Revised Regulatory framework for NBFC
The evolution and growth of Non-Banking Finance Company (NBFC) sector has been significant in the recent past. NBFCs form an integral part of the financial sector and therefore are exposed to similar risks and challenges that are faced by other players in the financial sector. Therefore, the need was felt to address the risks, and also to address the concerns of NBFCs. The recommendations made by the Working Group on Issues and Concerns in the NBFC Sector and the Committee on Comprehensive Financial Services for Small Businesses and Low Income Households were considered and the changes in the regulatory framework have been introduced (“Revised Directions”).
A. Minimum NOF
- 1. As per Section 45-IA of the RBI Act, 1934, all the NBFCs are required to obtain a Certificate of Registration (CoR) from the RBI to commence/carry on business of NBFI. The said section also prescribes the minimum Net Owned Fund (NOF) requirement. Every NBFC is required to have an NOF of twenty-five lakh rupees or such other amount, not exceeding two hundred lakh rupees, as the Bank may, by notification in the Official Gazette, specify.
- 2. The minimum NOF requirement for new companies applying for grant of CoR to commence business of an NBFI was increased from Rs. 25 lakh to Rs. 200 lakh vide Notification No.DNBS.132/CGM(VSNM)-99 dated April 20, 1999. However, the minimum NOF for companies that were already registered with RBI or to such companies whose applications for a certificate of registration had been submitted on or before April 20, 1999 was retained at Rs. 25 lakh.
- 3. The position has been further revised to increase the NOF from Rs. 25 lakh to Rs. 200 lakh even for the companies that were allowed to keep their NOF at Rs. 25 lakh pursuant to Notification No.DNBS.132/CGM(VSNM)-99 dated April 20, 1999. As per the Revised Directions, it shall be mandatory for all NBFCs to attain a minimum NOF of Rs. 200 lakh by the end of March 2017, as per the milestones given below:
- a. Rs. 100 lakh by the end of March 2016
- b. Rs. 200 lakh by the end of March 2017
- 4. The NBFCs having NOF of less than Rs. 200 lakh are required to submit certificate from their statutory auditor certifying compliance to the revised levels at the end of each of the two financial years as given above.
- 5. Any NBFC failing to achieve the prescribed NOF of Rs. 200 lakh within the stipulated period shall be ineligible to hold the CoR which shall be liable for cancellation as per the process of cancellation initiated by RBI.
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