Overview of NBFC Compliance
Lately, RBI compliances have become more complex for NBFCs. There used to be a time when Non-Banking Financial Companies enjoyed benefits over banks. There was a time when NBFCs compliances were far simpler and lenient but after Sahara case, RBI has drafted new compliances for NBFCs and keep them under their screening. A portion of the significant rules are Securitization of Standard Assets and Guidelines for Private Placement of NBFCs. RBI is continuing putting forth attempts for preventing theory in NBFCs .
Non-Banking Financial Companies are registered under the Companies Act 2013, and are involve in the business of receiving deposits, loans and advances, acquisition of stock/bonds/shares, debentures and securities issued by the government. NBFCs are actively involved in the financial activities and are registered by the Reserve Bank of India. No NBFC can run their business without receiving the license from Reserve Bank of India.
Term ‘Principal Business’ in NBFC
The term ‘Principal Business’ stands for those financial activities where a company’s financial assets comprises of more than 50 percent of the total assets and income from financial assets derive is more than 50 percent of the gross income. Any company who fulfils both these criteria is eligible to be registered as NBFC. However, the term principal business is not defined by the RBI but RBI has make it clear that companies which are involve in financial activity can be registered and supervised by RBI. Hence, those companies which perform activities related to agriculture, sale and purchase of goods, construction of immovable property, sale of immovable property, industrial activity cannot be regulated and supervised by RBI because they do not fall under the criteria of NBFC.
What are the Regulations applicable on non-deposit accepting NBFCs whose asset size is less than ₹ 500 Crore?
In the event that the NBFCs have not obtain any access to public funds and don't have any client interface will not be exposed to any guideline either prudential or lead of business guidelines.
NBFCs having client interface will be exposed uniquely to lead of business guidelines including FYC, KYC, if they are not getting access to public funds. As though they are getting to the open assets, they will be exposed to restricted prudential guidelines.
NBFCs which are associated with both open assets and client interface exist are exposed to both limited prudential and business guidelines.