04 January 2010
As per the provisions of the companies act 1956 and the NBFC regulations whenever a loan is granted by an NBFC to any companies and or another NBFCs a resolution to that effect has to be passed so that the provisons of the companies act section 372A are not violated in short the loans granted are not beyond the powers of the board and is within the spcified limit of 60 percent of the net worth or 100 percent of the gree reserves whichever is more.
The resolution has to be passed everytime as to ensure that the amount lent is within the limit prescribed and if borrowed then also the same.
NBFCs are not exempt from any such provisions..
Moreover the power to lend cannot be delegated to any of the directors as it is the Board which has to descide and not left to any independent discretion or cannot be delegated to any director.
Even as per the NBFC regulations too the auditor needs to comment of the lending and also the borrowing by the nbfc if it is within the limits laid down.
03 August 2024
For Non-Banking Financial Companies (NBFCs), the process for granting loans involves specific regulatory and procedural requirements. Here's a detailed look at the options:
### **Regulatory Framework for NBFCs Granting Loans**
**1. **Board Resolution Requirements:**
**A. **Section 292 of the Companies Act, 1956** (applicable for NBFCs incorporated under the old Act):
- **General Rule:** Section 292 required the board of directors to pass resolutions for certain actions, including borrowing and lending. However, this provision is superseded by newer regulations under the Companies Act, 2013.
**B. **Companies Act, 2013** (applicable for all companies, including NBFCs):
- **Section 179(3)** of the Companies Act, 2013, provides that the powers of the board of directors can be exercised by passing resolutions at meetings of the board. For decisions involving loans, the board should pass resolutions or delegate powers appropriately.
**2. **Loan Approval Process for NBFCs:**
**A. **Delegation of Powers:**
- **Delegation Permitted:** The Companies Act, 2013 allows the board to delegate certain powers to one or more directors or a committee of directors. This can include the power to grant loans up to a specified limit. The delegation should be done via a board resolution.
- **Resolution for Delegation:** A board resolution can be passed delegating authority to a specific director or committee to grant loans up to a certain amount. This avoids the need for a resolution each time a loan is granted, aligning with the operational needs of NBFCs where granting loans is a regular activity.
**B. **Regulatory Compliance:**
- **Regulatory Requirements:** NBFCs are also required to comply with regulations set by the Reserve Bank of India (RBI). The RBI prescribes guidelines for the operations of NBFCs, including the lending process. These guidelines should be followed in conjunction with the internal policies of the NBFC.
**3. **Resolution Procedures:**
**A. **Board Resolutions:**
- **Initial and Periodic Resolutions:** While individual loan approvals may not require separate board resolutions if delegated, an initial board resolution to delegate authority and periodic reviews of the delegation are still necessary.
- **Documentation:** The board resolution delegating the power to grant loans should clearly specify the limits and conditions under which the delegated authority can operate. Proper documentation and recording of these resolutions are crucial for compliance and audit purposes.
**B. **Periodic Review:**
- **Review and Approval:** Even if delegation is in place, periodic reviews by the board or a committee may be required to ensure that lending practices remain within approved limits and comply with regulatory requirements.
### **Summary**
- **Delegation of Powers:** NBFCs can delegate the authority to grant loans to a director or committee through a board resolution, specifying limits and conditions. - **Board Resolutions:** While individual loan grants may not need a board resolution each time, initial delegation and periodic reviews should be documented. - **Regulatory Compliance:** Ensure compliance with RBI guidelines and internal policies.
**Recommendation:**
For a practical approach, pass an initial board resolution to delegate loan granting powers and ensure compliance with both the Companies Act, 2013 and RBI regulations. This will streamline operations while maintaining regulatory adherence. Consulting with legal and compliance experts for precise procedures and documentation is advisable.
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