The Reserve Bank of India (RBI) has laid down new guidelines for non-banking financial companies (NBFCs) on large exposures, lending to directors and sought additional disclosures in their notes to accounts.

 These guidelines will further narrow the gap in regulations between NBFCs and banks. In a notification on Tuesday, the RBI said that aggregate exposure of an upper layer NBFC to any entity must not be higher than 20% of its capital base, although the board can approve an additional 5% to take it to 25%.

 However, for infrastructure finance companies, the aggregate limit will be 30% to a single entity. To a group of connected entities, aggregate exposure will be limited to 25% of the capital base (unless on account of an infra loan) for all upper layer NBFCs apart from infrastructure finance companies where it will be 35%.

The RBI also said loans and advances sanctioned to senior officers of NBFCs should be reported to the board. “No senior officer or any committee comprising a senior officer as member, should, while exercising powers of sanction of any credit facility, sanction any credit facility to a relative of that senior officer. Such a facility should be sanctioned by the next higher sanctioning authority under the delegation of powers,” the RBI said in a notification.

For lending to real estate, NBFCs will have to ensure that these borrowers have obtained prior permission from government, local government or other statutory authorities for the project, wherever required.

“To ensure that the loan approval process is not hampered on account of this, while the proposals may be sanctioned in normal course, the disbursements shall be made only after the borrower has obtained requisite clearances from the government or other statutory authorities," the RBI said. 

The RBI also laid down norms for lending by NBFCs to their directors and senior employees. Unless sanctioned by the board of directors, NBFCs in the middle and upper layer should not grant loans of Rs 5 crore and above to their directors or relatives of directors. They should also not grant loans to any firm in which any of their directors or their relatives is interested as a partner, manager, employee or guarantor. 

For loan proposals less than Rs 5 crore to directors, these may be sanctioned by the appropriate authority in the NBFC. The matter will, however, have to be reported to the board. Loans sanctioned to senior officers of NBFCs should be reported to the board, the RBI said. 

NBFCs will have to disclose their exposure to real estate, capital market, intra-group entities and unhedged foreign currency exposure. They must also make adequate related-party disclosures, and provide a summary information on complaints received. In case of middle and upper layer NBFCs, corporate governance disclosures will have to be made, revealing all instances of breach of covenants of loan availed or debt securities issued, divergence in asset classification and provisioning.

In October last year, the central bank had announced scale-based regulations for NBFCs to be effective October this year. They are to be divided into four layers based on their size, activity and perceived riskiness.