Law expert Vinod Kothari criticises the revised regulatory norms for NBFCs announced by RBI

KOLKATA: Law expert Vinod Kothari on Tuesday criticized said that the revised regulatory framework for non-banking finance companies (NBFCs) announced by the Reserve Bank of India ( RBI) for not allowing de-registration of systematically unimportant NBFC s with less than Rs 500 crore of assets.

"While there are no substantive regulation on such NBFCs, administrative controls on them will continue," he pointed out.

India has more than 12,000 registered NBFCs. Of this, a large chunk of them do not carry on business with public funds. Industry representatives had sought changes in the existing NBFC regulations so that these companies can get themselves de-registered and carry on business without the apex bank’s regulation. "While RBI has kept these companies beyond regulatory supervision, it has, as per the revised regulatory framework for NBFCs, has not allowed these companies to de-register themselves. The companies will have to comply with some reporting requirements."

Besides, the effective date for the new regulations is still not known as the notifications have not been issued, he added.

On lowering of business threshold for factoring companies which provides financing along with collection services for receivables, Mr Kothari said the problem that factoring companies face is the frequently asked questions (FAQs) by RBI, which suggests that an NBFC cannot do any assignment of receivables, unless it is a registered factoring company.

"The intent of factoring was to promote factoring and not curb it. If a regulated NBFC carries factoring as a non-principal business, there cannot be a policy objection to it. I feel that the present notification of the RBI resolves this problem."

Currently, a factoring company is required to include assets in factoring business, as also income from out of factoring activities, to be 75 per cent of its total assets or income respectively. RBI on Monday increased both the thresholds to 50 per cent.