On what factors RBI can cancel your NBFC Registration?

1. On what factors RBI can cancel your NBFC Registration? Over the past few years, you might have heard about the RBI (Reserve Bank of India) cancelling many NBFC Registration, which makes it more challenging for the existing entities to carry on their business. There is a provision surrounding the NBFC License. If you ever wondered about the reasons for cancellation and the procedure followed by the Reserve Bank of India, we will discuss this blog, but before that, we will learn about NBFC. NBFC – An Overview

2. NBFCs in India perform bank-like functions such as loans, investment in shares, bonds, stocks, leasing, debentures, etc., without meeting the legal definition of a bank or financial institution. NBFC Registration must obtain a commercial or graduation enterprise certificate from the Reserve Bank of India as prescribed under section 45I(A) of the Reserve Bank of India Act,1934. Banks are not present everywhere, nor can they help every person in society, so we need more financial institutions in areas where banks can’t reach. With the growing demand for advances and loans, Non- Banking Financial companies are growing rapidly in India. NBFC Registration in India is regulated by the Reserve Bank of India (RBI) under the Chapter III-B of the Reserve Bank of India Act, 1934. What is the Impact of NBFC Registration Cancellation? The NBFC (Non-Banking Financial Company) whose license has been cancelled by the RBI must stop operating or functioning as one from the date of issuance of NBFC license or registration cancellation. Additionally, it shall be prohibited from performing all the day to day activities and affairs with immediate effect, and it won’t be able to transact as a Non-Banking Financial Company. What are the main reasons for the Cancellation of NBFC Registration? Following are the reasons for the cancellation of NBFC Registration: 1.In case the NBFC stops to carry on the business activities of a non- banking financial institution in India. The Non-Banking Financial Companies are only allowed to conduct their financial activities as per the business activities, which means a firm’s financial asset

3. gets formed more than 50% of its total assets, where an inflow of cash from the financial assets is more than 50% of its total assets. 2.If the NBFC is failing to fulfil all the requirements and the conditions for the NBFC Registration described under the Act and any other extra conditions mentioned by the Reserve Bank of India at the time of issuance of Registration Certificate of NBFC. For example, if the NBFC fails to fulfil the minimum requirement of paid-up capital, which means below Rs. 2 crores, it may lead to the cancellation of the NBFC License. 3.In case the Non-Banking Financial Company fails in fulfilling the conditions specified above related to the affairs and the company’s capital. 4.If the Non-Banking Financial Company fails to maintain the books of account, records under the provisions of the RBI Act, 1934. 5.If the Non-Banking Financial Company fails to submit the books of account, records and other related documents to the RBI for the purpose of examinations as per the provisions of the RBI Act, 1934. 6.If the Non-Banking Financial Company or NBFC has been prohibited from accepting deposits by an order specified by the RBI and such an order is in force. 7.In case the Non-Banking Financial Company is not able to repay deposits. The depositor has an option of approaching the Company Law Board or consumer forum to recover the deposits. The Reserve Bank of India shall provide such a company with an opportunity to clarify its stance before effecting the cancellation of NBFC Registration or NBFC License. In case it evaluates the financial condition of an NBFC to repay the deposits.

4. 8.Every Non-Banking Financial Company is required to operate in the public interest. The company’s policies must align with the notification, circulars, and master directions issued by the Reserve Bank of India. 9.In case the Non-Banking Financial Company fails in complying with the notification issued by the RBI. If there is any form of noncompliance by the Non-Banking Financial Company to the prohibitory order issued by the RBI (Reserve Bank of India), it may cancel the license. Once the order is issued for the promoters or the directors of the Non-Banking Financial Companies, the Reserve Bank of India makes an inspection to know whether they are following all the instructions/directions or not. What is the procedure followed by RBI to cancel the NBFC Registration or License? Following is the procedure to cancel the NBFC License, which is followed by the RBI (Reserve Bank of India): 1.If any time the RBI finds that an NBFC is performing or operating its business activities in a manner which is not mentioned under the provisions of the RBI Act, 1934 or if an NBFC is acting against the interest of the public, then the Reserve Bank of India (RBI) has the power to cancel the NBFC Registration Certificate or License. 2.The RBI may discuss with such a company regarding the RBI decision concerning the NBFC License cancellation along with the reason for cancellation. In cancelling the registration of the Non- Banking Financial Company, the discretion exercised by the RBI should manifest fair play, judiciousness, reasonableness, and it

5. should be done within the limitations which are mentioned by the RBI Law. 3.The RBI issue a show-cause notice to such companies and ask for a proper reason as to why any action not be taken against it. 4.The Reserve Bank of India preceding to pass an order of NBFC Registration cancellation shall provide an extra opportunity to the company of being heard and give a chance to the company to set its position unless, in the RBI’s opinion, any delay in cancelling the certificate of NBFC Registration or the license shall be harmful to the public interest or depositors interest or the NBFC. Conclusion As we know that the Non-Banking Financial Companies have become an essential part of the Indian economy’s financial setup, the Reserve Bank of India has become tough and strict with respect to the affairs and operation of the Non-Banking Financial Companies. Simultaneously, it has streamlined the process of Non-Banking Financial Company by relaxing the rules and regulations. Source Link: https://enterslice.edublogs.org/2020/12/18/on-what- factors-rbi-can-cancel-your-nbfc-registration/