NBFC Compliance
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Overview of NBFC Compliance
Updated on December 31, 2022 04:39:28 PM
In recent times, RBI compliance requirements for NBFCs have become more intricate. There was a period when Non-Banking Financial Companies held certain advantages over banks, enjoying simpler and more lenient compliance regulations. However, following the Sahara case, RBI has introduced stricter compliance norms for NBFCs, subjecting them to closer scrutiny. Some of the key regulations include guidelines for Securitization of Standard Assets and for Private Placement of NBFCs. RBI continues to make efforts to prevent speculation and ensure the stability of NBFCs.
Non-Banking Financial Companies are incorporated under the Companies Act 2013 and engage in various financial activities such as accepting deposits, providing loans and advances, and acquiring stocks, bonds, shares, debentures, and government securities. NBFCs play an active role in the financial sector and are regulated by the Reserve Bank of India. No NBFC is permitted to operate without obtaining a license from the Reserve Bank of India.
Term ‘Principal Business’ in NBFC
The term “Principal Business” refers to financial activities in which a company’s financial assets constitute more than 50 percent of its total assets, and the income derived from these financial assets comprises more than 50 percent of its gross income. Any company meeting both of these criteria is eligible to be registered as an NBFC. While the term “principal business” is not explicitly defined by the RBI, it has clarified that companies engaged in financial activities can be registered and regulated by the RBI.
As a result, companies engaged in activities such as agriculture, sale and purchase of goods, construction of immovable property, sale of immovable property, and industrial activities do not fall under the criteria of NBFC and therefore cannot be regulated and supervised by the RBI.
What are the Regulations applicable on non-deposit accepting NBFCs whose asset size is less than ₹ 500 Crore?
In the event that the NBFCs have not obtain any access to public funds and don’t have any client interface will not be exposed to any guideline either prudential or lead of business guidelines.
NBFCs having client interface will be exposed uniquely to lead of business guidelines including FYC, KYC, if they are not getting access to public funds. As though they are getting to the open assets, they will be exposed to restricted prudential guidelines.
NBFCs which are associated with both open assets and client interface exist are exposed to both limited prudential and business guidelines.
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