RBI Issues Guidelines on NBFC: India’s central bank Reserve Bank of India, or RBI, has eased guidelines for the Non Banking Finance Companies, or NBFCs. In a recent notification, the banking regulator said that it had allowed select NBFCs to undertake factoring business subject to satisfaction of certain conditions. With this, the guidelines laid for factoring businesses have been simplified by the RBI. This comes close in heels with analysts revising the growth outlook of retail to NBFCs to 5-7 per cent for the fiscal 2022 from an earlier expectation of 8 to 10 per cent. In the first half of FY2022, retail NBFCs grew by less than one per cent.
“Government of India has recently amended the Factoring Regulation Act, 2011 (“the Act”) which widens the scope of companies that can undertake factoring business,” the RBI said in its press release dated January 20, Thursday.
“The Act permits Trade Receivables Discounting System (TReDS) to file the particulars of assignment of receivables transactions with the Central Registry on behalf of the Factors for operational efficiency. Further, the Act empowers the Reserve Bank of India to make regulations prescribing the manner of grant of certificate of registration and for prescribing the manner of filing of assignment of receivables transactions by TReDS on behalf of the Factors,” it added.
Following this, the RBI said that it had introduced some regulations. “Under the provisions of the regulations mentioned above, all existing non-deposit taking NBFC-Investment and Credit Companies (NBFC-ICCs) with asset size of Rs 1,000 crore and above will be permitted to undertake factoring business subject to satisfaction of certain conditions,” the central bank said in the notification.
The new guidelines, which will actually ease the existing regulations, will permit an increase in the number of NBFCs. “This will increase the number of NBFCs eligible to undertake factoring business significantly from 7 to 182,” said the RBI.
Other NBFC-ICCs can also undertake factoring business by registering as NBFC-Factor. Eligible companies may apply to the Reserve Bank for seeking registration under the Act, the bank further said.
“Further, in respect of trade receivables financed through a Trade Receivables Discounting System (TReDS), the particulars of assignment of receivables shall be filed with the Central Registry on behalf of the Factors by the TReDS concerned within 10 days,” it added.
The NBFCs will have to register themselves with the RBI for completing the process. The move is expected to benefit the MSME sector as it will be possible for the companies to take quick loans once it comes into effect.
the RBI’s move also comes ahead of the Budget session, which is scheduled to begin on January 31. The MSME sector has already raised its concerns with the government and has asked to implement a few changes in order to promote ease of doing business.
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