RBI has, by its Circular dated April 19, 2022, issued detailed guidelines prescribing regulatory restrictions on lending by NBFCs of different layers.

The first part (Part A) of the Circular sets out guidelines applicable to NBFC – Middle Layer (ML) and NBFC – Upper Layer (UL) specifically in relation to the following:

i.     Loans and Advances to Directors: Applicable NBFCs cannot grant loans aggregating INR 50 million (approx. US$ 629,447) and above to their directors / relatives of directors / any firm or company in which any of their directors or their relatives is interested, unless sanctioned by its board of directors / committee of directors;

ii.    Loans and Advances to Senior Officers of NBFCs: Any loans sanctioned by applicable NBFCs to their senior officers must be reported to their board of directors, and no senior officer or any committee having a senior officer as its member, is permitted to sanction a loan to their own relative without the sanction of the next higher sanctioning authority under its power delegation matrix; and

iii.   Loans and Advances to Real Estate Sector: Before providing loans to borrowers in the real estate sector, applicable NBFCs must ensure that such borrowers have obtained prior permissions / clearances from government / local government / other statutory authorities for the project, wherever required, and disbursements can be made only after such permissions / clearances are obtained.

The second part (Part B) of the Circular sets out guidelines applicable to NBFC – Base Layer (BL) specifically in relation to the following:

i.     Loans to Directors, Senior Officers and Relatives of Directors: Applicable NBFCs are required to have a board approved policy on granting of loans to directors, senior officers and relatives of directors and to entities where directors or their relatives have major shareholding.