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RBI issues New Provisioning Norms for Standard Assets by NBFC-UL; Imposes Rs 27.50 lakh penalty on Punjab & Sind Bank

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RBI issues differential provisioning norms for standard assets for large NBFCs

The Reserve Bank of India (RBI) issued new guidelines regarding Provisioning for Standard assets by Non-Banking Financial Company (NBFC)–Upper Layer (UL) which are aligned with the commercial banks. They have to set aside 0.25-2% of the loan amount for standard assets as provisions.

  • These will come into effect from October 1, 2022.

Following rates to be maintained by NBFCs to maintain provisions in respect of standard assets for the funded amount outstanding:

Category of AssetsRate of Provision
Individual housing loans and loans to Small and Micro Enterprises (SMEs)0.25%
Housing loans extended at teaser rates2% which will decrease to 0.40% after 1 year from the date on which the rates are reset at higher rates (if the accounts remain standard)
Advances to Commercial Real Estate – Residential Housing (CRE – RH) Sector0.75%
Advances to Commercial Real Estate (CRE) Sector (other than CRE-RH)1%
Restructured advancesAs stipulated in the applicable prudential norms for restructuring of advances
All other loans and advances not included above, including loans to Medium Enterprises0.40%

About four Layers of NBFC:

There are four layers of NBFCs as notified by RBI in its Scale Based Regulation (SBR): A Revised Regulatory Framework for NBFCs in October 2021. These are as follows:

i.NBFC Base Layer (NBFC-BL): It is the lowest layer, and comprise of (a) non-deposit taking NBFCs below the asset size of Rs 1000 crore and (b) NBFCs undertaking the following activities:

  • NBFC-Peer to Peer Lending Platform (NBFC-P2P)
  • NBFC-Account Aggregator (NBFC-AA)
  • Non-Operative Financial Holding Company (NOFHC)
  • NBFCs not availing public funds and not having any customer interface1.

ii.NBFCMiddle Layer (NBFC-ML): It is the middle layer and comprise of  (a) all deposit taking NBFCs (NBFC-Ds), irrespective of asset size, (b) non-deposit taking NBFCs with asset size of Rs 1000 crore and above and (c) NBFCs undertaking the following activities:

  • Standalone Primary Dealers (SPDs)
  • Infrastructure Debt Fund – Non-Banking Financial Companies (IDF-NBFCs)
  • Core Investment Companies (CICs)
  • Housing Finance Companies (HFCs)
  • Infrastructure Finance Companies (NBFC-IFCs).

iii.NBFCUpper Layer (NBFC-UL): It comprises those NBFCs which are specifically identified by the RBI as warranting enhanced regulatory requirements. The top ten eligible NBFCs in terms of their asset size shall always reside in the upper layer, irrespective of any other factor.

iv.NBFC Top Layer (NBFC-TL): It will ideally remain empty. It will be only filled if RBI opinions that there is a substantial increase in the potential systemic risk from specific NBFCs in the Upper Layer. Such NBFCs shall move to the Top Layer from the Upper Layer.

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RBI imposes Rs 27.50 lakh penalty on Punjab & Sind Bank

RBI, in exercise of powers vested in RBI under the provisions of section 47 A (1) (c) read with sections 46 (4) (i) and 51 (1) of the Banking Regulation (BR) Act, 1949, imposed a monetary penalty of Rs 27.50 lakh on Punjab & Sind Bank for non-compliance with certain directions issued by RBI on External Benchmark Based Lending.


The Statutory Inspection for Supervisory Evaluation of the bank was conducted by RBI with reference to its financial position as on March 31, 2020, which revealed non-compliance with the directions issued by RBI. Punjab & Sind Bank linked certain floating rate retail loans and floating rate loans to Micro and Small Enterprises, extended by it on or after October 01, 2019, to MCLR (Marginal Cost of Funds Based Lending Rate) instead of an external benchmark.

Recent Related News:

i.On 2 March 2022, RBI canceled the license of Sarjeraodada Naik Shirala Sahakari Bank Ltd of Shirala, Sangli (Maharashtra) due to compliance failure with the regulation under Section 11(1), Section 22 (3) (d) and Section 56 Banking Regulation Act 1949.  The bank is found to lack adequate capital and earning prospects under section 11(1) and section 22(3) (d) read with section 56 of the Banking Regulation Act, 1949.

ii.RBI released a booklet titled “BE(A)WARE”. It provides information on the common modus operandi used by fraudsters and precautions to be taken while carrying out various financial transactions.

About Reserve Bank of India (RBI):

Establishment– 1st April 1935
Headquarters– Mumbai, Maharashtra
Governor– Shaktikanta Das
Deputy Governors– Mahesh Kumar Jain, Michael Debabrata Patra, T. Rabi Sankar, M. Rajeshwar Rao.