Specific Directions for Infrastructure Debt Funds IDFs-NBFC

Specific Directions for Infrastructure Debt Funds IDFs-NBFC

An IDF can be established either as a trust or a company. A trust-based IDF is known as IDF-Mutual Fund (MF) and comes under the regulation of SEBI. On the other hand, a company-based IDF is registered as an IDF-NBFC and is regulated by the Reserve Bank.

When it comes to raising funds, an IDF-NBFC can issue bonds in rupees or dollars, which should have a minimum maturity of five years. To manage assets and liabilities more effectively, IDF-NBFCs are allowed to issue shorter-term bonds and commercial papers. However, these should only make up to 10 percent of their total outstanding borrowings.

Besides bonds, IDF-NBFCs can also secure funds through loans as external commercial borrowings (ECBs). These loans must have a minimum tenure of five years and should not be obtained from foreign branches of Indian banks. Additionally, IDF-NBFCs must comply with guidelines from the Reserve Bank’s Foreign Exchange Department regarding ECBs.

Regarding the sponsorship of IDF-MFs by NBFCs, there are specific requirements. An NBFC can sponsor IDF-MFs with the Reserve Bank’s approval if it meets certain conditions based on its audited financial statements, in addition to SEBI’s requirements. These conditions include having a minimum Net Owned Fund (NOF) of ₹300 crore and a Capital to Risk (Weighted) Assets Ratio (CRAR) of 15 percent. The NBFC’s net Non-Performing Assets (NPAs) should be less than 3 percent of net advances, and it should have been operational for at least 5 years.

Furthermore, the NBFC should have been profitable for the last three years and have a satisfactory performance record. Post-investment in the IDF-MF, the NBFC’s CRAR should not fall below the regulatory minimum. It must also maintain the required NOF level after accounting for the investment in the proposed IDF-MF. Lastly, there should be no supervisory concerns regarding the NBFC.

NBFCs meeting these eligibility criteria should approach the Reserve Bank’s Department of Regulation for prior approval to sponsor IDF-MFs.

NBFCs must follow the reporting requirements set by the Reserve Bank’s Department of Supervision. It’s important that these guidelines are strictly adhered to.

Regarding interpretations, the Reserve Bank holds the authority to clarify any part of these directions. If there’s a need to explain or detail any aspect of these rules, the Reserve Bank can issue such clarifications. The interpretations provided by the Reserve Bank are final and must be followed by all concerned parties. It’s crucial to understand that not following these directions can lead to penalties under the RBI Act, 1934.

These provisions are meant to complement, not replace, other existing laws, rules, regulations, or directions. They add to the current legal framework and should be followed alongside any other relevant legal requirements.


Classification of Multiple NBFCs in a Group

Consider a group with seven NBFCs, each with different asset sizes and types. For instance, there’s an NBFC-ICC with ₹300 crore, an HFC with ₹300 crore, an NBFC-IFC with ₹500 crore, and others with smaller sizes. To determine their classification:

  • HFCs and IFCs are generally in the Middle Layer but could move to the Upper Layer based on further evaluation.
  • NBFC-ICC and NBFC-MFI, with assets less than ₹1000 crore, are in the Base Layer.
  • NBFC-P2P and others without public funds and customer interface are also in the Base Layer.

When we combine the assets of all these NBFCs, the total is ₹1320 crore, exceeding the ₹1000 crore threshold for the Middle Layer. So, NBFC-ICC and NBFC-MFI move to the Middle Layer, while HFC and IFC remain there. The others stay in the Base Layer.

If, in another scenario, the asset size of NBFC-ICC is just ₹10 crore, the combined asset size is still over ₹1000 crore. So, both NBFC-ICC and NBFC-MFI would still be in the Middle Layer.

Overdue Loans and Classification

Imagine a loan’s due date is March 31, 2021. If it’s not paid by the end of the day, it’s overdue on that date. If it remains unpaid, it becomes SMA-1 after 30 days, so on April 30, 2021. If it continues to be overdue, it becomes SMA-2 after another 30 days and eventually an NPA, following the standard asset classification norms.

Risk Weights on Credit Facilities

Different schemes have different risk weights. For example:

Credit Guarantee Fund Scheme for Factoring (CGFSF):

  • First loss of 10% of the default amount is fully deducted.
  • 60% of the default amount covered by NCGTC has 0% risk weight.
  • The remaining 30% follows standard risk weight rules.

Credit Guarantee Fund Scheme for Skill Development (CGFSD):

  • The entire default amount follows standard risk weight rules.

Credit Guarantee Fund for Micro Units (CGFMU):

  • First loss of 3% of the default amount is fully deducted.
  • 72.75% of the default amount has 0% risk weight, up to a limit.
  • The rest follows standard risk weight rules.

CGTMSE Guarantee for Micro-Enterprises:

  • For different loan amounts, a certain percentage of the default amount has 0% risk weight.
  • The remaining amount follows standard risk weight rules.

Risk Weights (RW) applicable on credit facilities guaranteed under specific existing schemes

 Introduction to RBI – NBFC Scale Based Regulation

Regulations applicable for NBFC-BL

Regulations applicable for NBFC-ML

Regulatory Instructions for NBFC-UL

Directions for NBFC – Micro Finance MFIs

Specific Directions for NBFC-Factors and NBFC-ICCs

Scoring Methodology for Identification of NBFC as NBFC-UL

Regulatory Guidance on Implementation of Ind AS by NBFCsv

Norms on Restructuring of Advances by NBFCs

Early Recognition of Financial Distress

Flexible Structuring of Long Term Project Loans to Infrastructure and Core Industries

Guidelines on Liquidity Risk Management Framework

Disclosures in Financial Statements – Notes to Accounts of NBFCs

Managing Risks and Code of Conduct in Outsourcing of Financial Services by NBFCs

Guidelines for Credit Default Swaps – NBFCs as Users

Guidelines on Private Placement of NCDs by NBFCs

Guidelines for Entry of NBFCs into Insurance

Guidelines on Issue of Co-Branded Credit Cards

Guidelines on Distribution of Mutual Fund Products by NBFCs

Guidelines on Perpetual Debt Instruments

Guidelines on Liquidity Coverage Ratio (LCR)

Balance Sheet Disclosure Guidelines for NBFCs in Middle Layer and Above

Self-Regulatory Organization (SRO) for NBFC-MFIs – Criteria for Recognition