ENHANCED CORPORATE GOVERNANCE COMPLIANCES FOR NBFCS UNDER RBI (NBFC-SCALE BASED REGULATIONS) DIRECTIONS, 2023

 

ENHANCED CORPORATE GOVERNANCE COMPLIANCES FOR NBFCS UNDER RBI (NBFC-SCALE BASED REGULATIONS) DIRECTIONS, 2023

Reserve Bank of India – NBFC (Scale Based Regulations) Directions, SBR classifies NBFCs based on the nature of business, asset size, need for enhanced monitoring certain NBFCs and intensive monitoring of systemically risky NBFCs.

ROLE OF KMP RESTRICTED

KMPs of NBFC- ML, NBFC-UL cannot take advantage of 203(3) of the Act. If any such positions are held by KMPs of NBFC- ML, NBFC-UL on or after 01st October, 2022, they are supposed to vacate the office of KMP held even if it were to be in a subsidiary company, on or before 30th September 2024.

Independent Directors- Conflict Avoidance and Restrictions:

In terms of Regulation 98 an Independent Director (ID) can be on the Board of only three NBFC-UL or NBFC-ML. However, this is subject to the respective NBFCs on whose Board such ID serves should verify whether such ID holding office in other two NBFCs do not conflict with its business. IDs who holds office of ID in more than three NBFC-UL or NBFC-ML have to restrict their holding of such office as aforesaid on or before 30th September, 2024.Directorships held in NBFC-BL is not counted for the said limit of three.

Compensation Policy for KMP and Senior Management (SM)

A Board approved compensation policy is mandated with guidelines for fixing the fixed and variable pay which is to be aligned with the risk profile of the KMP or SM (this term has the same meaning as defined in Companies Act, 2013). The guidelines propose a higher variable pay at higher levels of responsibility. Further, variable pay can be deferred in both cash and non-cash components as decided by the Board of Directors of NBFC. Guaranteed Bonus from now on cannot be paid to KMP or SM. KMP and SM engaged in financial control, risk management, compliance and internal audit can be compensated in a manner that is independent of the business areas they oversee. Accordingly, such personnel may have higher proportion of fixed compensation and reasonable proportion of compensation may be in the form of variable pay.

Framing of Internal Guidelines on Corporate Governance

NBFCs are required to frame their internal guidelines on corporate governance with the approval of the Board of Directors, enhancing the scope of the guidelines without sacrificing the spirit underlying the guidelines as specified in Chapter XI of SBR. The CG guidelines have to be published on the company’s website, if any, for the information of various stakeholders.

 Courtesy : KSR & CO , Coimbatore