NBFCs Current Affairs

FIU categorises 9,491 NBFCs as high risk for PMLA non-compliance

The Financial Intelligence Unit (FIU) under Finance Ministry has categorised around 9,491 non-banking financial companies (NBFC) as high risk prone financial institutions as they have not complied with stipulated provision of Prevention of Money Laundering Act (PMLA). There are about 12,000 NBFCs in country at present and high risk financial NBFCs account for about 80% of total NBFCs in the country. This list containing names of NBFCs has been updated till January 2018.

What does it means?

The publication of names of NBFCs in list is primarily to make aware public that they are not law compliant and that they should refrain from indulging into transactions with them. These NBFCs have been urged to comply with this “basic obligation” under PMLA and its rules for the past one and a half years, but to no avail. Once these NBFCs comply with the rules, their names will be taken off the list.

Background

Under PMLA, the NBFCs, which include cooperative banks, are required to furnish details about their financial operations and transactions to the FIU in a prescribed format. The FIU had observed activities of these institutions and processed the data of these companies after demonetisation of high value currency notes of Rs 1,000 and Rs 500 in November 2016. It also had found that these NBFCs also did not comply with stipulated condition of appointing principal officer and designated director who are responsible for checking and reporting suspicious transactions and cash transactions of Rs 10 lakh and above. FIU is mandated to check crimes in Indian economy and alert enforcement agencies against such.

Non-banking financial companies (NBFCs)

NBFC is company registered under Companies Act. It is engaged in business of loans and advances, acquisition of shares, bonds, stocks, debentures and securities issued by government or local authority or other marketable securities. NBFCs can make investments and lend and hence, their activities are akin to that of banks. However, they cannot accept demand deposits and do not form part of payment and settlement system i.e. they cannot issue cheques drawn on itself.

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RBI launches Ombudsman scheme for NBFCs

The Reserve Bank of India (RBI) has launched Ombudsman Scheme for non-banking financial companies (NBFCs) for redressal of complaints against NBFCs registered with RBI under section 45-IA of the RBI Act, 1934. The scheme will provide cost-free and expeditious complaint redressal mechanism relating to deficiency in services by non-banking financial companies covered under the scheme.

Ombudsman Scheme for NBFCs

The offices of NBFC Ombudsmen will function at four metro centres —Mumbai, Chennai, Kolkata and New Delhi. They will handle complaints of customers in respective zones. To begin with, the scheme will cover all deposit-taking NBFCs.

Under this scheme, any customer or person can file compliant with ombudsman on various grounds. Only written complaints or those in electronic format will be accepted.  The complaint may be wrt non-payment or inordinate delay in payment of interest, non-repayment of deposits, lack of transparency in loan agreement, non-compliance with RBI directives on fair practices code for NBFCs, levying of charges without sufficient notice tocustomers and failure or delay in returning securities documents despite repayment of dues among others.

RBI will appoint one or more of its officers in rank of not less than General Manager (GM) to be known as Ombudsman to carry out functions. The appointment will for period not exceeding three years at time. The schemes provide for Appellate mechanism under which complainant/NBFC will have option to appeal against decision of Ombudsman before Appellate Authority.

It will obligation of NBFC concerned to implement settlement arrived with complainant or Award passed by Ombudsman when it becomes final and send  report in this regard to RBI within 15 days of award becoming final. In case of non-implementation of settlement or Award, the complainant may represent to RBI and RBI may initiate such action under provisions of RBI Act, 1934 as it deems fit.

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