In the post monetary policy announcement last week, RBI had proposed to exempt NBFCs with asset size not exceeding Rs 1,000 crore, from registration requirements with the central bank subject to certain specified conditions in an effort to reduce compliance requirements.
In draft guidelines which are open for feedback until March 4, RBI said NBFCs fulfilling the criteria can seek deregistration by submitting their physical certificate of registration, audited financials of the company for the last three financial years, status of public funds and also of customer interface in the last three, auditors certificate saying that the company does not have public funds and customer interface as on date and a board registration stating that the company does not intend to access public funds and to have customer interface in the future.
However, registration will not totally absolve these companies from regulations. “Due to conduct of activities of non-banking financial institution, these NBFCs would continue to be subject to other provisions of Chapter IIIB of the RBI Act, 1934 and the Reserve Bank reserves the right to issue necessary instructions specifically to ‘Unregistered Type I NBFCs’ in case any concerns/ risks are observed. While Directions issued by the Reserve Bank shall be applicable to them only if specifically addressed to them, the Reserve Bank also retains the power to take action against ‘Unregistered Type I NBFCs’ under Chapter V of the RBI Act, 1934. Violation of any of the provisions applicable to ‘Unregistered Type I NBFC’ shall be viewed seriously and shall invite penal action under the provisions of the RBI Act, 1934,” RBI said in the guidelines.
Further loans from directors or shareholders will be classified as public funds and any customer-oriented activity like lending or providing guarantee, including to ‘entities in the Group’, its shareholders, its directors, or providing any other product or service to a customer would constitute ‘customer interface’ disqualifying these companies from deregistration, RBI said.
NBFCs that undertake activities like distribution of mutual funds, credit cards, acting as point of presence for National Pension System, etc will also be considered as customer interacting. All registered and unregistered NBFCs will have to comply with anti money laundering rules, RBI clarified.