NBFCs

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Introduction

Global M&A activity in the financial services sector appears to have slowed, despite a strong start in 2024, in line with general market trends. The Financial Institutions Group (“FIG”) is experiencing a unique phase of consolidation, with deal values increasing despite a significant decline in deal volume. This trend can be seen in a 5% YoY rise in deal value and a 30% drop in volume in the first half of 2024[1], suggesting a shift towards larger, strategic mergers.[2]Continue Reading FIG Paper (No. 38): M&A in FIG Space: Recent Trends and Shifts

Introduction:

This FIG Paper highlights recent trends in enforcement actions of the Reserve Bank of India (“RBI”) against different financial institutions, which has seen a significant 88% rise since 2021.Continue Reading FIG Paper (No. 36 – Series 1): Analysing RBI’s Enforcement Trends (2022-24)

Acquisition of NBFC-MFIs by Banks: Key Considerations

Background

Banks in India are often on the look-out for potential acquisition opportunities to spur inorganic growth. While their strategic interests will determine their targets, in recent times, banks have been evaluating acquisition of non-banking financial companies (“NBFCs”) and more specifically micro-finance institutions (“MFIs”), which primarily cater to the rural and…

Indian Regulatory Perspective on Non-traditional Reinsurance Solutions

Background

The Insurance Regulatory and Development Authority of India (“IRDAI”) has notified the introduction of first phase of pilots for implementing ‘Risk Based Supervision’ (“RBS”) framework for the insurance sector in India[1], commencing from July 2023. The IRDAI has collaborated with M/s Toronto Centre[2] for the aforesaid project. According to the IRDAI press release, RBS is a shift towards adopting global best practices for supervision which focuses on proportionality, materiality and relies on holistic analysis of the activities of regulated entity from risk perspective. The IRDAI’s intention to shift to the RBS framework for the insurance sector was first divulged vide a notification in October 2018[3], which listed the following benefits for insurance supervision[4]:Continue Reading Risk Based Supervision: Pilot Basis for New Regime to Take Off?

WOS Exemption

Context:

Ever since the stock market scam of 2001 (Ketan Parekh Scam) was brought to light, regulators have been vigilant about the use of complex corporate structures to circumvent statutory restrictions and divert company funds. After the magnitude of financial irregularities in the Ketan Parekh Scam came to light, the Joint Parliamentary Committee (“JPC”) and the erstwhile Department of Company Affairs (“DCA”) proposed steps to prevent  companies from using the ‘subsidiary route’ to siphon off funds, by providing inter-corporate loans.[1]Continue Reading The Layering Restrictions & WOS exemption – Need for Regulatory clarity

The rise of domestic capital in alternative asset space requires the AIF Regulatory Platform be made available to In-house Funds

The Indian growth story has been propelled by alternative asset classes that witnessed an unprecedented inflow of domestic and foreign capital in the last few years. Alternative Investment Funds (“AIFs”) have played an essential role in this and have raised, as on June 30, 2022[1], a whopping INR 6,94,520 crore (Indian Rupees Six lakh ninety-four thousand and five hundred twenty crore), of which actual deployed capital stands at INR 3,11,343 crore (Indian Rupees Three lakh eleven thousand and three hundred forty-three crore). These numbers are up from INR 2,90,339 crore (Indian Rupees Two lakh ninety thousand and three hundred thirty-nine crore) of capital raised and INR 1,19,758 crore (Indian Rupees One lakh nineteen thousand and seven hundred fifty-eight crore) of actual capital deployed, as on June 30, 2019[2]. Securities and Exchange Board of India (“SEBI”), being the capital market regulator in India, has played an active role in streamlining the AIF industry. SEBI’s proactive and investor-friendly approach is often reflected in the discourses with market participants as well as in the guidelines / circulars / regulations issued for the AIF industry.Continue Reading An Argument for In-house Alternative Investment Funds

The Curious Case of Co- Lending Model

The Micro Small and Medium Enterprises (MSMEs) sector plays a crucial role in enhancing and ensuring India’s socio-economic development. The sector has gained significant importance due to its contribution to the country’s Gross Domestic Product (GDP) and exports.[1] A survey by International Labour Organisation indicates that MSMEs account for more than 70% of global employment and 50% of GDP[2].Continue Reading The Curious Case of Co- Lending Model

FIG Papers

The recent Master Directions issued by the Reserve Bank of India (RBI) on Credit cards and Debit cards – Issuance and Conduct Directions, 2022, dated April 21, 2022, is a consolidation of existing guidelines on the subject, except that it has brought about greater clarity by providing definitions on what is a credit card, credit limit and other related terminologies. In addition, it has spelt out more explicitly the scope of co-branding arrangements and the roles of card issuers and co-branding partners.Continue Reading FIG Papers (No. 12: Series-1) RBI Master Directions on Credit and Debit Cards

RBI’S REVISED REGULATORY FRAMEWORK FOR NBFCS

Introduction

In the backdrop of recent stress in the financial sector, especially in the speciality finance (i.e. NBFC) space, the Reserve Bank of India (“RBI”) has sought to address potential systemic risks by issuing a discussion paper on ‘Revised Regulatory Framework for NBFCs – A Scale-Based Approach’ (“Discussion Paper”) on January 22, 2021. The apex bank, through the Discussion Paper, has introduced a scale-based approach to the regulation of non-banking financial companies. Owing to their growing significance, linkages with the banking and capital markets sectors, and complexity in operations, the Discussion Paper proposes a four-tiered regulatory structure for NBFCs, based on proportionality of the NBFCs.
Continue Reading FIG Papers (No. 2) : RBI’s Revised Regulatory Framework for NBFCs : Industry Implications

RBI Working Group on Digital Lending – Policy Suggestions

The Reserve Bank of India (“RBI”), through a press release issued on January 13, 2021, has set up a working group on digital lending (“WG”), to study all aspects of digital lending activities in the regulated financial sector as well as by unregulated players so that an appropriate regulatory approach can be put in place.

The move is well-timed, given the recent turmoil witnessed in the Indian digital lending space, and comes on the back of the RBI’s December 23, 2020, public caution against unauthorised digital lending platforms/ mobile Apps and its June 24, 2020, Circular, prescribing Fair Practices Code for banks and non-banking finance companies (“NBFCs”) while sourcing loans or recovering dues through digital lending platforms.
Continue Reading FIG Papers (No. 1) : RBI Working Group on Digital Lending – Policy Suggestions