REGULATORY UPDATE

Veritas Finance Private Limited

www.veritasfin.in

NOVEMBER2019

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: November 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

Insolvency and Bankruptcy code, 2016 (IBC)

GST Updates

Liquidity management framework’ for Non-Banking Financial Companies (NBFCs).

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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INSOLVENCY AND BANKRUPTCY CODE, 2016(IBC)

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GST UPDATES

The due date for GSTR-9 and GSTR-9C has been extended to 31st December 2019 and 31st March 2020 for FY 2017-18 and FY 2018-19 respec�vely.

GST UPDATE

The net cumula�ve nega�ve mismatches between payments and receivables in the maturity

buckets of 1-7 days, 8-14 days, and 15-30 days shall not exceed 10-20% of the cumula�ve cash

ou�lows in the respec�ve �me buckets.

Liquidity Risk Management Framework for Non-Banking Financial Companies (NBFCs) and Core

Investment Companies (CICs)” to be adopted by all deposit taking NBFCs; non-deposit taking NBFCs with

an asset size of � 100 crore and above; and all CICs registered with the Reserve Bank.

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.

In addi�on, the dra� proposes to introduce Liquidity Coverage Ra�o (LCR) for all deposit taking NBFCs;

and non-deposit taking NBFCs with an asset size of � 5000 crore and above. With a view to ensuring a

smooth transi�on to the LCR regime, the proposal is to implement it in a calibrated manner through a

glide path over a period of four years commencing from April 2020 and going upto April 2024.

NBFCs are expected to monitor their cumula�ve mismatches (running total) across all other �me

buckets up to one year by establishing internal pruden�al limits with the approval of their

respec�ve boards.

The central bank has mandated NBFCs to also monitor liquidity risk based on a “stock” approach

to liquidity.

The 1-30 day �me bucket (for payments) in the statement of structural liquidity is segregated into

mul�ple buckets of one-seven days, eight-14 days, and 15-30 days.

Key points:

While some of the current regulatory prescrip�ons applicable to NBFCs on ALM framework have been

updated / recast, certain new features have been added. Among others, the dra� guidelines cover

applica�on of generic ALM principles, granular maturity buckets in the liquidity statements and tolerance

limits, liquidity risk monitoring tool and adop�on of the “stock” approach to liquidity.

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.

The Reserve Bank of India (RBI) has introduced ‘liquidity management framework’ for

Non-Banking Financial Companies (NBFCs).

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RBI earlier introduced Liquidity Coverage Ra�o (LCR), a measure aimed at maintaining enough

cash with an NBFC. All non-deposit taking NBFCs with asset size of Rs 10,000 crore and above, and all deposit taking

NBFCs irrespec�ve of their asset size, shall maintain a liquidity buffer in terms of LCR.

RBI also advised extending relevant principles to cover 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.

The stock of HQLA to be maintained by the NBFCs shall be a minimum of 100% of total net cash

ou�lows over the next 30 calendar days.

Indica�ve liquidity ra�os are short-term liabili�es to total assets, short-term liabili�es to long-

term assets, commercial papers to total assets, non-conver�ble debentures (NCDs) (original

maturity less than one year) to total assets.

Such liquidity measure should 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 30 days.