Provide loans to the real estate sector after obtaining government approvals for the project: RBI to NBFCs

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Non-bank financial companies (NBFCs) will have to ensure, when approving loans to the housing sector, that borrowers have obtained government and other regulatory clearance for their projects, the Bank said on Tuesday. reserve.

Further, the regulator said NBFCs should not issue loans and advances totaling Rs 5 crore and above to their own directors including the chairman and chief executive or their relatives and other related entities.

The standards will come into effect from October.

In a notification on revised regulatory restrictions on NBFCs when providing loans and advances, the RBI said offers of credit facilities of less than Rs 5 crore to such borrowers could be sanctioned by competent authority of NBFC, but the matter should be reported to the Board of Directors.

”When evaluating loan proposals involving immovable property, NBFCs should ensure that borrowers have obtained prior approval from government/local government/other statutory authorities for the project, as appropriate. ”, did he declare.

To ensure that the loan approval process is not impeded for this reason, while proposals may be sanctioned in the normal course, disbursements will only be made after the borrower has obtained the required clearances from government/other statutory authorities, the RBI said.

Regarding the giving of loans to senior executives of an NBFC, he said that sanctioning of loans should be reported to the board and that no senior executive or any committee including a senior executive will sanction loans. to a relative of that executive.

Such a loan should be sanctioned by the next higher sanctioning authority, he said.

Further, the RBI said the term “loans and advances” should not include loans or advances on government securities, life insurance policies, time deposits, stocks and shares. These guidelines, which will take effect on October 1, 2022, are applicable to both middle-layer (ML) and upper-layer (UL) NBFCs.

Basic Level (BL) NBFCs are entities that do not take deposits and have asset sizes of less than Rs 1,000 crore; ML does not take deposit with asset size of Rs 1,000 crore and above; ULs are those specifically identified by the RBI as having enhanced regulatory requirements.

An NBFC may also be classified as “upper layer” if the RBI is of the opinion that there is a substantial increase in potential systemic risk from specific NBFCs in the UL.

For core NBFCs, he said they will have a board-approved policy on making loans to directors, senior executives and relatives of directors and entities where directors or their relatives hold a majority stake.

The board-approved policy should include a threshold above which loans to such individuals should be reported to the board.

The regulator has also required NBFCs to disclose in their annual financial statements the total amount of these sanctioned loans and advances.

“These guidelines will come into effect on October 1, 2022,” the central bank said.

The regulatory restrictions were necessitated by the contribution of NBFCs to supporting real economic activity and their role as an additional channel for credit intermediation alongside banks.

Over the years, the sector has undergone considerable evolution in terms of size, complexity and interconnectedness within the financial sector.

Many entities have grown and become systemically important and there is therefore a need to align the regulatory framework for NBFCs taking into account their changing risk profile, the RBI had stated in October 2021 in its “framework revised regulations for NBFCs”.

(This story has not been edited by the Devdiscourse team and is auto-generated from a syndicated feed.)

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