NBFC Board governance Checklist - Before Approving Growth Rate / Business Expansion

Purpose:To ensure growth decisions are risk-aligned, funding-backed, and governance - sound, and to protect NBFC Board of directors from regulatory and personal liability.

1. Business Model & Growth Rationale

☐ Is the proposed growth consistent with the NBFC’s core business model (product, customer segment, tenure)?

☐ Is growth driven by underwriting strength or by availability of short-term funding?

☐ Does management clearly articulate why this level of growth is sustainable now (vs. historical averages)?

☐ Is growth organic, inorganic, or portfolio-driven—and are risks differentiated accordingly?

Red flag: Growth justified primarily by “market opportunity” or “peer benchmarking”.

2. Asset Quality & Credit Risk

☐ Are GNPA/NNPA trends analysed by vintage, not just in aggregate?

☐ Does projected growth assume lower credit costs than historical experience?

☐ Are restructuring, moratoriums, or rollovers increasing as a % of book?

☐ Has early-warning data (DPD buckets, SMA movement) been shared with the Board?

Board Expectation:Growth should not rely on optimistic credit assumptions.

3. Liquidity & ALM Readiness (Critical for NBFCs)

☐ Is the proposed growth fully funded, not aspirationally funded?

☐ Are funding sources tenor-matched to asset duration?

☐ What percentage of incremental growth is funded by:

• Short-term borrowings

• CP / market instruments

• Single lenders

☐ Have severe but plausible liquidity stress scenarios been presented?

Non-Negotiable Question:

If funding markets shut for 90 days, can the NBFC survive without asset sales?

4. Capital Adequacy & Buffer Quality

☐ Does growth erode capital buffers close to regulatory minima?

☐ Is capital planning front-loaded or dependent on future fund raises?

☐ Has management explained the capital consumption per ₹100 of growth?

☐ Are stress scenarios showing capital falling below internal thresholds?

Red flag: “We will raise capital later” as a primary mitigation.

5. Concentration & Correlation Risk

☐ Does growth increase exposure to:

• A single sector

• A geography

• A borrower group

• A correlated asset class

☐ Are concentration limits being stretched or reset to accommodate growth?

☐ Has the Risk Committee approved revised limits (if any)?

6. Governance & Control Capacity

☐ Can existing credit, collections, and risk teams handle the proposed scale?

☐ Has internal audit assessed control readiness for higher volumes?

☐ Are systems and MIS capable of daily portfolio monitoring at the new scale?

☐ Are exceptions and overrides increasing with growth?

RBI Lens: Weak controls + high growth = governance failure.

7. Group & Related-Party Implications

☐ Does growth involve:

• Intra-group funding

• Guarantees

• Off-balance-sheet support

☐ Are related-party transactions increasing as a % of assets or funding?

☐ Has the Audit Committee independently evaluated commercial rationale?

8. Regulatory Classification & SBR Impact

☐ Does growth risk pushing the NBFC into a higher SBR layer?

☐ Are governance, disclosure, and capital requirements at that layer understood?

☐ Has the Board discussed the regulatory cost of growth?

9. Documentation & Process Safeguards

☐ Are committee minutes clearly capturing:

• Questions raised

• Management responses

• Concerns or dissent

☐ Has the Board sought independent assurance (internal audit / external expert) where complexity is high?

☐ Are assumptions explicitly recorded?

Critical Protection:

What is not documented is assumed not to have happened.

10. Final Board Challenge Questions

Before approval, every Independent Director should be comfortable answering:

• Would I approve this growth if funding costs rise by 200 bps?

• Would I approve this growth if asset quality worsens within 12 months?

• Can this NBFC slow down quickly if conditions change?

• Is the downside survivable?

Decision Guidance for Directors

Scenario	Board Response
Growth backed by capital & liquidity	Approve
Growth backed only by funding optimism	Defer
Growth weakens controls or governance	Reject
Growth assumptions not stress-tested	Seek revision

Bottom Line for NBFC Boards

In NBFCs, growth is a governance decision, not a business decision.

Directors are expected by RBI to approve only that growth which the institution can fund, control, and survive under stress.