Grant loans to realty sector after ensuring government approvals for project: RBI to NBFCs

Besides, the regulator said NBFCs should not grant loans and advances totalling Rs 5 crore and above to their own directors, including the chairman and managing director or their relatives and other related entities.

MUMBAI: Non-banking finance companies (NBFCs) will have to ensure while approving loans to the real estate sector that the borrowers have been granted permission from the government and other regulatory authorities for their projects, the Reserve Bank said on Tuesday. Besides, the regulator said NBFCs should not grant loans and advances totalling Rs 5 crore and above to their own directors, including the chairman and managing director or their relatives and other related entities.

The norms will kick in from October.

In a notification on revised regulatory restrictions on NBFCs while giving loans and advances, the said the proposals for credit facilities of an amount less than Rs 5 crore to these borrowers may be sanctioned by the appropriate authority in the NBFC, but the matter should be reported to the board.

"While appraising loan proposals involving real estate, NBFCs shall ensure that the borrowers have obtained prior permission from government/local government/ other statutory authorities for the project, wherever required," it said.

To ensure that the loan approval process is not hampered on account of this, while the proposals may be sanctioned in normal course, the disbursements shall be made only after the borrower has obtained requisite clearances from the government/other statutory authorities, the RBI said.

With respect to grant of loans to senior officers of an NBFC, it said such sanctioning of loans should be reported to the board and no senior officer or any committee comprising a senior officer will sanction loans to a relation of that senior officer.

Such a loan should be sanctioned by the next higher sanctioning authority, it said.

Further, the RBI said the term 'loans and advances' should not include loans or advances against government securities, life insurance policies, fixed deposits, stocks and shares.

These guidelines, to come into effect from October 1, 2022, are applicable on middle layer (ML) and upper layer (UL) NBFCs.

Base level (BL) NBFCs are non-deposit taking entities with asset size of less than Rs 1,000 crore; ML are non-deposit taking with asset size of Rs 1,000 crore and more; UL are those which are specifically identified by the RBI to have enhanced regulatory requirement.

An NBFC can also be classified as 'top layer' if the RBI is of the opinion that there is substantial increase in the potential systemic risk from specific NBFCs in the UL.

For base level NBFCs, it said they shall have a board-approved policy on grant of loans to directors, senior officers and relatives of directors and to entities where directors or their relatives have major shareholding.

The board-approved policy should include a threshold beyond which loans to these persons shall be reported to the board.

The regulator has also asked the NBFCs to disclose in their Annual Financial Statement the aggregate amount of such sanctioned loans and advances.

"These guidelines shall be effective from October 1, 2022," the central bank said.

The regulatory restrictions were necessitated because of the contribution of NBFCs towards supporting real economic activity and their role as a supplemental channel of credit intermediation alongside banks.

Over the years, the sector has undergone considerable evolution in terms of size, complexity, and interconnectedness within the financial sector.

Many entities have grown and become systemically significant and hence there is a need to align the regulatory framework for NBFCs keeping in view their changing risk profile, the RBI had said in October 2021 in its 'Revised Regulatory Framework for NBFCs'.

Source: realty.economictimes.indiatimes.com

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