A majority of the NBFC licence cancelled belong to entities, which had failed to meet RBI’s requirement of net owned fund of ₹ 2 crore.
Mumbai: The Reserve Bank of India (RBI) has cancelled licences of 368 non-banking financial companies (NBFCs) in the six months ended June, more than double the number of such cancellations in the whole of 2017, for failing to meet regulatory norms. The move is being seen as an attempt to clean up the sector, which has more than 11,402 entities, of which 222 are non-deposit taking NBFCs.
Industry experts say a majority of the licences belong to NBFCs, which had failed to meet RBI’s requirement of net owned fund of ₹ 2 crore. In fact, some NBFCs had surrendered their certificates of registration.
According to the amendment in the RBI Act of 1997, the central bank had mandated the minimum capital requirement for NBFCs at ₹ 25 lakh. The requirement was increased to ₹ 2 crore for new NBFCs. However, the old ones were allowed to continue with the earlier capital requirement until RBI issued a revised regulatory framework in 2014. Under this, it had set a deadline for all NBFCs to reach the minimum net owned fund of ₹2 crore before 31 March 2017.
“There are still a large number of NBFC that have not been able to reach that level, and RBI is cancelling their registrations. However this should not be seen as any risk to the sector,” said Raman Aggarwal, chairman, Finance Industry Development Council.
“Most of these NBFCs with a net owned fund of less than ₹ 2 crore are not economically viable.”
According to the RBI’s financial stability report, the aggregate balance sheet size of the NBFC sector as on 31 March 2018 was ₹ 22.1 trillion.
“It’s not a bad idea to review the NBFC sector,” said Janmejaya Sinha, chairman of the Asia-Pacific region, Boston Consulting Group. “There are far too many NBFCs currently. There’s a need to have a strict oversight. RBI has to be watchful about the burgeoning numbers of NBFCs.”
Industry experts said the last time such large-scale cancellation of licences occurred was in 1997 after RBI introduced the concept of registration for NBFCs. Of the 40,000 unregistered NBFCs then, close to 5,000 opted out.
Separately, the financial intelligence unit (FIU) classified close to 4,135 NBFCs registered with RBI as non-complaint under the Prevention of Money Laundering Act (PMLA) as on 31 July. FIU also highlighted that these NBFCs had failed to appoint principal officers and report all suspicious and cash transactions of over ₹10 lakh to the FIU.
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