{"id":1435,"date":"2021-01-19T09:28:41","date_gmt":"2021-01-19T09:28:41","guid":{"rendered":"https:\/\/swaritadvisors.com\/blog\/?p=1435"},"modified":"2021-03-17T10:35:09","modified_gmt":"2021-03-17T10:35:09","slug":"operational-and-credit-policy-norms-for-nbfcs","status":"publish","type":"post","link":"https:\/\/swaritadvisors.com\/blog\/operational-and-credit-policy-norms-for-nbfcs\/","title":{"rendered":"Operational and Credit Policy Norms for NBFCs: A Complete Guide"},"content":{"rendered":"\n<p class=\"has-drop-cap\">In India, the concept of NBFC has made\nits presence six decades back, i.e., around 1960, and since then this lending\nstructure is playing a significant role in serving the lower income and\nbackward sections of the society. Further, as compared to conventional banks,\nthese entities are much easier to access and offers financial assistance to the\nneedy ones. In this blog, we will discuss in detail regarding the concept and\ntypes of NBFC, together with the Operational and Credit Policy Norms for NBFCs.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a54e63a8b69e\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a54e63a8b69e\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/swaritadvisors.com\/blog\/operational-and-credit-policy-norms-for-nbfcs\/#Concept_of_NBFC_Registration\" title=\"Concept of NBFC Registration\">Concept of NBFC Registration<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/swaritadvisors.com\/blog\/operational-and-credit-policy-norms-for-nbfcs\/#Operational_Areas_of_NBFCs_in_India\" title=\"Operational Areas of NBFCs in India\">Operational Areas of NBFCs in India<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/swaritadvisors.com\/blog\/operational-and-credit-policy-norms-for-nbfcs\/#Non_Operational_Areas_of_NBFCs_in_India\" title=\"Non Operational Areas of NBFCs in\nIndia\">Non Operational Areas of NBFCs in\nIndia<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/swaritadvisors.com\/blog\/operational-and-credit-policy-norms-for-nbfcs\/#Different_Types_of_NBFCs_Prevalent_in_India\" title=\"Different Types of NBFCs Prevalent\nin India\">Different Types of NBFCs Prevalent\nin India<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/swaritadvisors.com\/blog\/operational-and-credit-policy-norms-for-nbfcs\/#Investment_and_Credit_Company\" title=\"Investment and Credit Company\">Investment and Credit Company<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/swaritadvisors.com\/blog\/operational-and-credit-policy-norms-for-nbfcs\/#Infrastructure_Finance_Company\" title=\"Infrastructure Finance Company\">Infrastructure Finance Company<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/swaritadvisors.com\/blog\/operational-and-credit-policy-norms-for-nbfcs\/#Non-Deposit_taking_Systemically_Important_Core_Investment_Company\" title=\"Non-Deposit taking Systemically\nImportant Core Investment Company\">Non-Deposit taking Systemically\nImportant Core Investment Company<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/swaritadvisors.com\/blog\/operational-and-credit-policy-norms-for-nbfcs\/#Insurance_Debt_Fund\" title=\"Insurance Debt Fund\">Insurance Debt Fund<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/swaritadvisors.com\/blog\/operational-and-credit-policy-norms-for-nbfcs\/#Micro_Finance_Companies\" title=\"Micro Finance Companies\">Micro Finance Companies<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/swaritadvisors.com\/blog\/operational-and-credit-policy-norms-for-nbfcs\/#NBFC_Factor\" title=\"NBFC Factor\">NBFC Factor<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/swaritadvisors.com\/blog\/operational-and-credit-policy-norms-for-nbfcs\/#Non-Operative_Financial_Holding_Companies\" title=\"Non-Operative Financial Holding\nCompanies\">Non-Operative Financial Holding\nCompanies<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/swaritadvisors.com\/blog\/operational-and-credit-policy-norms-for-nbfcs\/#Mortgage_Guarantee_Company\" title=\"Mortgage Guarantee Company\">Mortgage Guarantee Company<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/swaritadvisors.com\/blog\/operational-and-credit-policy-norms-for-nbfcs\/#NBFC_Account_Aggregators\" title=\"NBFC Account Aggregators\">NBFC Account Aggregators<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/swaritadvisors.com\/blog\/operational-and-credit-policy-norms-for-nbfcs\/#Peer_to_Peer_Lending_Platforms\" title=\"Peer to Peer Lending Platforms\">Peer to Peer Lending Platforms<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-15\" href=\"https:\/\/swaritadvisors.com\/blog\/operational-and-credit-policy-norms-for-nbfcs\/#Concept_of_Operational_and_Credit_Policy_Norms_for_NBFCs\" title=\"Concept of Operational and Credit Policy Norms for NBFCs\">Concept of Operational and Credit Policy Norms for NBFCs<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-16\" href=\"https:\/\/swaritadvisors.com\/blog\/operational-and-credit-policy-norms-for-nbfcs\/#Customer_KYC_Policy\" title=\"Customer KYC Policy\">Customer KYC Policy<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-17\" href=\"https:\/\/swaritadvisors.com\/blog\/operational-and-credit-policy-norms-for-nbfcs\/#Customer_Acceptance_Policy\" title=\"Customer Acceptance Policy\">Customer Acceptance Policy<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-18\" href=\"https:\/\/swaritadvisors.com\/blog\/operational-and-credit-policy-norms-for-nbfcs\/#Customer_Identification_Process\" title=\"Customer Identification Process\">Customer Identification Process<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-19\" href=\"https:\/\/swaritadvisors.com\/blog\/operational-and-credit-policy-norms-for-nbfcs\/#Monitoring_of_Transactions\" title=\"Monitoring of Transactions\">Monitoring of Transactions<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-20\" href=\"https:\/\/swaritadvisors.com\/blog\/operational-and-credit-policy-norms-for-nbfcs\/#Financial_Risk_Management\" title=\"Financial Risk Management\">Financial Risk Management<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-21\" href=\"https:\/\/swaritadvisors.com\/blog\/operational-and-credit-policy-norms-for-nbfcs\/#Anti-money_Laundering\" title=\"Anti-money Laundering\">Anti-money Laundering<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-22\" href=\"https:\/\/swaritadvisors.com\/blog\/operational-and-credit-policy-norms-for-nbfcs\/#Pre-Settlement_Policy\" title=\"Pre-Settlement Policy\">Pre-Settlement Policy<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-23\" href=\"https:\/\/swaritadvisors.com\/blog\/operational-and-credit-policy-norms-for-nbfcs\/#Asset_classification_and_Income_Recognition\" title=\"Asset classification and Income\nRecognition\">Asset classification and Income\nRecognition<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-24\" href=\"https:\/\/swaritadvisors.com\/blog\/operational-and-credit-policy-norms-for-nbfcs\/#Flow_Chart_for_Asset_Classification\" title=\"Flow Chart for Asset Classification:\">Flow Chart for Asset Classification:<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-25\" href=\"https:\/\/swaritadvisors.com\/blog\/operational-and-credit-policy-norms-for-nbfcs\/#Loan_Write-off_Policy\" title=\"Loan Write-off Policy\">Loan Write-off Policy<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-26\" href=\"https:\/\/swaritadvisors.com\/blog\/operational-and-credit-policy-norms-for-nbfcs\/#Restructuring_of_Loans\" title=\"Restructuring of Loans\">Restructuring of Loans<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-27\" href=\"https:\/\/swaritadvisors.com\/blog\/operational-and-credit-policy-norms-for-nbfcs\/#Restricted_Loans\" title=\"Restricted Loans\">Restricted Loans<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-28\" href=\"https:\/\/swaritadvisors.com\/blog\/operational-and-credit-policy-norms-for-nbfcs\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Concept_of_NBFC_Registration\"><\/span>Concept of NBFC Registration<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Every company or a business entity that wants to operate as an NBFC in India needs to first obtain registration under the provisions of the Companies Act 2013. After that, it requires to apply under the RBI Act 1934 for <strong><a href=\"https:\/\/swaritadvisors.com\/nbfc-registration\" class=\"text-primary\">NBFC Registration<\/a><\/strong>.<\/p>\n\n\n\n<p>Also, it shall be\nsignificant to record that RBI acts as the regulatory force for the NBFCs registered\nin India.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Operational_Areas_of_NBFCs_in_India\"><\/span>Operational Areas of NBFCs in India<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>In India, the Operational Areas of an NBFC are as follows:<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" loading=\"lazy\" width=\"800\" height=\"915\" src=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/01\/Operational-Areas-of-NBFCs-in-India.png\" alt=\"Operational Areas of NBFCs in India\" class=\"wp-image-1437\" srcset=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/01\/Operational-Areas-of-NBFCs-in-India.png 800w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/01\/Operational-Areas-of-NBFCs-in-India-262x300.png 262w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/01\/Operational-Areas-of-NBFCs-in-India-768x878.png 768w\" sizes=\"(max-width: 800px) 100vw, 800px\" \/><\/figure><\/div>\n\n\n\n<ol><li>Stocks;<\/li><li>Bonds;<\/li><li>Mutual\nFunds;<\/li><li>Debentures;<\/li><li>Equity\nShares;<\/li><li>Preference\nShares;<\/li><li>Lease\nAgreements;<\/li><li>Hire\nPurchase Transactions;<\/li><li>Insurance\nAgreements;<\/li><li>Chit\nFund Schemes;<\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Non_Operational_Areas_of_NBFCs_in_India\"><\/span>Non Operational Areas of NBFCs in\nIndia<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>In India, the Non Operational Areas of an NBFC are as follows:<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" loading=\"lazy\" width=\"716\" height=\"311\" src=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/01\/Non-Operational-Areas-of-NBFCs-in-India.png\" alt=\"Non Operational Areas of NBFCs\" class=\"wp-image-1438\" srcset=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/01\/Non-Operational-Areas-of-NBFCs-in-India.png 716w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/01\/Non-Operational-Areas-of-NBFCs-in-India-300x130.png 300w\" sizes=\"(max-width: 716px) 100vw, 716px\" \/><\/figure><\/div>\n\n\n\n<ol><li>Agricultural\nActivity;<\/li><li>Industrial\nActivity;<\/li><li>Sale\nor Purchase of Tangible Goods;<\/li><li>Real\nEstate Activities;<\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Different_Types_of_NBFCs_Prevalent_in_India\"><\/span>Different Types of NBFCs Prevalent\nin India<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The different types of NBFCs prevalent in India are as follows:<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" loading=\"lazy\" width=\"835\" height=\"574\" src=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/01\/Different-Types-of-NBFCs-Prevalent-in-India.png\" alt=\"different types of NBFCs prevalent in India\" class=\"wp-image-1439\" srcset=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/01\/Different-Types-of-NBFCs-Prevalent-in-India.png 835w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/01\/Different-Types-of-NBFCs-Prevalent-in-India-300x206.png 300w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/01\/Different-Types-of-NBFCs-Prevalent-in-India-768x528.png 768w\" sizes=\"(max-width: 835px) 100vw, 835px\" \/><\/figure><\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Investment_and_Credit_Company\"><\/span>Investment and Credit Company<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The term Investment Credit Company or\nICC denotes a combination of the three different NBFCs as follows:<\/p>\n\n\n\n<ol><li>Asset\nFinance Company;<\/li><li>Loan\nCompany;<\/li><li>Investment\nCompany;<\/li><\/ol>\n\n\n\n<p>Further, the different lending and\ninvestment activities provided by an Investment Credit Company are as follows:<\/p>\n\n\n\n<ul><li>Asset\nFinancing;<\/li><li>Provides\nLoan;<\/li><li>Offers\nInvestment Solutions;<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Infrastructure_Finance_Company\"><\/span>Infrastructure Finance Company<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>An Infrastructure Finance Company mainly\nprovides Loans and Advances to Infrastructure Companies, such as Construction\nand Real Estate Companies.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Non-Deposit_taking_Systemically_Important_Core_Investment_Company\"><\/span>Non-Deposit taking Systemically\nImportant Core Investment Company<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>In India, the activities with which a\nNon Deposit taking NBFC deals with are as follows:<\/p>\n\n\n\n<ol><li>Equity\nShares;<\/li><li>Preference\nShares;<\/li><li>Debentures;<\/li><li>Stocks;<\/li><\/ol>\n\n\n\n<p>Further, this NBFC provides a loan to\nonly those entities or companies, which as per the latest Audited Balance Sheet\nhave the total assets over Rs 500 crores.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Insurance_Debt_Fund\"><\/span>Insurance Debt Fund<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The NBFCs that provide long term debts\nto the Infrastructural Projects are known as Insurance Debt Fund.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Micro_Finance_Companies\"><\/span>Micro Finance Companies<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The term Micro Finance Company denotes a\nbusiness structure that offers loans and financial assistance to only the\nMarginalized and Weaker Sections of the society.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"NBFC_Factor\"><\/span>NBFC Factor<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>These type of financial\nlenders are mainly engaged in acquiring AOR (Accounts of Receivables) of an Assignor.\nFurther, the main reason behind such activities is to offer discounted loans\nagainst the security interest over such receivables, <\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Non-Operative_Financial_Holding_Companies\"><\/span>Non-Operative Financial Holding\nCompanies<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>A Non-Operative Financial Holding\nCompany offers financial credit to only those business entities who are aiming\nto establish either a new bank or financial institutions.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Mortgage_Guarantee_Company\"><\/span>Mortgage Guarantee Company<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>A Mortgage Guarantee Company mainly deals\nwith those individuals who are facing repayment issues against the home loan\ntaken. That means these entities assist the individuals in the risk of default\nagainst the taken home loans.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"NBFC_Account_Aggregators\"><\/span>NBFC Account Aggregators<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>In India, an NBFC Account Aggregator\nsignifies an entity that is engaged in collecting, providing, or retrieving\ninformation of a client concerning the financial assets under a contract. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Peer_to_Peer_Lending_Platforms\"><\/span>Peer to Peer Lending Platforms<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The term <strong><a class=\"text-primary\" href=\"https:\/\/swaritadvisors.com\/peer-to-peer-lending-license\">Peer to Peer Lending<\/a><\/strong> Platform or P2P denotes a newly evolved concept that provides a common platform for both the Lenders and Borrowers. The main aim behind such a platform is to facilitate Mobilization of Funds.<\/p>\n\n\n\n<p><b>Also, Read:<\/b> <mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/swaritadvisors.com\/blog\/rbi-issues-guidelines-for-implementation-of-indian-accounting-standards-by-nbfcs\">RBI Issues Guidelines For Implementation Of Indian Accounting Standards By NBFCs<\/a><\/mark><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Concept_of_Operational_and_Credit_Policy_Norms_for_NBFCs\"><\/span>Concept of Operational and Credit Policy Norms for NBFCs<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>As stated above, all the NBFCs that are\nregistered in India are regulated and governed by the Apex Bank. Therefore, to\ncarry out operations in a hassle-free manner, it is mandatory for all the\nentities to comply with Operational and Credit Policy Norms for NBFCs. Further,\nthese norms are provided by the Reserve Bank of India.<\/p>\n\n\n\n<p>The key elements of the Operational and Credit Policy Norms for NBFCs are as follows:<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" loading=\"lazy\" width=\"800\" height=\"290\" src=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/01\/306-Converted-Swarit-infographics.png\" alt=\"Credit Policy Norms for NBFCs\" class=\"wp-image-1441\" srcset=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/01\/306-Converted-Swarit-infographics.png 800w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/01\/306-Converted-Swarit-infographics-300x109.png 300w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/01\/306-Converted-Swarit-infographics-768x278.png 768w\" sizes=\"(max-width: 800px) 100vw, 800px\" \/><\/figure><\/div>\n\n\n\n<ol><li>Customer\nKYC Policy;<\/li><li>Anti-money\nLaundering;<\/li><li>Pre-Settlement\nPolicy;<\/li><li>Asset\nclassification &amp; Income Recognition;<\/li><li>Loan\nWrite-off Policy;<\/li><li>Restructuring\nof Loans;<\/li><li>Restricted\nLoans;<\/li><\/ol>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Customer_KYC_Policy\"><\/span>Customer KYC Policy<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The first and the foremost Operational\nand Credit Policy Norms for NBFCs is Customer KYC Policy. In India, the Reserve\nBank has directed all the financial lenders to carry out their operations based\non the provisions prescribed under the KYC Policy \u201cKnow Your Customer\u201d.\nFurther, the main aim behind the implementation of KYC Policy is to examine and\nreport all the vague and unclear transactions to the relevant authority. <\/p>\n\n\n\n<p>Moreover, these guidelines work to\nprotect and safeguard the financial institutions from the fraud and dishonest\nborrowers who engage themselves in the Money Laundering Activities. Also, these\nguidelines assist the banks and financial institutions to get familiar with\ntheir clients or borrowers in a better way. That means these guidelines\npurposes to address the disparities in a better and authentic way.<\/p>\n\n\n\n<p>The essential elements of the KYC Policy are as follows:<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" loading=\"lazy\" width=\"800\" height=\"230\" src=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/01\/6862-Converted-Swarit.png\" alt=\"essential elements of the KYC Policy\" class=\"wp-image-1440\" srcset=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/01\/6862-Converted-Swarit.png 800w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/01\/6862-Converted-Swarit-300x86.png 300w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/01\/6862-Converted-Swarit-768x221.png 768w\" sizes=\"(max-width: 800px) 100vw, 800px\" \/><\/figure><\/div>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Customer_Acceptance_Policy\"><\/span>Customer Acceptance Policy<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>All the NBFCs need to frame clear\nguidelines concerning Customer Acceptance Policy, which must obtain the aspects\nas follows:<\/p>\n\n\n\n<ol><li>One cannot open an account in a Benami or Bogus name;<\/li><li>A customer will be categorized as low, medium, or high based on the factors as follows:<\/li><li>Nature of the Business Activity;<\/li><li>Location of the Customer;<\/li><li>Mode of Making Payment;<\/li><li>Annual Turnover;<\/li><li>All the documents and information submitted must be in accordance with the provisions of the PMLA 2002 or <strong>Prevention of Money Laundering Act 2002<sup><a href=\"https:\/\/dea.gov.in\/sites\/default\/files\/moneylaunderingact.pdf\" class=\"text-primary\"><strong><em>[1]<\/em><\/strong><\/a><\/sup><\/strong> and the guidelines and directions issued by RBI;<\/li><li>In the case of Non-cooperation from the customer side, he\/ she can neither open nor close an existing account;<\/li><li>The financial institution must duly check the particulars provided prior to opening an account;<\/li><li>If in case a person has been authorised to act on behalf of some other person, then, in that case, the same must be clearly spelt out in the documents;<\/li><\/ol>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Customer_Identification_Process\"><\/span>Customer Identification Process<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>The term customer identification means the mode of tracing a person and ascertaining his\/her credibility based on the documents and particulars submitted by him\/her. Therefore, it is always advised for an NBFC to collect all the relevant information to establish the legitimacy of a new client. The same can be done by the steps as follows:<\/p>\n\n\n\n<ol><li>Track the legal status of the concerned individual or entity through the relevant documents submitted;<\/li><li>Track about individuals who are asserting to act on behalf of a particular legal person or entity;<\/li><li>Determine about the Entitlement and Ownership Structure of a new customer, and for that the said NBFC needs to verify about the individuals who are intending to act or are acting on behalf of the legal person;<\/li><\/ol>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Monitoring_of_Transactions\"><\/span>Monitoring of Transactions<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>Monitoring of Transactions plays a\ncrucial part in the effective working of KYC Policy, as it efficiently and\neffectively assists the company in mitigating the risk factor. Further, the\nsame can be done by the ways as follows:<\/p>\n\n\n\n<ol><li>An\nNBFC must establish a mechanism for the periodical assessment of the risk\ncategorization of accounts. The same can be done by bifurcating on the basis of\nhigh, medium, and low;<\/li><li>After\nthat, implement suitable preventive measures to rule out suspicion;<\/li><li>Must\nensure that all the books of accounts and records are made in accordance to\nsection 12 of the Prevention of Money Laundering Act 2002;<\/li><li>Also,\nmust report the case of suspicion to the competent authorities;<\/li><\/ol>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Financial_Risk_Management\"><\/span>Financial Risk Management<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>For implementing an effective KYC\nProgramme, the company must follow suitable procedures. Further, the key\nelements of a KYC Programme are as follows:<\/p>\n\n\n\n<ol><li>It\nmust include all the details as follows:<\/li><li>Proper\nManagement Faults;<\/li><li>Delegation\nof Tasks;<\/li><li>Training\nand Other Related Issues;<\/li><li>All\nthe NBFCs need to create Risk Profiles of both their current and new customers;\n<\/li><li>Must\nimplement required Anti Money Laundering measures, in order to rule out the\nchances of financial risk;<\/li><li>It\nshould implement effective Employees Training Programme to train the personnel\nas per the KYC procedures;<\/li><li>It\nmust ensure that separate training programs are held for both back-end and\nfront-end staff;<\/li><\/ol>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Anti-money_Laundering\"><\/span>Anti-money Laundering<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>As we all know that transparent\ntransactions and dealings play an imperative and significant role in the growth\nof the industry. Therefore, the DBOD (Department of Banking Operations and\nDevelopment), together with RBI, has laid down certain directions for both\nNBFCs and Banks. The same will be under the supervision and direction of the FATF\n(Financial Action Task Force).<\/p>\n\n\n\n<p>Also, over the time, these\nrecommendations have now turned out to be a benchmark for the concerned regulatory\nauthorities and assist them in framing the policies concerning Ani Money\nLaundering and Terror Funding.<\/p>\n\n\n\n<p>Further, it is mandatory for all the\nfinancial institutions to duly comply with the said guidelines, to build\nhealthy and global financial relationships.<\/p>\n\n\n\n<p>The directions issued by RBI concerning\nthe framing of Anti-money Laundering and KYC Measures are as follows:<\/p>\n\n\n\n<ol><li>The\ninformation and details submitted by a customer must not be available to anyone\nother than NBFCs;<\/li><li>The\ninformation and particulars provided by any customer must not give rise to\nperceived risk;<\/li><li>Banks\nare not allowed to use any client information without the permission of the\nsaid person;<\/li><li>All\nthe operational directions are issued by RBI under section 45K and 45L of the\nReserve Bank Act 1934. That means in case of any default, the defaulter will be\nliable not only for penal actions but with hefty penalties as well;<\/li><\/ol>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Pre-Settlement_Policy\"><\/span>Pre-Settlement Policy<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Another significant Operational and\nCredit Policy Norms for NBFCs is Pre-settlement Policy. The term Pre-settlement\nPolicy means the early repayment of a loan. As per this policy, borrowers can\nclear and satisfy all their dues concerning the loan taken prior to the actual\ndate of completion. Therefore, it is mandatory for both NBFCs and Banks to lay\nout a policy for the same. <\/p>\n\n\n\n<p>Further, the terms and conditions used\nin the Pre-settlement Policy are based on the conditions as follows:<\/p>\n\n\n\n<ol><li>Must\nclarify whether part prepayment is allowed or not;<\/li><li>It\nshould clearly specify about the provisions of penalty in case of any default;<\/li><li>All\nthe provisions concerning Rebate and Reward must be clearly specified in the\nPre-payment Policy;<\/li><li>Must\nspecify that whether the facility of pre-payment of loan allows the next loan\ncycle o not;<\/li><\/ol>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Asset_classification_and_Income_Recognition\"><\/span>Asset classification and Income\nRecognition<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>It needs to be taken\ninto due consideration that loans act as a valuable source for the financial\ninstitutions. Therefore, it is mandatory for every bank to classify its\nborrowers and customers based on Standards and NPA (Non-performing Assets).<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Flow_Chart_for_Asset_Classification\"><\/span>Flow Chart for Asset Classification:<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" loading=\"lazy\" width=\"985\" height=\"889\" src=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/01\/Loans-Given-By-NBFCs.png\" alt=\"Flow Chart for Asset Classification\" class=\"wp-image-1443\" srcset=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/01\/Loans-Given-By-NBFCs.png 985w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/01\/Loans-Given-By-NBFCs-300x271.png 300w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/01\/Loans-Given-By-NBFCs-768x693.png 768w\" sizes=\"(max-width: 985px) 100vw, 985px\" \/><\/figure><\/div>\n\n\n\n<p>Further, it is mandatory for every Non\nBanking Financial Company to undergo the process of Income Recognition based on\nthe standard prescribed ICAI (Institute of Chartered Accountants) as follows:<\/p>\n\n\n\n<ol><li>All\nthe Income that comprises of either interest or other charges must be\nacknowledged only when realized;<\/li><li>In\nthe same manner, Income from all the Non Performing Assets must be recorded on\nCash basis;<\/li><li>If\nin case, the company recognises any of such income as mentioned above, then, in\nthat case, remaining unrealized income will be reversed and derecognized;<\/li><\/ol>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Loan_Write-off_Policy\"><\/span>Loan Write-off Policy<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>One of the most significant Operational and Credit Policy Norms for NBFCs is Loan Write-off Policy. Whenever an NPA or Non Performing Assets loan attains arrears in a certain period of time, then, in that case, it can be written off by the NBFC. Further, the guidelines for writing off such loans by NBFC are as follows:<\/p>\n\n\n\n<table>\n<tbody>\n<tr>\n<td width=\"312\">\n<p><strong>Types of Loan Assets<\/strong><\/p>\n<\/td>\n<td width=\"312\">\n<p><strong>Guidelines Issued by RBI<\/strong><\/p>\n<\/td>\n<\/tr>\n<tr>\n<td width=\"312\">\n<p>1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Standard Assets<\/p>\n<\/td>\n<td width=\"312\">\n<p>1% of the total outstanding amount<\/p>\n<\/td>\n<\/tr>\n<tr>\n<td width=\"312\">\n<p>2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Sub-standard Assets<\/p>\n<\/td>\n<td width=\"312\">\n<p>50% of the total outstanding amount<\/p>\n<\/td>\n<\/tr>\n<tr>\n<td width=\"312\">\n<p>3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Loan Assets<\/p>\n<\/td>\n<td width=\"312\">\n<p>100% of the total outstanding amount<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n\n\n<p>Therefore, it is always advisable to\nNBFCs to choose the suitable accounting policy for the writing of Loans. However,\nit shall be taken into consideration that a policy that removes or write off\nNPA Loans on a speedy basis, might underrate the real value of the portfolio as\nwell, or might overstate the quantity of the same. As a result, it is always\nsuggested that an analyst while reviewing the quality of the portfolio must\nkeep a track of the debts writer- off as well;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Restructuring_of_Loans\"><\/span>Restructuring of Loans<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>It shall be pertinent to take into the record\nthat an NBFC reserves the right to alter or modify the terms and conditions of\na loan agreement.&nbsp; However, the same is\ndone based on the policies drafted by BOD (Board of Directors). <\/p>\n\n\n\n<p>Also, such an event entice the\nsituations as follows:<\/p>\n\n\n\n<ol><li>Prior\nCommencement of the Business;<\/li><li>In\ncase when the said asset is termed as sub-standard;<\/li><li>Post\nCommencement of the Business when the asset has been termed as sub-standard;<\/li><li>When\nthe restructuring of principal and interest can be done with or without\nsacrifice;<\/li><\/ol>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Restricted_Loans\"><\/span>Restricted Loans<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>One\nof the most significant Operational and Credit Policy Norms for NBFCs is the\npolicy of Restricted Loans. Based on the laws, regulations, and guidelines\nissued by RBI, it is mandatory for all the financial institutions including NBFCs\nand Micro Finance Companies to not to approve the loans of the candidates as\nfollows: <\/p>\n\n\n\n<ol><li>Loans to Bailout or Replace the\nlenders who want to withdraw;<\/li><li>Loans to Political parties, candidates,\nor any other political organizations;<\/li><li>Loans to Gambling Enterprises;<\/li><li>Loans for the activities concerning\nDrugs and Alcohol;<\/li><li>Loans for Weapon or Armament\nactivities;<\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>In\na nutshell, Operational and Credit Policy Norms for NBFCs plays a crucial role\nin managing and stabilizing the existing turbulence in the economic\ninfrastructure of the company.<\/p>\n\n\n\n<p>In case of any other doubt or perplexity concerning the Operational and Credit Policy Norms for NBFCs, reach out to Swarit Advisors, our proficient and skilled RBI experts are there to cater to all your queries.<\/p>\n\n\n\n<p><b>Also, Read:<\/b> <mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/swaritadvisors.com\/blog\/cancellation-or-surrender-of-nbfc-registration\">Cancellation or Surrender of NBFC Registration: A Complete Guide<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>In India, the concept of NBFC has made its presence six decades back, i.e., around 1960, and since then this lending structure is playing a significant role in serving the lower income and backward sections of the society. Further, as compared to conventional banks, these entities are much easier to access and offers financial assistance [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":1436,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[58],"tags":[189],"acf":[],"_links":{"self":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/1435"}],"collection":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/comments?post=1435"}],"version-history":[{"count":10,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/1435\/revisions"}],"predecessor-version":[{"id":3408,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/1435\/revisions\/3408"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media\/1436"}],"wp:attachment":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media?parent=1435"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/categories?post=1435"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/tags?post=1435"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}