RBI relaxes rules to help more NBFCs participate in business; Number to increase to 182 from 7

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RBI publishes guidelines on NBFC: India’s central bank Reserve Bank of India, or RBI, has relaxed guidelines for non-bank financial corporations, or NBFCs. In a recent notification, the banking regulator said it had allowed certain NBFCs to engage in factoring business subject to certain conditions being met. With this, the established guidelines for factoring companies have been simplified by the RBI. That’s getting close, with analysts revising the NBFC retail growth outlook to 5-7% for fiscal 2022, down from an earlier expectation of 8-10%. In the first half of FY2022, retail NBFCs grew less than 1%.

“The Government of India has recently amended the Factoring Regulation Act 2011 (“the Act”) which widens the scope of companies that can engage in factoring business,” the RBI said in its press release dated 20 January, Thursday.

“The law allows the Trade Receivables Discounting System (TReDS) to file details of assignment of receivables transactions with the central registry on behalf of factors for operational efficiency. Further, the Act empowers the Reserve Bank of India to make regulations prescribing the mode of granting the certificate of registration and prescribing the mode of filing of debt assignment transactions by TReDS on behalf of the Factors,” it said. he adds.

Following this, the RBI said it introduced some regulations. “Under the provisions of the above-mentioned regulations, all existing NBFC Investment and Credit Companies (NBFC-ICC) which do not take deposits and whose size of assets is Rs 1,000 crore and above will be permitted to engage in factoring business subject to the satisfaction of certain conditions,” the central bank said in the notification.

The new guidelines, which will in effect relax existing regulations, will allow for an increase in the number of NBFCs. “This will significantly increase the number of NBFCs eligible to undertake factoring business from 7 to 182,” the RBI said.

Other NBFC-ICCs can also engage in factoring business by registering as an NBFC-Factor. Eligible businesses can apply to the Reserve Bank to seek registration under the law, the bank added.

“In addition, in respect of trade receivables funded through a Trade Receivables Discounting System (TReDS), details of the assignment of receivables must be filed with the Central Register on behalf of Factoring by the TReDS concerned within 10 days,” he added.

NBFCs will need to register with the RBI to complete the process. This decision is expected to benefit the MSME sector as it will be possible for businesses to take out quick loans once it comes into effect.

The RBI’s decision also comes ahead of the budget session, which is due to start on January 31. The MSME sector has already raised its concerns with the government and requested the implementation of some changes to promote the ease of doing business.

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