The Reserve Bank of India (“RBI”) on June 6, 2022 vide a notification bearing reference no. RBI/2022-23/61 - DOR.STR.REC.40/21.04.048/2022-23 issued 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 (“Guidelines”). The Guidelines shall come into force on and from October 1, 2022.
As per the Guidelines, 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 (SMEs) |
0.25 per cent |
Housing loans extended at teaser rates |
2.00 per cent, which will decrease to 0.40 per cent 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 per cent |
Advances to Commercial Real Estate (CRE) Sector (other than CRE-RH) |
1.00 per cent |
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 |
0.40 per cent |
The Guidelines also clarify the following:
Note: NBFC-Upper Layer means and comprises of those NBFCs which are specifically identified by RBI as warranting enhanced regulatory requirement based on a set of parameters and scoring methodology as provided in the Appendix to the circular RBI/2021-22/112 – DOR.CRE.REC.No.60/03.10.001/2021-22 dated October 22, 2021 (“Circular”). It has also been clarified in the Circular that the top ten eligible NBFCs in terms of their asset size will always reside in the Upper Layer, irrespective of any other factor.
Please find a copy of the Guidelines, here.
This update has been contributed by Avin Sarkar (Associate) in addition to the contribution by Arth Singhal (Associate).
Argus Knowledge Centre is now on WhatsApp! Send us a message on +91 8433523504 to receive updates from our Knowledge Centre.
7A, 7th Floor, Tower C, Max House,
Okhla Industrial Area, Phase 3,
New Delhi – 110020
The rules of the Bar Council of India do not permit advocates to solicit work or advertise in any manner. This website has been created only for informational purposes and is not intended to constitute solicitation, invitation, advertisement or inducement of any sort whatsoever from us or any of our members to solicit any work in any manner. By clicking on 'Agree' below, you acknowledge and confirm the following:
a) there has been no solicitation, invitation, advertisement or inducement of any sort whatsoever from us or any of our members to solicit any work through this website;
b) you are desirous of obtaining further information about us on your own accord and for your use;
c) no information or material provided on this website is to be construed as a legal opinion and use of this website will not create any lawyer-client relationship;
d) while reasonable care has been taken in ensuring the accuracy of the contents of the website, Argus Partners shall not be responsible for the results of any actions taken on the basis of information provided in this website or for any error or omission in the website; and
e) in cases where the user has any legal issues, the user must seek independent legal advice.