{"id":6315,"date":"2019-10-02T22:07:40","date_gmt":"2019-10-02T16:37:40","guid":{"rendered":"https:\/\/swaritadvisors.com\/learning\/?p=6315"},"modified":"2020-05-02T14:14:09","modified_gmt":"2020-05-02T08:44:09","slug":"how-will-new-rbi-rules-impact-financial-firms","status":"publish","type":"post","link":"https:\/\/swaritadvisors.com\/learning\/how-will-new-rbi-rules-impact-financial-firms\/","title":{"rendered":"How will New RBI Rules Impact Financial Firms?"},"content":{"rendered":"\n<p class=\"has-drop-cap\">The Reserve Bank of India has recently issued new guidelines for all the financial organizations from <strong><a href=\"https:\/\/swaritadvisors.com\/nbfc-registration\">Non-Banking Financial Companies<\/a><\/strong> (NBFCs) to Fin-tech firms and Housing Finance Companies (HFCs). As per the reports, the new RBI rules will play a significant part in the functionalities of these financial institutes. Let\u2019s have a look at the different code of conduct passed by RBI for all these companies individually.\u00a0<\/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-6a54be336b854\" 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-6a54be336b854\"  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\/learning\/how-will-new-rbi-rules-impact-financial-firms\/#New_RBI_Rules_for_Housing_Finance_Companies\" title=\"New RBI Rules for Housing Finance Companies\">New RBI Rules for Housing Finance Companies<\/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\/learning\/how-will-new-rbi-rules-impact-financial-firms\/#Repercussions_of_RBI_Supervision_on_HFC\" title=\"Repercussions of RBI Supervision on HFC&nbsp;\">Repercussions of RBI Supervision on HFC&nbsp;<\/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\/learning\/how-will-new-rbi-rules-impact-financial-firms\/#New_RBI_Rules_for_Non-Banking_Financial_Companies\" title=\"New RBI Rules for Non-Banking Financial Companies&nbsp;&nbsp;\">New RBI Rules for Non-Banking Financial Companies&nbsp;&nbsp;<\/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\/learning\/how-will-new-rbi-rules-impact-financial-firms\/#Impacts_of_RBI_New_Rules_on_NBFCs\" title=\"Impacts of RBI New Rules on NBFCs&nbsp;\">Impacts of RBI New Rules on NBFCs&nbsp;<\/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\/learning\/how-will-new-rbi-rules-impact-financial-firms\/#RBI_Guidelines_for_Fintech\" title=\"RBI Guidelines for Fintech&nbsp;\">RBI Guidelines for Fintech&nbsp;<\/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\/learning\/how-will-new-rbi-rules-impact-financial-firms\/#Limitations_of_RBIs_latest_Sandbox_norm_on_Fintech_Companies\" title=\"Limitations of RBI\u2019s latest Sandbox norm on Fintech Companies&nbsp;\">Limitations of RBI\u2019s latest Sandbox norm on Fintech Companies&nbsp;<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"New_RBI_Rules_for_Housing_Finance_Companies\"><\/span><strong>New RBI Rules for Housing Finance Companies<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>According to the latest norms of the Reserve Bank of India (RBI), every\u00a0housing finance\u00a0company (HFC) would be considered as a branch of non-banking financial companies. Besides, it would also introduce some revised guidelines for mortgage lenders after completing an assessment of the regulatory framework. Here are some highlights of the\u00a0<a rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\" href=\"https:\/\/www.business-standard.com\/article\/finance\/rbi-to-come-up-with-revised-norms-for-housing-finance-companies-119081400074_1.html\" target=\"_blank\"><strong>whole story<\/strong><\/a>:\u00a0<\/p>\n\n\n\n<ul><li>RBI declared that until the announcement of the latest norms, HFCs must comply with the framework issued by the National Housing Bank (NHB).&nbsp;&nbsp;<\/li><li>NHB will continue to reign over HFCs wherein HFCs are under obligation to submit numerous returns to NHB as hitherto.&nbsp;&nbsp;<\/li><li>Also, the grievance redressal mechanism regarding&nbsp;HFCs&nbsp;will continue to be with the NHB.&nbsp;&nbsp;<\/li><li>The decision of shift in the power of authority from NHB to RBI has taken by the finance minister, Nirmala Sitharaman.&nbsp;&nbsp;<\/li><li>Reportedly, RBI regulatory powers over HFC get activated from 9th August.&nbsp;&nbsp;<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Repercussions_of_RBI_Supervision_on_HFC\"><\/span><strong>Repercussions of RBI Supervision on HFC<\/strong>&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>Earlier&nbsp;HFCs were performing business activities with light-touch regulation, but now they have to undergo intense scrutiny conducted by RBI.&nbsp;<\/li><li>RBI got the regulatory powers to offer a liquidity window to banks to support HFCs.&nbsp;<\/li><li>After the Infrastructure Leasing and Financial Services crisis, even renowned organizations like&nbsp;Indiabulls&nbsp;Housing Finance and Dewan Housing Finance were struggling to preserve liquidity. The revised law seems to be a ray of sunshine for the HFCs.&nbsp;&nbsp;<\/li><\/ul>\n\n\n\n<p>\n\nNow that we have perceived enough knowledge about the cause and effect of RBI new rules on HFC, it\u2019s time to discern other organizations as well.&nbsp;\n\n<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"New_RBI_Rules_for_Non-Banking_Financial_Companies\"><\/span><strong>New RBI Rules for Non-Banking Financial Companies&nbsp;<\/strong>&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><div class=\"shadow3\">Recently, the Reserve Bank of India has restructured the debt norms of non-banking financial companies (NBFC) that can be a distressing situation for them. Following are the glimpses of the guidelines:<\/div><\/p>\n\n\n\n<ul><li>The RBI guidelines have made a compulsion on money lenders to keep additional provisioning of 20% in case a resolution plan is not carried out within 210 days from the date of default, it further inflates to 35% if it does not execute within 365 days of default. The new RBI circular does not provide any additional perk to NBFCs; rather it&#8217;s more of a drawback for them. The chairman of the Finance Industry Development Council (FIDC),&nbsp; Raman&nbsp;Aggarwal, shared his perspective on the poor condition of the NBFCs stating that:&nbsp;&nbsp;<\/li><li>\u201cEven if a borrower is paying to an NBFC, but has defaulted with a bank, the NBFC gets roped in signing an Intercreditor Agreement&nbsp;( ICA) and be a part of the resolution plan.\u201d&nbsp;<\/li><li>Furthermore, he says that in such cases, the role of NBFCs gets highly subdued as their share in the overall value comes down to 75%. Thus, NBFCs are forced to follow the Resolution Process (RP) failing of which requires additional provisioning.&nbsp;&nbsp;<\/li><\/ul>\n\n\n\n<ul><li>On top of the debt norms, RBI also comes out with draft liquidity norms for NBFCs, propounding liquidity buffers for these firms.&nbsp;<\/li><li>RBI plans to administer the liquidity coverage ratio (LCR) at NBFCs in a phased manner over four years starting from April 2020. It set aside 60% of NBFCs\u2019 net cash outflows, as envisaged in the primary phase, into high-quality liquid assets.&nbsp;<\/li><li>Another norm released by RBI for NBFC includes the lending model, which puts a restriction on the lending percentage of a non-banking financial company.&nbsp;&nbsp;<\/li><li>As per the amendments of RBI, on-lending by&nbsp;NBFCs&nbsp;under the agriculture sector is restricted up to Rs 10 lakh per borrower.&nbsp;<\/li><\/ul>\n\n\n\n<ul><li>The limit has been increased&nbsp;upto&nbsp;Rs 20 lakh per borrower for micro and small enterprises (MSEs).&nbsp;&nbsp;<\/li><li>While in the housing sector, the limit is further raised to Rs 10 lakh to Rs 20 lakh per borrower for the loan as priority sector lending.&nbsp;<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Impacts_of_RBI_New_Rules_on_NBFCs\"><\/span><strong>Impacts of RBI New Rules on NBFCs<\/strong>&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>The analyst has observed that the lending norms of RBI will have a substantial effect on the productivity of NBFCs suggesting that it could affect the returns and margins in the medium term.&nbsp;&nbsp;<\/li><\/ul>\n\n\n\n<ul><li>On the other hand, the draft liquidity norm is ineffective to larger NBFCs as they have already started maintaining a liquidity buffer since the IL&amp;FS problems last year.&nbsp;&nbsp;<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"RBI_Guidelines_for_Fintech\"><\/span><strong>RBI Guidelines for Fintech<\/strong>&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>As per the new rules issued by RBI, every Fintech company is now liable to test their new products on a small group of users before scaling it up.&nbsp;<\/p>\n\n\n\n<ul><li>For the implementation of this plan, the RBI has permitted the financial institutes and Fintech companies to set up Regulatory Sandbox (RS) for live testing of innovative products belonging to the domain of <strong><a href=\"https:\/\/swaritadvisors.com\/learning\/rbi-prompts-the-emergence-of-video-kyc\/\">digital KYC<\/a><\/strong>, wealth management and retail payments.\u00a0\u00a0<\/li><\/ul>\n\n\n\n<ul><li>It will be highly useful for the Fintech companies to follow the&nbsp;practice&nbsp;of \u2018learning by doing\u2019 says RBI. By executing live testing through RS, authorities will obtain first-hand empirical evidence on the risks and benefits of emerging technologies and their implications.&nbsp;<\/li><li>By using RS, users can test a product&#8217;s viability without having to spend on a larger and more expensive roll-out. If the product appears to have the potential to produce successful results, it will be an added benefit for the producer.&nbsp;<\/li><\/ul>\n\n\n\n<p>Just like a blessing comes with a disguised curse, this norm also has some aftereffects.&nbsp;&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Limitations_of_RBIs_latest_Sandbox_norm_on_Fintech_Companies\"><\/span><strong>Limitations of RBI\u2019s latest Sandbox norm on Fintech Companies<\/strong>&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<ul><li>Considering the&nbsp;risks or barriers of using RS, the RBI said that while conducting the practice of testing the innovators may feel like losing flexibility.&nbsp;<\/li><li>The sandbox process is a time-consuming activity. Besides, running the RS in&nbsp;a&nbsp;time-bound manner at each phase can help mitigate the risk.&nbsp;<\/li><\/ul>\n\n\n\n<div class=\"shadow4\"><strong>Conclusion : <\/strong><p>One can say that New RBI rules are going to be a game-changer for the financial firms. Whether atrocious or favorable, the revamped rules surely have a massive impact on NBFCs, Fintech, and Housing Finance Companies (HFCs).<\/p><\/div>\n\n\n\n<div class=\"read\"><p><b>Also, Read:<\/b> <mark><a href=\"https:\/\/swaritadvisors.com\/learning\/rbi-issues-new-rules-for-debit-and-credit-cards\/\" target=\"_blank\" rel=\"noopener noreferrer\">RBI Issues New Rules for Debit and Credit Cards<\/a><\/mark>.<\/p><\/div>\n","protected":false},"excerpt":{"rendered":"<p>The Reserve Bank of India has recently issued new guidelines for all the financial organizations from Non-Banking Financial Companies (NBFCs) to Fin-tech firms and Housing Finance Companies (HFCs). As per the reports, the new RBI rules will play a significant part in the functionalities of these financial institutes. Let\u2019s have a look at the different [&hellip;]<\/p>\n","protected":false},"author":10,"featured_media":6351,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[544],"tags":[],"_links":{"self":[{"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/posts\/6315"}],"collection":[{"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/comments?post=6315"}],"version-history":[{"count":16,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/posts\/6315\/revisions"}],"predecessor-version":[{"id":10338,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/posts\/6315\/revisions\/10338"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/media\/6351"}],"wp:attachment":[{"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/media?parent=6315"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/categories?post=6315"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/tags?post=6315"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}