose name does not
appear in the two aforementioned lists, shall be referred to as a FATF
compliant jurisdiction. Investments in NBFCs from FATF non-compliant
jurisdictions shall not be treated at par with that from the compliant
jurisdictions.
Investors in existing
NBFCs holding their investments prior to the classification of the source or
intermediate jurisdiction/s as FATF non-compliant, may continue with the
investments or bring in additional investments as per extant regulations so as
to support continuity of business in India.
New investors from
or through non-compliant FATF jurisdictions, whether in existing NBFCs or in
companies seeking Certification of Registration (COR), should not be allowed to
directly or indirectly acquire ‘significant influence’ in the investee, as
defined in the applicable accounting standards. In other words, fresh investors
(directly or indirectly) from such jurisdictions in aggregate should be less
than the threshold of 20 per cent of the voting power (including potential1 voting power) of the NBFC.
These instructions are applicable with immediate effect. This has to be read with changes in beneficial ownership threshold limits definitions in 2023.
Classification of NBFCs
RBI circular No: RBI/2012-13/31 DNBS.(PD)CC.No.293/03.10.38/2012-13 dated July 2,2012 created Separate Category of NBFC-MFI . Consequently there is following categories of NBFCs:
i. Asset Finance Company (AFC)
ii. Investment Company (IC)
iii. Loan Company (LC)
iv. Infrastructure Finance Company
(IFC)
v. Core Investment Company (CIC)
vi. Infrastructure Debt Fund- Non-
Banking Financial Company (IDF-NBFC)
vii. Non-Banking Financial Company -
Micro Finance Institution (NBFC-MFI).
An Investment and Credit Company
(NBFC-ICC) is a financial institution that provides finance, including
loans and advances, and acquires securities. The Reserve Bank of India
(RBI) created the NBFC-ICC category in 2019 by merging three types of
Non-Banking Financial Companies (NBFCs): asset finance companies, investment
companies, and loan companies. The goal of this consolidation was to
streamline operations and create a more cohesive regulatory framework for
NBFCs.
Out of around 10,190 NBFCs operating in
India, more than 95 per cent (10,082) are non-deposit taking NBFCs. Too many
categories only increase compliance cost for the entire non-banking sector and
monitoring cost for the regulator. RBI has harmonised three different
categories of NBFCs into one, based on the principle of regulation by
activity rather than regulation by entity. Accordingly, the three categories of
NBFCs viz. Asset Finance Companies (AFC), Loan Companies (LCs) and Investment
Companies (ICs) have been merged into a new category called NBFC – Investment
and Credit Company (NBFC-ICC).
Though it was expected to merge all the
existing categories of NBFC, mentioned above, however, only the following three
categories have been merged into one:
Asset Finance Company (AFC): An AFC is a
company which is a financial institution carrying on as its principal business
the financing of physical assets supporting productive/economic activity, such
as automobiles, tractors, lathe machines, generator sets, earth moving and
material handling equipment, moving on own power and general purpose industrial
machines.
Investment Company (IC): IC means any company
which is a financial institution carrying on as its principal business the
acquisition of securities.
Loan
Company (LC): LC means any company which is a financial institution carrying on
as its principal business the providing of finance whether by making loans or
advances or otherwise for any activity other than its own but does not include
an Asset Finance Company.
The merged category has been defined as follows: “Investment and Credit
Company – (NBFC-ICC)” means any company which is a financial institution
carrying on as its principal business- asset finance, the providing of finance
whether by making loans or advances or otherwise for any activity other than
its own and the acquisition of securities; and is not any other category of
NBFC as defined by the Bank in any of its Master Directions.
Risk based Supervision of NBFCs
The Reserve Bank of India (RBI) on 22 October 2021 published the scale-based regulation (SBR) for non-banking financial companies (NBFCs). The idea behind subjecting the sector to SBR is to align the regulations in line with the changing risk profiles of NBFCs which have grown substantially and have become systemically significant in the past few years.
For the purpose, the NBFC sector will be classified into four layersbase layer, middle layer, upper layer and top layer. There are three bases of division of these four layers, namely size, activity, and perceived riskiness. Companies populating the upper layer, will be termed as systemically significant and they will be identified based on two criteria.
First, top 10
asset-wise NBFCs will always remain in the upper layer, and second, a
parametric scoring methodology will be applied on the sample of 50 NBFCs,
excluding the top 10, which will be chosen on the basis of their total exposure
from the middle layer. Once an NBFC is identified to be placed in the
upper layer, then it will be given a period of a maximum of 24 months to adhere
to the enhanced prudential regulations defined for the upper layer. In the
meantime, calibrated increment in business will be allowed through supervisory
engagement.
NBFCs placed in the upper layer
will be subject to enhanced prudential regulations for a period of at least
five years even if it does not meet the parametric criteria for subsequent
years from the date of its inclusion in the layer.
The
Reserve Bank of India issued guidelines on April 19, 2022 for loans and
advances by non-banking financial companies and the disclosures they are
required to make under what it called a scale-based regulatory framework.
The
RBI said the aggregate exposure of an upper layer NBFC, which is in the top
category, to any entity must not exceed 20 percent of its capital base,
although this limit can be enhanced to 25 percent with board approval. The
aggregate exposure to a group of connected entities will be limited to 25
percent of the capital base for all upper layer NBFCs.
For infrastructure finance
companies, the aggregate limit will be 30 percent to a single entity and 35
percent for a group of connected entities.
These norms would apply to NBFCs in
the middle and upper regulatory layers. While the middle layer would include
all deposit-taking and non-deposit taking NBFCs with assets of Rs 1,000 crore
and above, the upper layer would comprise those identified by the RBI for enhanced
regulatory requirement.
Recognizing the rapid growth in size and risk, NBFCs (at
least larger entities) may soon expect to be subjected to similar levels of
supervisory scrutiny as banks. This may have been a driving force behind the
introduction of the PCA Framework for NBFCs in December 2021. However, with stricter regulation
and supervision, RBI has also extended opportunities to NBFCs to expand their
business. The Master Direction on Credit and Debit Card – Issuance and
Conduct Direction 2022 issued
on April 21, 2022, has opened a window of opportunity for Non-Banking Financial
Companies registered with the Reserve Bank and with a minimum net owned funds
of Rs 100 crore, to undertake credit card business subject to prior approval of
the RBI.
The RBI has played a crucial role in regulating the NBFC sector over the years. With the sector’s evolution and changing dynamics, the regulator has been proactive in amending regulations. Previously, NBFCs were classified into two categories: systemically important and non-systemically important. However, starting from October 01, 2022, the RBI introduced a new classification system based on layers: base, middle, upper, and top. The reclassification introduced some progressive changes but also created certain ambiguities in the applicability of regulatory rules. Specifically, the terms “base layer” and “middle layer” were related with non-systemically important (non-SI) and systemically important (SI) NBFCs. When classifying NBFCs based on asset size, those with assets under Rs. 500 crores were considered non-SIs, while those with assets over Rs. 500 crores were classified as SIs.
In a calibrated approach towards harmonizing the regulatory
framework for Supervised Entities, RBI had earlier issued guidelines on the
implementation of the Risk-Based Internal Audit Framework for all
deposit-taking NBFCs and HFCs, irrespective of their size, and all NBFCs-ND and
HFCs with asset size of Rs 5000 crore and above. The guidelines appear to be a
precursor to the Risk-Based Supervision of NBFCs, and while specific NBFCs were
required to implement these guidelines by March 31, 2022, HFCs are required to
implement the same by June 30, 2022.
Further, the Large Exposure Framework (LEF) guidelines have been made applicable to NBFC-UL w.e.f
October 1, 2022. NBFCs-UL and NBFCs-ML with 10 or more fixed point service
delivery units as of October 01, 2022, have also been mandated to implement ‘Core Financial Services Solution (CFSS), before 30 September 2025.
The Reserve Bank of India (RBI) has issued a notification outlining a new regulatory framework for Non-Banking Financial Companies (NBFCs) on October 19, 2023 (‘SBR Framework’). With a different set of criteria. According to this framework, NBFCs with assets less than Rs. 1000 crores are categorized as Base Layer entities, while those with assets exceeding Rs. 1000 crores are classified as Middle Layer entities. This creates a gray area for NBFCs with assets falling between Rs. 500 crores and Rs. 1000 crores. To address this issue and provide a more streamlined regulatory framework, the RBI has issued the Master Direction – Reserve Bank of India (Non-Banking Financial Company – on Scale based Regulation (SBR) for NBFCs by the Reserve Bank of India Master Directions, 2023
The SBR Framework issued by the RBI mandated NBFC-UL and
NBFC-ML to have an independent compliance function that is spearheaded by the
Chief Compliance Officer. In its recent circular on Compliance Function and Role of Chief Compliance Officer
(CCO) – NBFCs, RBI has
provided a robust structural approach to be followed by the Compliance
Functions of NBFCs, to effectively manage and mitigate regulatory risks, and
the requirements for appointing the CCO of the NBFC.
The Compliance Function is expected to exercise complete
oversight over the implementation of the compliance policy while ensuring that
is not only in line with extant regulatory guidelines but also commensurate
with the breadth of operations and risk appetite of the NBFC. It is also
expected to play an active role in assessing compliance risks across existing
and new products with a requirement that the CCO is included in the ‘new
product’ committee.
RBI’s guidelines require NBFCs to carry out an annual
compliance risk assessment to identify, assess and remediate major compliance
risks across the entity. The Compliance Programme should be effective in
ensuring that the Risk Mitigation Plan (RMP)/ Monitorable Action Plan (MAP) are
complied with within the prescribed timelines to avoid supervisory action. The
compliance function will also be responsible for conducting the necessary
compliance testing and monitoring and furnishing the reports to the Senior
Management. NBFC-UL and NBFC-ML are required to put in place a Board-approved
policy and a Compliance Function, including the appointment of a Chief
Compliance Officer (CCO), latest by April 1, 2023, and October 1, 2023,
respectively.
The RBI had issued the scale based
regulation (SBR) on October 22, 2021. The framework categorises NBFCs in Base
Layer (NBFC-BL), Middle Layer (NBFC-ML), Upper Layer (NBFC-UL) and Top Layer
(NBFC-TL) and gives the methodology to identify the NBFCs in the Upper Layer as
per their asset size and scoring methodology. Accordingly, the 2023-24 list of
NBFC-UL is as under:
Name of the NBFC
LIC Housing Finance Limited
Bajaj Finance Limited
Shriram Finance Limited (formerly
Shriram Transport Finance Company Limited)
Tata Sons Private Limited
L & T Finance Limited
Piramal Capital & Housing
Finance Limited
Cholamandalam Investment and Finance
Company Limited
Indiabulls Housing Finance Limited
Mahindra & Mahindra Financial
Services Limited
Tata Capital Financial Services
Limited
PNB Housing Finance Limited
HDB Financial Services Limited
Aditya Birla Finance Limited
Muthoot Finance Limited
Bajaj Housing Finance Ltd.
RBI further said on the website that
despite qualifying for identification as NBFC-UL as per scoring methodology,
TMF Business Services Limited (formerly Tata Motors Finance Limited) is not
being included in the list of NBFC-UL in the current review due to its ongoing
business reorganisation.
In
terms of the framework, once an NBFC is classified as NBFC-UL, it shall be
subject to enhanced regulatory requirement, at least for a period of five years
from its classification in the layer, even in case it does not meet the
parametric criteria in the subsequent year/s.
Happy Reading,
Those who read this, also read:
1. NBFCs and e-KYC : RBI, India
2. Beneficial Ownership : PMLA 2002
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