NBFC

Synopsis on Exemptions from Registration as NBFC by Reserve Bank of India

calendar14 Oct, 2020
timeReading Time: 4 Minutes
Exemptions from Registration as NBFC

The Reserve Bank of India, while conferring their powers in the public interest U/s 45NC of the Reserve Bank of India Act, 1934 enables to exempts certain categories of non-banking financial companies as provided below from certain provisions of the same Act as mentioned below. Lets understand the concept of Exemptions from Registration as NBFC by RBI.

Exemptions from Registration as NBFC by Reserve Bank of India

Read our article:NBFC Registration: Step by Step Procedure

Exemptions from Registration as NBFC under Provisions of Chapter III B of the RBI Act, 1934

A Non-Banking institution is authorized to operate the payment system and to issue prepaid payment instruments under Payment & Settlement Systems Act, 2007. The exemption must be limited and restricted to money received by such non-banking institution for issue of prepaid payment instruments.

Exemption under sections 45-IA, 45-IB and 45-IC of the Reserve Bank of India Act, 1934

Exemption from the sections 45-IA, 45-IB and 45-IC of the Reserve Bank of India Act, 1934 for Micro Finance companies and Micro Finance, Securitisation and Reconstruction, Nidhi, Mutual Benefit, Chit, Merchant Banking & Mortgage Guarantee Companies are as follows:-

(i) Micro Finance Companies- Any non-banking financial company

  • Engaged in micro financing activities, that provides credit not exceeding ₹50,000 for a business enterprise
  • Not accepting public deposits in accordance with sub-paragraph (xiii) of paragraph 3 of Non-Banking Financial Companies Acceptance of Public Deposits under Reserve Bank of India Directions, 2016.

(ii) Securitisation and Reconstruction Companies

Securitisation Company or Reconstruction Company as registered with Bank under section 3 of the Securitisation & Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

(iii) Nidhi Companies

A non-banking financial company under the Companies Act incorporated as Nidhi Company.

(iv) Mutual Benefit Companies

A mutual benefit company as propounded in sub-paragraph (x) of paragraph 3 of Non-Banking Financial Companies Acceptance of Public Deposits under Reserve Bank of India Directions, 2016.

(v) Chit Companies

Involves inthe business of chits incorporated under – as defined in clause (b) of section 2 of the Chit Funds Act, 1982

(vi) Mortgage Guarantee Companies

With the prior approval of the Central Government in respect of section 45 I (f) (iii) of the Reserve Bank of India Act, 1934, a company registered with the Bank exempted under the specified scheme for registration of Mortgage Guarantee Companies.

(vii) Merchant Banking Companies

 Subject to compliance with the following conditions:

  • Merchant Banker  registered U/s 12 of the Securities and Exchange Board of India Act, 1992 acquires securities only for the operational parts of merchant banking business
  • It does not carry on any other financial activity referred to in section 45I(c) of the Reserve Bank of India Act, 1934
  • It does not accept or hold public deposits

Exemption under sections 45-IB and 45-IC of the Reserve Bank of India Act, 1934

Government Companies

As specified under section 45-I (f) of the Reserve Bank of India Act being a Government company under the definition in Clause (45) of Section 2 of Companies Act, 2013 is also exempted.

Exemption under sections 45-IA, 45-IB, 45-IC, 45-MB and 45-MC of the Reserve Bank of India Act, 1934

Exemption under sections 45-IA, 45-IB, 45-IC, 45-MB and 45-MC of the Reserve Bank of India Act, 1934 for Insurance Companies, Stock brokers or sub-brokers & Stock Exchanges are as follows:-

Insurance Companies

Doing insurance business, holding a valid certificate of registration issued under section 3 of the Insurance Act, 1938

Stock Exchanges

A stock exchange company, as recognised under section 4 of the Securities Contracts (Regulation) Act, 1956

Stock brokers or sub-brokers

Doing a business of a stock-broker or sub-broker that holds a valid certificate of registration obtained U/s 12 of the Securities & Exchange Board of India Act, 1992

Exemption under the sections 45-IA and 45-IC of the Reserve Bank of India Act, 1934

Alternative Investment Fund

Companies which is an Alternative Investment Fund company holding a certificate of registration obtained U/s 12 of the Securities & Exchange Board of India Act, 1992

Exemption under the section 45-IA of the Reserve Bank of India Act, 1934

Exemption from the section 45-IA of the Reserve Bank of India Act, 1934 for Housing Finance Institutions, and Unregistered Core Investment Companies are as follows:-

Housing Finance Institutions

A housing finance institution defined under Section 2 (d) of the National Housing Bank Act, 1987.

Unregistered Core Investment Companies

A Core Investment Company as stated at para 6 of the Core Investment Companies (Reserve Bank of India) Directions, 2016.

Exemption under section 45-IA (1) (b) of the Reserve Bank of India Act, 1934

Core Investment Companies

A Core Investment Company as defined in clause (viii) of paragraph 3, sub-paragraph (1) of the Core Investment Companies (Reserve Bank of India) Directions, 2016, which meets the capital requirements and leverage ratio as specified in the Reserve Bank of India directions.

Conclusion

In the above said article, a reference has got invited to para-5 of Master Directions on Exemptions from Registration as NBFC from the provisions of Reserve Bank of India Act, 1934[1] on August 25, 2016. It is said that all the Venture capital fund companies which are holding a certificate of registration U/s 12 of the SEBI (Securities and Exchange Board of India) Act, 1992 (Act 15 of 1992) & not holding or accepting public deposit are exempted from the provisions of sec. 45-IA & 45-IC of the Reserve Bank of India Act, 1934 along with the applicability of guidelines issued by the Bank for NBFCs.

The consequential upon the repeal of SEBI (Securities and Exchange Board of India) Venture Capital Funds Regulations, 1996 and enactment of SEBI Alternative Investment Funds Regulations, 2012, it has been decided to substitute the terminology  “Venture Capital Fund Companies” with “Alternative Investment Fund Companies”, in accordance to the powers conferred under section 45NC of Reserve Bank of India Act, 1934.’ Call the CorpBiz experts to avail NBFC registration without any technical or legal hassles.

Read our article:Procedure for Appeal against Cancellation of NBFC Registration by RBI

Soumya Bajpai

Soumya has done LLB (Hons) and has a 2+years experience in writing. Her main interest is in reading judgments, new enactments and amendments taking around in law. She always strives to bring the best to work that she does.

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