Regulation of NBFIs – RBI & Other Regulators

Introduction

Earlier, NBFCs were loosely regulated. However, after scams (CRB Capital) and crises (IL&FS), regulation has tightened significantly.

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1. Registration with RBI

Under Section 45-IA of RBI Act, 1934, every NBFC must:

1. Obtain a Certificate of Registration (CoR) from RBI.
2. Have a minimum Net Owned Fund (NOF) of ₹2 Crore (raised recently to ₹10 Cr for new ones).

2. Scale Based Regulation (SBR) - New Framework (2022)

RBI introduced SBR to align regulation with size/risk.

1. Base Layer (NBFC-BL): Small non-deposit taking NBFCs (< ₹1000 Cr asset size). Least regulation.
2. Middle Layer (NBFC-ML): Deposit taking NBFCs & larger Non-Deposit ones. Stricter norms.
3. Upper Layer (NBFC-UL): Top 10 prominent NBFCs warranting bank-like regulation.
4. Top Layer (NBFC-TL): Reserved for extremely risky ones (currently empty).

3. Other Regulators (Dual Regulation)

Some NBFIs are regulated by other bodies depending on their function:

• Housing Finance Companies: Regulated by RBI (earlier NHB).
• Insurance Companies: Regulated by IRDAI.
• Merchant Banking/Stock Broking: Regulated by SEBI.
• Chit Funds: Regulated by State Governments.
• Nidhi Companies: Regulated by Ministry of Corporate Affairs (MCA).

Summary

• Primary Regulator: RBI (Dept of Non-Banking Supervision).
• Registration: Mandatory (Sec 45-IA).
• New Norms: Scale Based Regulation (Base, Middle, Upper, Top).
• Exceptions: Insurance (IRDAI), Merchant Banks (SEBI).

Quiz Time! 🎯

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