CHAPTER 3- POLICY

ENVIRONMENT

Regulatory
Policies for Co-
operative Banks
and NBFC
ABHISHEKA
SINGH F1
GROUP 5
REGULATOR
Y POLICY
Regulatory policies are limitations placed on business
practices in order to make the market more efficient
and fair.
Regulatory
Policies for
Co-
operative
Banks
Pre
Amendment
The Reserve Bank ’ spowers to regulate and
supervise co -operative banks w ere limited
Affected its ability to take necessary
and timely corrective actions in
due to the non -applicability of certain case of irregularities /weaknesses in
statutory provisions of theBanking the functioning of these banks.
Regulatio (BR) 1949 on cooperative
n banks Act,

Post Amendment-
2020
2020 amendment sought to protect the
interests of depositors and strengthen
cooperative banks improving
governance
framework and oversight by the Reserve
Bank while enabling better access to capital.
AMENDMENT The Reserve Bank will assess the proposal based on
whether the merging bank guarantees to secure

2020
the
amalgamated bank' s deposits either via its own
resources or through financial backing from the state
government.
The amendment of Section 45 of the Act enabled the
Greater flexibility to eliminate loss-making branches,
Reserve Bank to reconstruct or amalgamate a bank,
open new branches, and the retention of the
with or without implementing a moratorium, with the
amalgamated bank' s authorized dealer (AD) -I
approval of the Central Government.
license are among the incentives offered to the
The amendment also provides the Reserve Bank
amalgamating bank.
powers to supersede the Board of Directors of a co -
operative bank in consultation with the state
government concerned.
The Act's amendment to Section 56 will help to
reduce the arbitrage between commercial and
cooperative banks.
Regulatory Policies
for Non-Bank
Financial
Companies
( NBFCs )
Scale-Based Regulatory
Framework
The framework is based on a four -layered structure – base layer (NBFC-BL), middle
layer (NBFC-ML), upper layer (NBFC-UL), and top layer, with a progressive increase in
the intensity
BASEof regulation.
LAYER MIDDLE LAYER UPPER TOP
LAYER LAYER
Non -deposit -taking NBFCs All deposit -taking The Reserve Bank will The top layer of the
NBFCs
( NBFC-NDs) with assets and non -deposit - identify some NBFCs in pyramid is suggested to
taking under 1,000 crore and NBFCs the upper layer based on remain unfilled unless the
with
certain assets
otherof '1,000 crore and a set of characteristics Reserve Bank determines
engaged NBFCs in as well above, as and a scoring system, that a specific NBFC at the
activities specified
up the specialized NBFCs, and they will be upper -tier poses a
base layer. make some layer.
fall into the middle subjected to
increased regulatory systemic
risk and requires
rigour. more stringent
regulatory and
supervisory requirements.
Internal Capital Adequacy
Assessment Process ( ICAAP )
The framework prescribes Internal Capital Adequacy Assessment Process (ICAAP) be made
proportionate to the scale and complexity of operations.

Capital to risk - weighted NBFCUL will have to In the case of NBFC-ML and
CURRENTLY assets ratio (CRAR) maintain CET- 1 capital NBFC-UL, the existing credit
requirement for NBFCs is of at least 9 percent of concentration restrictions for
15 percent of risk- RWAs. lending and investments
weighted assets (RWAs) have been consolidated into
a single exposure limit of

For all types of NBFCs, the A limit of 1 crore per 25% for a single
40 % for a group of
existing NPA categorization borrower has been
borrower
criterion has been amended and borrowers.
imposed on the financing
to an outstanding period of of subscriptions to initial
more than 90 days, and a public offerings in order
transition path has been to mitigate financial
established to NBFCs-BL to stability concerns.
be achieved by March 31,
Special Liquidity Scheme ( SLS ) for non-bank
financial companies ( NBFCs ) / housing
finance companies ( HFCs )
The Government announced A Special Purpose Vehicle The funds acquired under the
an SLS of 30,000 crores to (SPV) was set up to purchase SLS have to be used primarily
address short -term liquidity investment -grade commercial to pay off existing liabilities for
concerns of NBFCs/HFCs. papers (CPs )/ nonconvertible NBFCs/HFCs.
debentures (NCDs) of residual
maturity up to 90 days issued
by these institutions.

HFCs

47% NBFCs
53%

Under the SLS, `7,126 crores

were disbursed
Aligning Regulatory Framework for HFCs with
NBFCs
Transfer of regulation of
clearly defining housing finance
increase of the net owned funds requirement from 10 crores to 20 crores
HFCs from National Housing
restrictions on exposure to group companies engaged in the real estate
Bank (NHB) to the Reserve
business
Bank
regulations on liquidity risk management framework and a liquidity coverage
ratio (LCR)

Lowering of Secured Debt Limit for NBFCs

under SARFAESI Act
NBFCs having assets of 100 crores were permitted to use the SARFAESI Act to enforce security interests on secured debts
of 50 lakhs or more. The secured debt limit was then reduced to 20 lakh and above by the government. This is expected
to improve the recoveries of NBFCs from small businesses and micro and small enterprises.

Declaration of Dividend by
NBFCs
The capital adequacy and net NPA levels were used to determine dividend eligibility,
and a maximum dividend pay-out ratio was set.