The Reserve Bank of India (RBI) has eased branch expansion norms for select non-banking financial companies (NBFCs), a move aimed at enhancing operational flexibility for lenders specialising in loans against gold, according to media reports.
No Prior Approval Needed for New Branches
Under the revised guidelines, NBFCs engaged in gold-backed lending will no longer be required to seek prior approval from the RBI to open new branches. Earlier, investment and credit companies involved in gold loans needed regulatory clearance once their branch network crossed 1,000 outlets.
Explaining the rationale, the RBI said the change was intended to support smoother branch expansion while maintaining regulatory oversight. Given the existing prudential and governance framework applicable to NBFC–Investment and Credit Companies (NBFC-ICCs), the central bank decided to do away with the prior approval requirement as part of its latest credit policy review.
Key Beneficiaries and Industry Reaction
Major gold-loan-focused NBFCs such as Bajaj Finance, Muthoot Finance, Cholamandalam Investment and Finance Company, Mahindra & Mahindra Financial Services, Shriram Finance and Tata Capital Financial Services are expected to benefit from the revised norms.
Welcoming the move, Shriram Finance Executive Vice Chairman Umesh Revankar said the removal of the approval requirement would enable management teams to devote greater attention to credit delivery and risk management instead of regulatory procedures.
Rules for Overseas Offices and Deposit-Taking NBFCs
The RBI clarified that NBFCs and housing finance companies (HFCs) will still need prior approval to set up representative offices overseas. These offices are limited to liaison activities, market research and feasibility studies, and are not permitted to lend or deploy funds. Parent NBFCs must submit regular compliance reports, and failure to do so could lead the RBI to recommend the closure of such offices.
Separately, the central bank reiterated branch expansion norms for deposit-taking NBFCs. Entities, including HFCs, with net-owned funds exceeding ₹50 crore and an AA credit rating are permitted to open branches or appoint agents anywhere in the country. Smaller deposit-taking NBFCs with lower credit ratings remain restricted to operating within the state where their registered office is located.
Summary
The RBI has removed the requirement for prior approval for branch expansion by gold-loan-focused NBFCs, allowing greater operational flexibility under the existing regulatory framework. While the move is expected to benefit large lenders and improve credit delivery, restrictions continue for overseas offices and smaller deposit-taking NBFCs, ensuring regulatory safeguards remain in place.
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