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RBI EASES RULES TO HELP MORE NBFC TO PARTICIPATE IN BUSINESS

Why in news:

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.

Amendment in the Factoring Regulation Act, 2011

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 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.
In exercise of the powers conferred under the Act, the Bank has issued new regulations.

New provisions :

Under the provisions of the regulations mentioned above, all existing non-deposit taking NBFC-Investment and Credit Companies (NBFC-ICCs) with asset size of ₹1,000 crore & above will be permitted to undertake factoring business subject to satisfaction of certain conditions.
This will increase the number of NBFCs eligible to undertake factoring business significantly from 7 to 182. 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.
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.

What is NBFC:

A non-banking financial institution(NBFI) or non-bank financial company (NBFC) is a financial institution that does not have a full banking license or is not supervised by a national or international banking regulatory agency.
NBFC facilitate bank-related financial services, such as investment, risk pooling, contractual savings, and market brokering.
The NBFCs are allowed to accept/renew public deposits for a minimum period of 12 months and maximum period of 60 months.
They cannot accept deposits repayable on demand.
NBFCs cannot offer interest rates higher than the ceiling rate prescribed by RBI from time to time. The present ceiling is 12.5 per cent per annum.

Top NBFCs in india:

Power Finance Corporation Limited.
Shriram Transport Finance Company Limited.
Bajaj Finance Limited.
Mahindra & Mahindra Financial Services Limited.
Muthoot Finance Ltd.
HDB Finance Services.
Tata Capital Financial Services Ltd.

How many NBFC are there in India?

As of January 31, 2021, there were 9,507 non-banking financial companies (NBFCs) registered with the Reserve Bank of India. The vast majority of over nine thousand NBFCs belonged to the non-deposit taking category.