Operational Guidelines for Schematic Lending under LT Refinance for F. Y. 2022-23 - NBFCs

Ref. No. NB. DoR / 1770 / LT Policy - 156/ 2022-23

Circular No.67 / DoR - 20 / 2022

19 April 2022

The Managing Director/ CEO/ COO
All Non-Banking Financial Companies (NBFCs)

Madam/Dear Sir,

Operational Guidelines for Schematic Lending under LT Refinance for F. Y. 2022-23 - NBFCs

The operational guidelines for long term Refinance for the year 2022-2023 for NBFCs is finalized and enclosed herewith. These Guidelines supersede all the existing guidelines in this regard.

2. The Circular is also available on NABARD website under the tab information Centre.

3. The refinance proposals may be submitted through Regional Offices of NABARD where the Corporate / Head Office of NBFC is located.

4. Please acknowledge receipt.

Yours faithfully

(Vivek Krishna Sinha)
Chief General Manager

Encls : 5 pages

Schematic Lending for F. Y. 2022-2023 - Operational Guidelines

1. Introduction

NABARD has been providing long-term refinance to the approved financial institutions under the provisions of Section 25(i)(a) of NABARD Act, 1981 to supplement their resources against the long-term loans provided by them in rural and semi urban areas, as per mandate of NABARD, to farmers, self-help groups, joint liability groups and others for agriculture & allied activities, rural housing, MSME and other related activities.

2. Objectives:

The objectives of the long-term refinance of NABARD are as under

  • Supporting capital formation in agriculture and allied activities, thereby promoting growth of Agriculture, AH, Fishery, Forestry etc. sectors.
  • Directing flow of credit for promotion of thrust activities of GoI and NABARD.
  • To meet the credit requirement of JLGs, SHGs, FPOs & others.
  • Support for non-farm sector activities (MSME, Rural Housing & CV), thereby promoting alternate employment opportunities in rural and semi-urban areas.
  • Support for Climate Adaptation and Mitigation projects.
  • Refinance support for credit linked capital subsidy schemes of GoI, whose subsidy is channelized through NABARD.

3. Nature of Accommodation

Refinance assistance is provided to NBFCs against their disbursements for various eligible purposes under the following two windows:

3.1 Automatic Refinance Facility (ARF)

Automatic Refinance Facility (ARF) enables NBFCs to obtain financial accommodation from NABARD, without going through the detailed procedure of pre- sanction formalities. NBFCs are expected to appraise the proposals at their own level and finance the borrowers. NBFCs then claim refinance from NABARD on the basis of a declaration (drawal application), indicating the various purposes for which refinance has been claimed and the loan amount disbursed. In such cases, the sanction and disbursement of refinance are attended to simultaneously by NABARD.

3.2 Pre-Sanction

If the NBFCs intend to avail refinance under pre sanction procedure they are required to submit the projects for approval of NABARD. Before sanction of the same, NABARD appraises these projects to determine its technical feasibility, financial viability and Bankability.

4. Eligibility criteria

Eligibility criteria for drawal of refinance from NABARD are reviewed from time to time. The NBFCs are categorised into Big with AUM more than Rs.50,000 crore, Medium with AUM between Rs.10,000 crore and Rs.50,000 cr and Small with AUM of more than Rs.500 crore and up to Rs.10,000 crore. The eligibility criteria prescribed for the year 2022-2023are as under:

4.1 Registration Should have a certificate of registration under Sec. 45-IA of the RBI Act, 1934 to function as an approved financial institution.

4.2 Type of NBFC Both deposit taking and non-deposit taking NBFCs are eligible to be considered for NABARD refinance.

4.3 Business Span Should have been carrying on lending business, at least for last 10 years in case of big NBFCs and 5 years in case of Medium and Small NBFCs as on date of Sanction of the loan.

4.4 CRAR: Should maintain minimum capital adequacy ratio as stipulated by RBI from time to time (at present it is 15%).

4.5 Net Profit: Should be in Net Profit for at least three out of the preceding four financial years (3 financial years out of 2018-19, 2019-20, 2020-21 and 2021-22).

4.6 Net NPA: Should be less than or equal to (a) 6% for big NBFCs (b) 5% for Medium NBFCs and (c) 4% for Small NBFCs.

4.7 The Memorandum of Association should have a provision for borrowing from higher financing agencies.

4.8 NBFCs should be complying with internal risk rating of NBD 1 to NBD 5.

4.9 Rating of NBFCs

i. The eligibility of the NBFCs to avail refinance from NABARD should be minimum rating [on the long-term debt instruments and bank facilities and fixed deposit programme] of ‘AA’(includes +, -) subject to fulfilment of other terms and conditions. The rating should have been awarded by any SEBI/RBI approved rating agency.

ii. In case of North Eastern Region, including Sikkim, the eligibility norm is relaxed to up to A rating (includes +, -).

iii. If multiple credit rating reports are available for NBFC, lower of the same will be considered for eligibility.

4.10 Eligibility criteria and Risk Assessment during 01 April 2022 to 30 June 2022 will be based on their audited financial position as on 31.03.2021 or 31.03.2022 (if audited position as on 31.03.2022 is available). From 1 July 2022 to 31 March 2023, the same will be based on their audited financial position as on 31.03.2022. Sanction and drawals on or after 01 July 2022 will be permitted only to such NBFCs, which have completed the audit.

4.11 Any change in the financial parameters during F.Y 2022-23 may be considered with the approval of competent authority based on latest limited review report / provisional financials of the entity and a certification from Chartered Accountant and recommendation on the same by NABARD, RO.

4.12 In case of pricing of credit to their borrower, NBFCs should follow the guidelines prescribed by RBI vide Master Circular No. RBI/DNBR/2016-17/44 [Master Direction DNBR.PD.007/03.10.119/2016-17] and RBI/DNBR/2016-17/45 [Master Direction DNBR.PD.008/03.10.119/2016-17] dated 01 September 2016 (as amended from time to time) and Master Direction RBI/DOR/2021-22/89 dated 14 March 2022 and any other directions/ guidelines on NBFCs issued by RBI from time to time.

5. Eligible Purposes

Long-term loans provided in rural/semi urban areas for agriculture and allied activities, rural housing, rural off-farm sector, MSME, microfinance and other eligible loans complying to PSL guidelines of RBI which are outstanding in the books of the NBFC with a residual maturity period of more than 18 months as on the date of drawal application will be eligible for refinance.

6. Interest rates

6.1 Interest on refinance: The interest rates on refinance will be decided by NABARD based on tenor, prevailing market rate, risk perception etc. and is subject to revision from time to time. All NBFCs have been classified into 9 risk categories as per the internal risk assessment module devised by NABARD. The quantum of refinance and credit risk premium will be based on the same. In case of downgrade in internal/ external rating during the currency of credit, additional interest for risk premium as prevailing at time of downgrade will be charged.

6.2 Penal interest: In the event of default, penal interest rate at 2% p.a. will be charged on defaulted amount and for the period of default.

6.3 Pre-payment facilitaton charges: The rate of pre-payment facilitation charges will be 2.50% p.a. and will be chargeable for each instalment due separately for the entire period (minimum 6 months) from the date of pre-payment to the date on which the instalment is actually due for payment. The prepayment can only be initiated after minimum notice of 3 working days.

7. Repayment period

Repayment period for refinance ranges between 18 months (minimum) to 5 years or above. The due date for repayment of principal and interest will be quarterly with principal due dates on 30th June, 30th Sep, 31st Dec and 31st March and interest due dates on 1st July, 1st October, 1st January and 1st April. The first due date of principal amount for refinance sanctioned on any date in a quarter will fall in next quarter. Principal and Interest payment option on monthly is also available. Repayment schedule will be as per the sanction letter issued to the agency.

8. Security norms

The security norms prescribed for NBFCs are as under:

a. The security assigned shall be :

i. 1.10 times the amount of refinance released to Big NBFCs
ii. 1.20 times the amount of refinance released to Medium NBFCs
iii. 1.25 times the amount of refinance released to Small NBFCs

b. Shortfall in the value of securities, if any to be recouped by assigning additional securities so that NABARD’s dues are fully backed by sufficient security to the extent of minimum 1.10/1.20/1.25 times of the aforesaid refinance outstanding.

c. All the securities assigned should be performing assets only.

d. Holding the securities obtained by NBFCs for the loans covered by refinance, in trust, for NABARD.

e. Execution of General Refinance Agreement (GRA) with NABARD.

f. Mandate to debit the Current Account of the NBFC with their principal banker which is duly authorised by principal banker and an undertaking from NBFC that same current account will be operated till entire repayment of refinance.

g. Board resolution indicating the borrowing powers of the agency, authority to borrow from higher institutions /FIs/NABARD, authorised signatory list with specimen signatures and a certificate confirming that the borrowing from NABARD is within the overall borrowing limit of the NBFC.

h. Assigning of book debts in favour of NABARD and registration of charge with the Registrar of Companies on the assets against which refinance is availed. All NBFCs falling in NBD-1 to 5 as per the risk rating module of NABARD will be extended refinance facility after creation of exclusive /pari passu charge on security assigned. NBFC has to complete perfection of charge by submitting NOC from all existing lenders or lead bank within 90 days of disbursement of refinance or by issuing advisory notice to all the existing lenders.

i. NABARD has exclusive charge on all the underlying assets against which refinance has been extended and assets are kept in trust of NABARD as per Section 29 of NABARD Act. An advisory notice will be issued by NBFC to all its existing lenders in this regard. In case if existing lenders are not responding within 15 days of intimation date, the exclusive charge to NABARD is deemed to have been accepted.

j. NBFC has to submit an undertaking jointly signed by company secretary and one of the directors or CFO that the specific rights on receivables are exclusively charged to NABARD on quarterly basis. The undertaking from NBFC may be certified by statutory auditors and submitted on yearly basis.

k. In case of pari passu charges, NOC from all existing lenders or lead bank or security trustee shall be submitted within 90 days of disbursement.

l. Submission of duly signed and stamped agreement for assignment of book debts, delivery letter, DPN and acknowledgement of debts / securities.

m. Additional security viz. Personal Guarantee / Corporate Guarantee/ lien marked liquid collaterals / separate escrow account for receivables from asset pool against which refinance is extended or any other security if deemed necessary by NABARD.

n. Processing fee: processing fee shall be applicable as follows at the time of refinance application.

Application amount Lower of*
Upto Rs.500 Crore 0.5% or Rs.5 Lakhs
Rs.500 Crore to Rs.1000 Crore 0.5% or Rs.7.5 Lakhs
More than Rs.1000 Crore 0.5% or Rs.10 Lakhs

*Plus GST as applicable.

9. Monitoring

a) NABARD will have the right to conduct spot verification / checks to ensure that the terms and conditions of refinance are adhered to. NABARD officials will conduct monitoring visits to branch / offices of the NBFC and also ultimate borrowers of refinance (pre and post sanctions) for verification of loan assets and also the eligibility of loan assets in terms of purpose and areas.

b) NABARD may also engage an Agency for specialized Monitoring (ASMs) for verification and analysis of refinance pool. All Fees / charges in this connection to be borne by the NBFC

10. All other existing terms and conditions remain unchanged.

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