Non-Banking Financial Companies (NBFCs) Current Affairs - 2020

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RBI suspended licence of seven non-banking finance companies (NBFCs)

On 17 August the Reserve Bank of India (RBI) suspends licence of seven non-banking finance companies (NBFCs).

The seven NBFCs whose licences were suspended are – Religare Finance, Artisans Micro Finance, Eden Trade & Commerce, RCS Parivar Finance, Nott Investments, Dewra Stocks & Securities, Swetasree Finance.

Being a dormant entity, Religare Finance licence was suspended by RBI as it did not conducted lending operation for long period of time.

RBI role in issuing licence to NBFCs:

  • A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956, whose principal business is lending, investments and receiving deposits. At present there are around 12,000 NBFCs in India.
  • NBFC does not include any institution whose principal business is agricultural activity, trading activity, industrial activity or sale/purchase/construction of immovable property.
  • RBI has power under RBI Act 1934 to register, regulate, lay down policy, inspect, issue directions, supervise and exercise surveillance over NBFCs that meet the 50-50 criteria of principal business.
  • Any NBFCs that does not carry out its principal business according to the directions or orders issued by RBI under RBI Act is eligible for penal action that can also result in cancelling the Certificate of Registration issued to the NBFC.

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RBI relaxes KYC norms for Non-Banking Financial Companies (NBFC’s)

Reserve Bank of India (RBI) has relaxed Know-Your-Customers (KYC) norms for Non-Banking Financial Companies (NBFCs).

In this regard, RBI has amended the KYC norms in order to remove the practical difficulties and constraints being faced by NBFC’s in getting KYC documents at frequent intervals.

Previously, as per the norms it was necessary for NBFC’s to undertake KYC once in every 5 years for low risk category customers and once in two years for both high and medium risk categories.

But as per new norms, full KYC exercise will be required to be done at least every 10 years for low risk and at least every 8 years for medium risk individuals and entities.

While for the high-risk individuals and entities, it should be done in at least every 2 years.

This full KYC exercise will be done by taking into account whether and when client due diligence measures have previously been undertaken and the adequacy of data obtained.

However, the new norm does not mention physical presence of clients for such periodic updations.

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