The Hindu : Business : RBI ban on connected lending by NBFCs

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Wednesday, May 09, 2007
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RBI ban on connected lending by NBFCs

Special Correspondent

MUMBAI: The Reserve Bank of India (RBI) asked non-banking finance companies (NBFCs) not to grant any loan, advance or non-fund-based facility or any other financial accommodation to its directors or their relatives.

Greater transparency

The RBI proposed certain guidelines through a notification for consideration of the board of directors of deposit taking NBFCs with deposit size of Rs. 20 crore and above and non-deposit taking NBFCs with asset size of Rs. 100 crore and above, "in order to enable them to adopt best practices and greater transparency in their operations.''

The central bank also asked NBFCs not to grant loan to: any firm in which any of its directors is interested as partner, manager, employee or guarantor; any individual in respect of whom any of its directors is a guarantor; any company of which, or the subsidiary or the holding company of which, any of the directors of the NBFC is a director, managing agent, manager, employee or guarantor or any firm in which he holds substantial interest; any entity, whether incorporated or not, which uses as a part of its name or in connection with its business, the name of the NBFC or any such word as would show its association with the NBFC.

However, the RBI stated that any existing arrangements may be allowed to continue up to the date when they are due. "They should, however, not be renewed or extended any further.''

Further, the it stated that "in case there is no repayment date fixed for any facility, the same may be recovered within a period of one year from the date of this circular, May 8.''

The RBI guidelines also covered constitution of audit committee, nomination committee and risk management committee.

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