RBI to merge the three categories of NBFCs into a new category called NBFC-ICC

RBI has decided to merge the three categories of NBFCs viz. AFC, LCs and ICs into a new category called NBFC-Investment and Credit Company (NBFC-ICC)

Over a period of time, evolution of the NBFC sector has resulted in several categories of NBFCs intended to focus on specific sector/ asset classes.

Accordingly, different sets of regulatory frameworks have been put in place.

RBI has decided to merge the three categories of NBFCs viz. Asset Finance Companies (AFC), Loan Companies (LCs) and Investment Companies (ICs) into a new category called NBFC-Investment and Credit Company (NBFC-ICC).

The merger aims order to provide NBFCs with greater operational flexibility, harmonisation of different categories of NBFCs into fewer ones and it shall be carried out based on the principle of regulation by activity rather than regulation by entity.

Differential regulations relating to bank’s exposure to the three categories of NBFCs viz., AFCs, LCs and ICs stand harmonised vide Bank’s circular dated, February 22, 2019.

Further, a deposit taking NBFC-ICC shall invest in unquoted shares of another company which is not a subsidiary company or a company in the same group of the NBFC, an amount not exceeding twenty per cent of its owned fund.

At present claims on rated as well as unrated Non-deposit Taking Systemically Important Non-Banking Financial Companies (NBFC-ND-SI), other than Asset Finance Companies (AFCs), Non-Banking Financial Companies – Infrastructure Finance Companies (NBFCs-IFC), and Non-banking Financial Companies – Infrastructure Development Funds (NBFCs-IDF), have to be uniformly risk weighted at 100%. Exposures to AFCs, NBFCs – IFC, NBFCs – IDF and other NBFCs which are not NBFC-ND-SI, are risk weighted as per the ratings assigned by the rating agencies accredited by the Reserve Bank of India.