RBI Permits NBFCs To Set Up Branches Without Any Prior Approval According To Reformed Policy

The Reserve Bank of India (RBI) has granted permission to non-banking financial companies (NBFCs) to set up their branches without having to seek prior approval from it.

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The central bank said in its notification that the revised directions are intended to provide operational flexibility for branch expansion while maintaining regulatory compliance. The new rules have come into effect immediately.

General Approval For Branch Expansion

With the new guidelines, NBFCs are allowed to add more branches without the need for prior approval by the RBI, except where restricted. 

This is contrary to the earlier guidelines, whereby some types of NBFCs needed approval or had to notify the RBI about new branches. This means that NBFCs are now more convenient to establish throughout the country.

Conditions For Deposit-Taking NBFCs

The conditions imposed by the RBI on deposit accepting NBFCs have been kept according to their respective strengths.

For example, deposit accepting NBFCs that have net owned fund (NOF) worth less than ₹50 crore or whose credit rating is lower than AA may only establish branches or agents in their respective states.

Those deposit accepting NBFCs that have NOF worth more than ₹50 crore and credit rating above AA can extend their branch network to the whole country.

However, deposit-taking NBFCs with NOF above ₹50 crore but with a rating below AA will remain restricted to operating within their home state.

Changes For Core Investment Companies

The RBI has also revised provisions related to core investment companies (CICs). Previously, the central bank was authorized to instruct the CIC to shut down its foreign representative office in situations where it did not comply with regulations.

Under the new system, the RBI would evaluate or withdraw permission provided for establishing these offices without insisting that the entity close down, indicating a shift in the regulatory policy framework in the current setup.

Immediate Implementation

The modified guidelines will be effective immediately, allowing NBFCs to begin expanding their branches according to the new guidelines.

This brings about a more lenient approach to regulating NBFCs, while still making the difference in terms of financial strength and regulatory requirements laid down by the RBI.