The Reserve Bank of India (“RBI”) by way of circular dated October 22, 2021 on ‘Scale Based Regulation (SBR): A Revised Regulatory Framework for NBFCs’ ("October Circular”) had mentioned that it would issue guidelines on differential provisioning to be held by non-banking financial companies (“NBFCs”) classified as NBFC-Upper Layer (“NBFC-UL”) towards different classes of standard assets.
Pursuant to the above, RBI has now vide circular dated June 6, 2022 ("Circular”) specified that NBFCs classified as NBFC-UL will maintain provisions in respect of standard assets at the following rates for the funded amount outstanding:
Category of Assets |
Rate of Provision |
Individual housing loans and loans to small and micro enterprises |
0.25% |
Housing loans extended at teaser rates |
2%, which will decrease to 0.40 % after 1 year from the date on which the rates are reset at higher rates (if the accounts remain ‘standard’) |
Advances to commercial real estate – residential housing (CRE - RH) sector |
0.75% |
Advances to commercial real estate sector (other than CRE-RH) |
1% |
Restructured advances |
As stipulated in the applicable prudential norms for restructuring of advances |
All other loans and advances not included above, including loans to medium enterprises |
0.4% |
The Circular further provides that:
These guidelines will come into effect from October 1, 2022.
Please find a copy of the October Circular here, the March Circular here and the Circular here.
This update has been contributed by Aastha (Partner) and Arth Singhal (Associate).
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