IIBF NBFC flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Principal Business Test

A company is treated as an NBFC when financial assets exceed 50% of total assets and financial income exceeds 50% of gross income; both conditions must be satisfied simultaneously.

Section 45-IA Registration

Every NBFC must obtain a certificate of registration from RBI under Section 45-IA of the RBI Act, 1934 before commencing business, and must maintain minimum net owned funds of Rs 2 crore.

Scale Based Regulation Layers

RBI classifies NBFCs into Base, Middle, Upper and Top layers. Classification depends on asset size, public funds, and whether the entity is part of a group with cross-sectoral presence.

NBFC-ML Threshold

An NBFC falls in the Middle Layer if its asset size is Rs 1,000 crore or more, or if it holds public funds and its asset size is Rs 500 crore or more, subject to exclusions.

NBFC-UL Scoring Cut-off

RBI scores NBFCs on a 200-point framework covering size, activity, and interconnectedness. An entity scoring 130 or more is classified as Upper Layer and is subject to enhanced regulation.

Net Owned Funds Formula

NOF equals owned funds minus investments in shares of subsidiaries, companies in the same group, and other deductions, as computed under the RBI Master Direction on NBFCs.

CRAR for NBFC-ML

NBFCs in the Middle and Upper Layers must maintain a capital to risk-weighted assets ratio of at least 15%, of which Tier-I capital must be at least 10%.

Public Deposit Restriction

Only NBFCs specifically permitted by RBI may accept public deposits. They need an investment-grade rating and must comply with prudential limits, and deposits are not insured by DICGC.

Key Facts Statement

A standard disclosure document for retail loans giving the loan amount, annualised percentage rate, tenure, installments, fees, penal charges, and grievance redressal contact details.

Fair Practices Code

A Board-approved code requiring transparent disclosure of interest rates, charges, and penal charges, and fair treatment of borrowers during loan appraisal, disbursement, and recovery.

Penal Charges Rule

Penal charges must be disclosed in the loan agreement, must not be levied as compounding of interest, and are subject to the cap disclosed in the sanction letter.

RBI Integrated Ombudsman Scheme

A unified grievance redressal mechanism effective 2021. A complainant may escalate to the RBI Ombudsman if the NBFC does not resolve the complaint within 30 days.

Recovery Agent Conduct

Recovery agents must be trained, carry authorisation and identity cards, and communicate only between 8 am and 7 pm. All recovery communications must be documented by the NBFC.

Digital Lending Routing Rule

Loan disbursements and repayments in digital lending must flow directly between the borrower's bank account and the regulated entity, with no pass-through pool account.

Digital Loan Cooling-off Period

A borrower may exit a digital loan by repaying the principal without penalty within a cooling-off period of at least three days set by the regulated entity.

Outsourcing Core Functions

NBFCs may outsource support functions but retain ultimate responsibility. Core functions such as compliance, risk management, and internal audit cannot be outsourced.

NPA Classification

A loan asset becomes a non-performing asset when interest or principal remains overdue for more than 90 days. Classification then moves to sub-standard, doubtful, and loss categories.

Provisioning for Sub-standard Assets

Sub-standard assets require a provision of 10% of the outstanding balance. Doubtful assets require 40% to 100% depending on the secured portion, and loss assets require 100%.

Single Borrower Exposure Limit

For NBFC-UL, exposure to a single borrower must not exceed 20% of Tier-I capital; group exposure must not exceed 25%, with Board-approved relaxation to 25% and 35%.

Liquidity Coverage Ratio

LCR equals high-quality liquid assets divided by net cash outflows over a 30-day stress period. The minimum is 100% for large NBFCs and all deposit-taking NBFCs.

Structural Liquidity Statement

An ALM statement that places inflows and outflows in time buckets from 1-14 days to beyond 5 years, and monitors cumulative mismatches against Board-approved tolerance limits.

Interest Rate Risk in Banking Book

Measured by the change in economic value of equity and net interest income under a 200 basis point parallel rate shift, with tolerance limits set by the Board.

Credit Risk Mitigation

Reduction of risk-weighted assets through eligible collateral or guarantees, permitted only where the instrument is legally enforceable and the NBFC can liquidate it.

Stress Testing Requirement

Scenario-based testing of credit, liquidity, and market risk, approved by the Board, conducted at least annually, and reported to the Risk Management Committee.

Principal Officer under PMLA

An officer appointed by the NBFC to ensure compliance with the Prevention of Money Laundering Act and to report suspicious transactions to the Financial Intelligence Unit-India.

Suspicious Transaction Report Timeline

An STR must be filed with FIU-IND within seven working days of the NBFC forming a suspicion that a transaction may involve proceeds of crime or terrorist financing.

Cash Transaction Report

A monthly report filed with FIU-IND covering cash transactions above Rs 10 lakh, either in a single transaction or in a series of connected transactions.

Enhanced Due Diligence

Additional KYC measures applied to high-risk customers, politically exposed persons, and correspondent relationships, including source-of-funds verification and senior management approval.

Chief Compliance Officer

A designated officer for NBFC-UL and NBFC-ML who reports directly to the Board or Audit Committee and places a quarterly compliance certificate before the Board.

Internal Audit Frequency

NBFC-UL and NBFC-ML must conduct internal audit at least quarterly, with the function reporting independently to the Audit Committee rather than to business lines.

Audit Committee Composition

A Board committee chaired by an independent director, responsible for reviewing internal audit findings, financial reporting, whistleblower complaints, and compliance with prudential norms.

Record Retention under PMLA

Transaction records must be maintained for at least five years from the date of the transaction or from account closure, whichever is later, and produced to regulators on demand.