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IIBF NBFC study materials
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IIBF NBFC: NBFC Regulatory Framework (RBI Directions and Applicable Law)

IIBF NBFC · Work through your exam, one topic at a time.

All guide sections

NBFC Regulatory Framework (RBI Directions and Applicable Law)

What this domain tests

It tests the legal plumbing: which statute empowers RBI, who needs a Certificate of Registration (CoR), how the principal business test works, and how the Scale Based Regulation (SBR) framework (October 2021, effective 1 October 2022) decides which prudential norms bite.

Legal basis and registration

  • Chapter IIIB of the RBI Act, 1934 governs NBFCs: Section 45-IA (CoR mandatory before commencing business), 45-IB (liquid assets), 45-IC (transfer at least 20% of profit after tax to a reserve fund every year), 45-S (unincorporated bodies barred from deposit taking).
  • The entity must be a company under the Companies Act, 2013 and must pass the 50-50 principal business test: financial assets are at least 50% of total assets and income from financial assets is at least 50% of gross income.
  • A CoR does not make an NBFC a bank: no demand deposits, no chequebook, no DICGC insurance, no set-off rights.

The SBR layers

  • Base: non-deposit-taking NBFCs below Rs 1,000 crore of assets, and NBFCs with no public funds and no customer interface.
  • Middle: all deposit-taking NBFCs, non-deposit-taking NBFCs with assets of Rs 1,000 crore or more, and large core investment companies.
  • Upper: NBFCs flagged by RBI (top of the asset ladder plus discretionary names); Top is normally empty. The layer fixes capital, governance, disclosure and compliance intensity. The entry NOF norm was raised above Rs 2 crore towards Rs 10 crore, with a glide path for existing NBFCs to 31 March 2027.

Worked example

Total assets Rs 500 crore, financial assets Rs 240 crore (48%); gross income Rs 80 crore, financial income Rs 44 crore (55%). The income limb is met but the asset limb fails, so the company is not an NBFC and cannot hold an NBFC CoR. To qualify it must push financial assets above Rs 250 crore - say Rs 260 crore (52%) - and then obtain a CoR before starting business.

Traps

Testing only one limb of the 50-50 rule; assuming deposit-taking status is automatic; quoting the old Rs 500 crore "systemically important" threshold instead of the current SBR layers.