veritas finance private limited regulatory update 2019 · reserve bank of india securies and...
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REGULATORY UPDATE
Veritas Finance Private Limited
www.veritasfin.in
MAY2019
INTRODUCTION
Keeping up to date with Legisla�ons, Rules and Prac�ces applicable to our NBFC sector to stay compliant and be aware of repercussions, to plan consequen�al ac�ons, to add value to business and to achieve a compe��ve edge.
Objec�ve:
Period: May 2019
Coverage:
The Newsle�er would broadly cover the following applicable areas:
Par�culars
Reserve Bank of India
Securi�es and Exchange Board of India
Ministry of Corporate Affairs
Page No.
Veritas Finance Pvt Ltd
SKCL Central Square 1, South Wing, 1st Floor,
Unit # C28 – C35, CIPET Road,
Thiru Vi Ka Industrial Estate, Guindy, Chennai-600 032.
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www.veritasfin.in
RBI dra� circular...
RESERVE BANK OF INDIA
Image courtesy : Reserve Bank of India (website: h�ps://rbi.org.in/)
RESERVE BANK OF INDIA
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SECURITIES AND EXCHANGE BOARD OF INDIA
Image courtesy : Securi�es and Exchange Board of India (website :h�ps://www.sebi.gov.in/)
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SECURITIES AND EXCHANGE BOARD OF INDIA
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MINISTRY OF CORPORATE AFFAIRS
Image courtesy : Ministry of Corporate Affairs (website h�p://www.mca.gov.in/MinistryV2/homepage.html)
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MINISTRY OF CORPORATE AFFAIRS
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RBI releases dra� circular on “Liquidity Risk Management Framework for
Non-Banking Financial Companies and Core Investment Companies” for
public comments
ii) Liquidity risk monitoring tools
In order to strengthen and raise the standard of Asset Liability Management (ALM) framework
applicable to NBFCs, it has been decided to revise the extant guidelines on liquidity risk management
for NBFCs. All non-deposit taking NBFCs with asset size of `1 billion and above, systemically important
Core Investment Companies and all deposit taking NBFCs irrespec�ve of their asset size, shall adhere to
the set of liquidity risk management guidelines given below. The internal controls required to be put in
place by NBFCs as per these guidelines shall be subject to supervisory review. Further, as a ma�er of
prudence, all other NBFCs are also encouraged to adopt these guidelines on liquidity risk management
on voluntary basis, the important changes are as under:
i) Granular Maturity Buckets and Tolerance Limits The 1-30 day �me bucket in the Statement of Structural Liquidity is bifurcated into granular buckets of
1-7 days, 8-14 days, and 15-30 days. The net cumula�ve nega�ve mismatches in the maturity buckets of
1-7 days, 8-14 days, and 15-30 days should not exceed 10%, 10% and 20% of the cumula�ve cash
ou�lows in the respec�ve �me buckets. NBFCs, however, are expected to monitor their cumula�ve
mismatches (running total) across all other �me buckets upto 1 year by establishing internal pruden�al
limits with the approval of the Board. The above granularity in the �me buckets would also be
applicable to the interest rate sensi�vity statement required to be submi�ed by NBFCs.
NBFCs shall adopt liquidity risk monitoring tools/metrics in order to capture strains in liquidity posi�on,
if any. Such monitoring tools should cover a) concentra�on of funding by counterparty/ instrument/
currency, b) availability of unencumbered assets that can be used as collateral for raising funds; and, c)
certain early warning market-based indicators, such as, price-to-book ra�o, coupon on debts raised,
breaches and regulatory penal�es for breaches in regulatory liquidity requirements. The Board of
NBFCs should put in place necessary internal monitoring mechanism in this regard.
In addi�on to the measurement of structural and dynamic liquidity, NBFCs are also mandated to
monitor liquidity risk based on a “stock” approach to liquidity. The monitoring shall be by way of
predefined internal limits as decided by the Board for various cri�cal ra�os pertaining to liquidity risk.
Indica�ve liquidity ra�os are short-term liability to total assets; short-term liability to long-term assets;
commercial papers to total assets; non-conver�ble debentures(NCDs)(original maturity less than one
year)to total assets; short-term liabili�es to total liabili�es; long-term assets to total assets; etc.
In addi�on to the liquidity risk management principles underlining extant prescrip�ons on key
elements of ALM framework, it has been decided to extend relevant principles covering other aspects
of monitoring and measurement of liquidity risk, viz., off-balance sheet and con�ngent liabili�es, stress
tes�ng, intra-group fund transfers, diversifica�on of funding, collateral posi�on management, and
con�ngency funding plan.
iii) Adop�on of “stock” approach to liquidity
iv) Extension of liquidity risk management principles
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All non-deposit taking NBFCs with asset size of ` 50 billion and above, and all deposit taking NBFCs
irrespec�ve of their asset size, shall maintain a liquidity buffer in terms of a Liquidity Coverage Ra�o
(LCR) which will promote resilience of NBFCs to poten�al liquidity disrup�ons by ensuring that they
have sufficient High Quality Liquid Asset (HQLA) to survive any acute liquidity stress scenario las�ng for
30 days. The stock of HQLA to be maintained by the NBFCs shall be minimum of 100% of total net cash
ou�lows over the next 30 calendar days. The LCR requirement shall be binding on NBFCs from April 01,
2020 with the minimum HQLAs to be held being 60% of the LCR, progressively increasing in equal steps
reaching up to the required level of 100% by April 01, 2024, as per the �me-line given below:
Introduc�on of Liquidity Coverage Ra�o
Detailed dra� guidelines on LCR including disclosure standards are provided in Annex B. The dra�
guidelines are put in public domain to elicit comments from NBFCs, market par�cipants and other
stakeholders. Feedback should be sent by email not later than June 14, 2019.
From April 1, 2020 April 1, 2021 April 1, 2022 April 1, 2023 April 1, 2024
Minimum LCR 60% 70% 80% 90% 100%
Minimum LCR 60% 70% 80% 90% 100%