RBI has issued an updated master circular on bank financing to Non-Banking Financial Companies (“NBFCs” consolidating regulations regarding financing of NBFCs by banks. This master circular is replacing the master circular issued by the RBI in 2015 (“2015 Master Circular”) on the captioned.

Some key changes are as follows:

1) It has been clarified that Housing Finance Companies (“HFCs”) are covered under the ambit of this circular.

2) It has been clarified that banks may take their credit decision based on usual factors in relation to Micro Finance Companies, Securitisation and Reconstruction Companies, Mutual Benefit Companies and Mortgage Guarantee Companies.

3) In line with NBFC-Factors Directions, the minimum limit for receivable purchased/financed or income generated from factoring activity of factoring companies has been reduced from 75% to 50% for being eligible to receive bank finance.

4) Banks are permitted to provide partial credit enhancement to bonds issued by Systemically Important Non-Deposit taking NBFCs and HFCs.

5) Banks' exposures to a single NBFC (excluding gold loan companies) has been increased to 20% of Tier-I capital from 10-15% of capital funds as in the 2015 Master Circular. Further, banks' exposure to group of connected NBFCs or group of connected counterparties having NBFCs in the group, has been limited to 25% of Tier-I capital.

Reserve Bank of India - Notifications (rbi.org.in)

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