Quick Guide on RBI Regulations

The Reserve Bank of India (RBI) serves as the primary regulatory authority overseeing commercial banks, cooperative banks, non-banking financial companies (NBFCs), asset reconstruction companies (ARCs), all-India financial institutions (AIFIs), and credit information companies. This guide provides a concise overview of the key RBI regulations across various domains.

Legislative Framework

RBI regulates different financial entities under various legislative frameworks, including:

• Banks: RBI Act, 1934; Banking Regulation Act, 1949; SARFAESI Act, 2002.
• NBFCs & ARCs: RBI Act, NHB Act, SARFAESI Act, Factoring Regulation Act.
• Cooperative Banks: RBI Act, BR Act, Multi-State Cooperative Act.
• AIFIs: NABARD Act, NHB Act, NaBFID Act.

Licensing of New Institutions

1. Licensing of Banks

• Universal Banks: ?1,000 crore net worth; fit and proper promoters.
• Small Finance Banks (SFBs): ?300 crore net worth; focus on financial inclusion.
• Cooperative Banks: Subject to governance and financial criteria.

2. NBFC Registration

• Categories: Investment & Credit NBFCs, Microfinance, Housing Finance, Peer-to-Peer Lending, Account Aggregators, Infrastructure Finance, Mortgage Guarantee, etc.
• Capital Requirements: Ranges from ?2 crore (P2P lenders) to ?300 crore (Infrastructure Finance NBFCs).

3. Branch Licensing

• SCBs & SFBs: Permitted to open branches in tier-1 to tier-6 centers under defined conditions.
• NBFCs: Varying permissions based on deposit-taking and lending activities.

Governance and Ownership Framework

1. Governance Standards

• Banks & NBFCs: Fit and proper criteria for directors; separation of Chairman & CEO roles.
• ARCs: Independent directors must form at least half of the Board.
• Cooperative Banks: RBI's governance norms apply in addition to state laws.

2. Ownership Guidelines

• Prior RBI approval required for major shareholding (>5%) in banks, NBFCs, and ARCs.
• Investors from FATF non-compliant jurisdictions are restricted.

Prudential Norms and Capital Regulations

1. Capital Adequacy

• Banks: Basel III norms (Minimum Tier 1 Capital of 6%, Total Capital Adequacy Ratio of 9%).
• NBFCs: Higher capital requirements for NBFC-UL and NBFC-ML categories.

2. Risk Management

• Market Risk: Capital charge based on interest rate, equity, and forex risks.
• Operational Risk: Basel III framework applies.
• Liquidity Risk: LCR requirement of 100% for large banks & NBFCs.

3. Credit Risk

• Housing Loans: LTV-based risk weights (35%-75%).
• Digital Lending: 5% default loss guarantee requirement for Lending Service Providers.
• Gold Loans: Maximum LTV of 75%; restricted bullet repayment terms for co-op banks.

4. Income Recognition & Provisioning Norms

• NPA Classification: Loans overdue for >90 days.
• Provisioning for NPAs: Ranges from 10% (substandard) to 100% (loss assets).

5. Resolution of Stressed Assets

• Frameworks: Prudential norms for SCBs, NBFCs, UCBs; MSME-specific rehabilitation.
• Loan Transfers & Securitization: Defined rules for transferring standard and stressed assets.

Conduct Related Regulations

1. Interest Rate & Pricing Framework

• SCBs have freedom to set interest rates but must follow external benchmarks for retail & MSME loans.
• NBFCs determine interest rates based on board-approved policies.

2. Fair Practices Code

• Pre-sanction: Transparent loan terms disclosure.
• Post-sanction: Fair recovery practices, grievance redressal mechanisms.

3. KYC Norms

• Adherence to RBI-mandated KYC requirements for all financial entities.

Resolution of Regulated Entities

1. Mergers & Amalgamations

• RBI approval required for bank/NBFC mergers.

2. Resolution Framework

• Defined triggers and procedures for dealing with failing financial institutions.

This guide provides an overview of RBI regulations but is not exhaustive. Financial institutions should refer to RBI's Master Directions and Circulars for detailed compliance requirements.