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RBI releases guidelines for IDF-NBFC; ResetsFloating Interest Rate on EMI based Personal Loans

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RBI releases guidelines for IDF-NBFCs, tripartite agreement now optionalThe Reserve Bank of India (RBI), in consultation with the Government of India (GoI), has reviewed guidelines for Infrastructure Debt Fund-Non-Banking Financial Companies (IDF-NBFCs) to enhance their role in infrastructure financing and align regulations across NBFCs in this sector.

  • The updated regulations for IDF-NBFCs will be effective from August 18, 2023.

What is IDF?

An IDF can be established either as a trust or a company. If structured as a trust, it is designated as an IDF-Mutual Fund (IDF-MF) and is regulated by Securities and Exchange Board of India (SEBI). If established as a company, it’s labeled as an IDF-NBFC and is subject to regulation by RBI.

An IDF-NBFC means a non-deposit taking NBFC which is authorized to the following:

i.Refinance post Commencement Operations Date (COD) infrastructure projects that have completed at least one year of satisfactory commercial operations

ii.Finance toll operate transfer (TOT) projects as the direct lender.

Revised IDF-NBFC Regulations: Key Points

i.Capital Requirements:

IDF-NBFCs must maintain a Net Owned Fund (NOF) of at least Rs 300 crore.

  • Minimum Capital-to-Risk Weighted Assets Ratio (CRAR) of 15%, with Tier 1 capital of at least 10%.


IDF-NBFCs can issue rupee or dollar-denominated bonds with a minimum maturity of five years.

  • They can also raise funds through shorter tenor bonds and commercial papers (CPs) up to 10% of total borrowings for better asset-liability management.
  • Fundraising allowed through external commercial borrowings (ECBs) with a minimum tenor of five years, avoiding sourcing from foreign branches of Indian banks. For ECBs, adherence needed to RBI’s Foreign Exchange Department guidelines.

iii.Exposure Limits:

  • Single borrower/party exposure limited to 30% of Tier 1 capital.
  • Single group of borrowers/parties exposure limited to 50% of Tier 1 capital.

iv.Risk Weighting:

For calculating CRAR, IDF-NBFCs assets shall be risk-weighted as per risk-weights applicable to NBFC-Investment and Credit Companies (NBFC-ICCs).

v.Sponsorship and Tripartite Agreements:

  • Sponsor requirement removed; IDF-NBFC shareholders face scrutiny like other NBFCs, including NBFC-IFCs. Under the earlier guidelines, an IDF-NBFC was required to be sponsored by a bank or an NBFC-IFC.
  • A tripartite agreement for PPP (Public Private Partnership) infrastructure investments made optional. Under the earlier arrangement, IDF-NBFCs were required to enter into a tripartite agreement with the concessionaire and the project authority for investments in the PPP infrastructure projects having a project authority.

vi.Regulatory Alignment:

Income recognition, asset classification, and provisioning norms align with those applicable to NBFC-ICCs.

vii.Sponsorship of IDF-MFs by NBFCs:

All NBFCs can sponsor IDF-MFs with RBI approval. Besides SEBI’s conditions, the following apply based on audited financials:

  • Minimum NOF of Rs 300 crore and CRAR of 15%.
  • Net NPAs (Non-Performing Assests) below 3% of net advances.
  • Operational for at least 5 years.

Click Here for Official Guidelines

RBI Reset Floating Interest Rate on EMI based Personal Loans

The Reserve Bank of India (RBI) asked all regulated entities (REs), including banks and NBFCs, to give personal loan borrowers an option to switch over from a floating rate to a fixed rate at the time of resetting interest rates. The RE must ensure that the new norms were extended to the existing as well as new loans by December 31, 2023.

  • These rules will enhance transparency by necessitating the disclosure of principal and interest recovered to date, remaining EMIs, EMI amounts, and the annualized rate of interest/Annual Percentage Rate (APR) for the entire loan duration to the borrowers at the end of each quarter.
  • RBI issued these instructions under sections 21, 35A and 56 of the Banking Regulation (BR) Act, 1949, sections 45JA, 45L and 45M of the RBI Act, 1934, and sections 30A and 32 of the National Housing Bank (NHB) Act, 1987.

Note: Personal loan interest rates are offered on both fixed and floating rate basis. The interest rate will remain the same throughout the tenure on a fixed rate loan. Whereas, the interest rates will vary as per the market movement in a floating rate loan.

Reason behind Reset of Floating Interest Rate on EMI based Personal Loans:

During the approval of EMI-based floating rate personal loans, lenders must consider borrowers’ repayment capabilities to maintain room for potential tenor extension or EMI increase if external benchmark rates rise. However, concerns have arisen due to rising interest rates, as some borrowers experience elongation of loan tenor or higher EMIs without proper communication or consent, leading to consumer grievances. To overcome this, the regulated entities (REs) advised to put in place an appropriate policy framework.

Key Norms:

i.At the time of loan sanction, REs shall clearly communicate to the borrowers about the possible impact of change in benchmark interest rate on the loan leading to changes in EMI and/or tenor or both. Loan sanction letters should mention the costs associated with transitioning from a floating to a fixed interest rate in the future.

ii.At the time of reset of interest rates, REs shall provide the option to the borrowers to switch over to a fixed rate as per their Board approved policy. The policy may also specify the number of times a borrower will be allowed to switch during the tenor of the loan.

Click Here for Official Notification

Recent Related News:

i.According to the RBI provisional data on July 4, 2023, India’s services exports in May

2023 increased by 7.7% compared to May 2022, reaching USD ($)27.06 billion while imports rose 2% to USD 15.5 billion.

ii.Education financing startup, Propelld has procured a NBFC license from RBI to disburse loans worth Rs 2000 Cr by Financial Year(FY)24 and to bolster its direct lending proposition.

About Reserve Bank of India (RBI):

i.It was established on April 1, 1935, in accordance with the provisions of the Reserve Bank of India Act, 1934.

ii.The Central Office of the Reserve Bank was initially established in Calcutta(now Kolkata, West Bengal) but was permanently moved to Mumbai, Maharashtra in 1937.

iii.Though originally privately owned, since nationalization in 1949, the Reserve Bank is fully owned by the Government of India.

iv.Thus, 2023 marks the 75th year of public ownership of the Reserve Bank and its emergence as a national institution.