Lenders Law

Loans against shares (LAS) to listed companies or their promoters are often perceived as low-risk, fully secured exposures —especially when the initial Loan-to-Value (LTV) appears comfortable (2x cover). In reality, equity-backed lending is one of the fastest deteriorating credit exposures if governance, monitoring, and documentation are weak . This blog sets out everything lenders should evaluate before and after sanction . Understand the Risk: Shares Are Not Static Collateral: Unlike real estate or fixed assets, listed shares: Are marked-to-market daily; Are exposed to price volatility, liquidity risk, and sentiment shocks; Can lose value before the lender is operationally ready to act. A “2x cover” at sanction is only a point-in-time comfort , not a risk mitigant by itself. Initial LTV Is Only the Entry Point — Stress Testing Is Critical: Before sanction, NBFC should stress-test: 30/60-day average; Fall in trading volumes during market stress; Impact of simultaneous i...

The Insolvency and Bankruptcy Code, 2016 (“IBC”) enables operational creditors to initiate corporate insolvency resolution proceedings under Section 9 upon occurrence of a default. While the statutory framework remains unchanged, recent admission-stage practices—particularly at the Delhi Bench of the NCLT—signal a clear shift toward enhanced procedural and bona fide scrutiny . 1. Affidavit Affirming Absence of Collusion: A recurring direction from the Tribunal is the filing of a specific affidavit affirming that the Section 9 petition is not collusive . This affidavit typically requires the applicant to declare that: The petition is not filed in coordination with the corporate debtor, its promoters, directors, or related parties; The insolvency process is not being triggered to achieve an indirect or strategic objective, including management change, regulatory arbitrage, or shielding the corporate debtor from other proceedings. This concern is no longer theoretical. In  Hyt...

With banks implementing the Positive Pay mechanism pursuant to RBI directions , cheque return memos increasingly record reasons such as  “Positive Pay not registered”  or “Positive Pay mismatch” . This has given rise to a new question:  If a cheque is returned due to Positive Pay non-compliance, does Section 138 of the Negotiable Instruments Act, 1881 still apply? Inthe author's view, the answer is yes — since the dishonour is still attributable to the drawer . This post examines the issue through statutory interpretation and settled Supreme Court jurisprudence. Understanding the Positive Pay Mechanism: The Positive Pay system requires the drawer of a cheque to pre-register key cheque particulars —such as cheque number, date, amount, and payee name—with the bank before presentation. If the details are: Not registered, or Incorrectly registered, the cheque may be returned unpaid even if sufficient funds are available . The critical point is:  Positive Pay co...

India’s lending regulation is founded on a deliberate legal distinction:  the law regulates the “business of lending”, not every instance of lending . Accordingly: The Reserve Bank of India (RBI) regulates lending by Non-Banking Financial Companies (NBFCs) . State Governments regulate moneylenders under local Money Lending Acts. Yet, a significant and increasingly common practice now sits between these two regimes: Loans are advanced not by the NBFC, but by an individual promoter or by other group entities in which the promoter has a stake—often to borrowers who originally approached the NBFC itself. Such lending falls outside RBI regulation and outside State moneylender laws , creating a regulatory grey zone. Why RBI Regulation Does Not Extend to Individuals and Certain Group Entities? RBI’s powers under the RBI Act, 1934 extend only to entities carrying on the business of a non-banking financial institution . The 50–50 Test for NBFCs- An entity qualifies as an NBFC on...

RBI’s recent supervisory reviews of NBFCs repeatedly highlight one area of non-compliance: Aadhaar misuse in KYC — especially accepting unmasked Aadhaar copies , failing to obtain mandatory consent , or performing unauthorised Aadhaar verification . On  9 December 2025 , UIDAI notified the  Aadhaar (Authentication and Offline Verification) Amendment Regulations, 2025  to amend the 2021 Regulations .  This blog summarises what NBFCs must do now — and what must immediately stop. Key Amendments: 1. New Definitions Introduced: (i) " Aadhaar Application" [Reg. 2(1)(ac)]-  UIDAI now defines authorised mobile/web applications — including mAadhaar, Aadhaar App, QR Scanner App, myAadhaar Portal — which alone may be used to perform offline Aadhaar verification. NBFC implication:  All offline Aadhaar verification must be done only through these UIDAI-approved apps/tools. (ii) "Aadhaar Verifiable Credential (AVC)"  [Reg. 2(1)(be)]-   A new digital do...

The Reserve Bank of India (RBI) recently cancelled  the Certificate of Registration (CoR) of four Non-Banking Financial Companies (NBFCs). While CoR cancellations are not routine, they are a powerful supervisory tool used when an NBFC fails to comply with prudential, regulatory, or governance requirements. This development has again placed the spotlight on Section 45-IA(6) of the Reserve Bank of India Act, 1934 , the statutory basis for cancellation of an NBFC’s CoR. What Does Section 45-IA(6) of the RBI Act Provide? Section 45-IA deals with registration requirements for NBFCs . Sub-section (6) empowers RBI to cancel an NBFC’s CoR if it fails to comply with essential conditions. RBI may cancel the CoR if the NBFC: Fails to comply with conditions of registration; Does not maintain the prescribed Net Owned Fund (NOF); Fails to submit statutory returns or documents; Operates in a manner that is prejudicial to public interest; Violates RBI directions, circulars, o...

One of the most common questions raised by founders, CFOs, legal teams, and compliance officers in Base-Layer NBFCs (NBFC-BL) is:  “Can we lend to the same category of borrowers at rates as low as 8% and as high as 30%?” The short answer is:  Yes — RBI permits flexibility, but not arbitrariness. NBFCs can vary pricing significantly provided the variation is justified through a transparent, risk-based framework approved by the Board. This article explains what RBI expects, how interest rates should be determined, and what practices can expose an NBFC to supervisory concerns. RBI’s Core Requirements for Base-Layer NBFCs Under the Reserve Bank of India (Non-Banking Financial Companies – Responsible Business Conduct) Directions, 2025 , NBFCs must maintain: 1. A Board-Approved Interest Rate Policy: This policy must define: Internal methodology for setting interest rates; Risk-based pricing parameters; Rationale for deviations; Minimum and maximum rate bands; ...