Procedure of NBFC to become a Bank
- Application
- The NBFC files an application with the RBI Regional Office.
- Review
- The RBI reviews the promoters senior management and CIBIL record of the NBFC.
- License After due scrutiny the RBI issues the NBFC license
- Reporting
- Submits financial and prudential reports on a regular basis to the RBI.
Role of RBI in NBFC Regulation
- Registers and grants licenses to NBFCs.
- Sets policies and issues directions to NBFCs.
- Inspects and supervises NBFCs.
- Ensures compliance and exercises surveillance over the activities of NBFCs.
- It has the powers to penalize NBFCs in case of breach of the RBI Act.
Conversion Criteria of NBFC into Banks
- Financial Activity
- Over 50% of total assets must be financial in nature.
- Income from Financial Assets
- More than 50% of gross income must come from financial assets.
- Reserve Fund
- NBFCs should add at least 20% of the net profit every year to the reserve fund.
- Regulatory Compliance
- Includes membership with Credit Information Companies (CICs) registration with FIU-IND and CKYC CERSAI.
- Antimoney Laundering (AML) and Counter Financing of Terrorism (CFT)
- The NBFC should receive training in the AML/CFT protocols.
- Risk Management
- There must be a board approved risk management policy in place.
- The RBI assumes a vital role in the administration and regulation of NBFCs.
It ensures that the NBFCs satisfy different criteria and policies. To be a bank an NBFC must comply with stringent norms relating to financial activity source of income regulatory compliance and risk management.
Other Requirements
- The NBFC must have a minimum capital adequacy ratio of 10%.
- The NBFC must have net NPAs of no more than 5%.
- The NBFC must have a lock-in period of at least five years.
- The NBFC must not default on public deposits.
- The NBFC must open 25% of its branches in rural and semi-urban areas.
- The NBFC must meet a priority sector lending target of 40% of net bank credit.
