RBI issues guidelines on Connected Lending

Mumbai, July 11 (UNI) In a bid to impart transparency in operations of Non Banking Financial Companies(NBFCs), Reserve Bank today issued guidelines on connected lending and corporate governance.

As per the instructions, NBFCs should not grant loans, advances or non-fund based facilities to its directors or their relatives and also to firms in which directors have interests.

''As it is evident, the need for good corporate governance has been gaining increased emphasis over the years. Corporate Governance is the key to protect the interests of stake-holders in the corporate sector. Its universal applicability has no exception to NBFCs which too are essentially corporate entities,'' an RBI notification said.

RBI guidelines cover deposit-taking NBFCs with size above Rs 20 crore and non-deposit-taking NBFCs with asset size above Rs 100 crore.

The instructions will become operational after final evaluation and modification of the suggestions, Reserve Bank has said.

In an earlier directive, RBI had proposed the appointment of directors with ''fit and proper'' credentials and the constitution of Risk Management Committee to monitor the asset-liability gap to mitigate the risk associated.

UNI