Nowadays, the RBI consistently checks NBFC compliance with regulatory directives. The enforcement action undertaken by the RBI mainly tends to secure the financial health, transparency, and stability of the NBFCs. Stay compliant with the regulatory scrutiny of the RBI, aiming to look ahead to a more resilient and trustworthy financial environment in India.
Historical Overview of RBI’s Compliance Actions
In September 2024, the Reserve Bank of India (RBI) imposed stringent enforcement actions on various NBFCs (Non-Banking Financial Companies) for non-compliance with specific provisions of the Master Directions issued for Non-Banking Financial Companies. These actions of RBI are efforts undertaken to strengthen the financial sector, ensure stability, and protect consumers from risk associated with financial mismanagement among the NBFCs.
Why RBI Imposed Enforcement Actions over NBFCs?
The RBI has identified several reasons for the failure of NBFCs to comply with the prudential regulatory directions issued by the RBI. Some of the following reasons why the RBI imposed enforcement actions over NBFCs are as stated below:
- Violation of prudential norms and other master directions;
- Non-compliance with fair practice code;
- Non-compliance with liquidity risk management;
- KYC and ALM violations;
- Failure to meet corporate governance standards;
- Exist from Non-Banking Financial Institutions;
- Violation of CIC compliance;
- Amalgamation or any other disputes.
Penalty on Three NBFCs: Enforcement Action By RBI
The RBI issued a notification in September 2024, undertaking enforcement actions to penalize three NBFCs between September 3rd and September 11th 2024, for violating the norms and regulations issued for the purpose. Some of the enforcement actions solely based on the regulatory compliance deficiencies are as described below:
Hewlett Packard Financial Services (India) Private Limited
On September 3rd, 2024, the RBI imposed a monetary penalty of Rs. 10,40,000/- on Hewlett Packard Financial Services (India) Private Limited following an inspection based on the company’s financial position as of March 31st, 2022.
The RBI imposed these penalties for non-compliance with the Know-Your-Customers (KYC) guidelines and other derivatives as prescribed under the directives issued for the non-systemically important non-deposit-taking NBFCs in 2016 & 2023.
SMFG India Credit Company Limited
On September 4th, 2024, the RBI imposed a monetary penalty of Rs. 23,10,000/- over the SMFG India Credit Company Limited (formerly Fullerton India Credit Company Limited. The RBI levied a penalty for violating RBI’s Information Technology (IT) and Cybersecurity Guidelines.
Muthoot Vehicle & Asset Finance Limited
On September 11th, 2024, the RBI imposed a monetary penalty of Rs. 7,90,000/ on Muthoot Vehicle & Asset Finance Limited for non-compliance with the RBI’s liquidity risk management framework and other relevant guidelines.
Based on the statutory inspection, the statement released by RBI discloses the company’s failure to disclose its liquidity coverage ratio (LCR) on the website. Hence, the company also lagged in submitting its customer data to credit information companies for the issue of loan sanction letters in the vernacular language.
Cancellation of 4 NBFCs Registration: Key Aspects
The RBI announced the cancellation of the Certificate of Registration (CoR) of four (4) NBFCs on account of various factors, including exit from business, business mergers, compliance with Core Investment Company (CIC) Regulations, etc.
Bharatpur Investment Limited
On Friday, the RBI cancelled/ revoked the registration certificate of the Rajasthan-based Bharatpur Investment Limited, prohibiting it from no longer conducting NBFC operations as per the regulatory directions conferred under Section 45-IA (6) of the Reserve Bank of India Act, 1934.
KS Finlease Limited
The RBI took significant action by revoking the certificate of registration of the Madhya Pradesh-based KS Finlease Limited. The NBFC is completely rescinded from further operations as prescribed under the Reserve Bank of India Act, 1934.
Build Con Finance Limited
The RBI also cancelled the registration certificate of the Tamil Nadu-based NBFC, Build Con Finance Limited, to ensure stability and compliance within the financial sector.
Operating Lease and Hire Purchase Company Limited
Also, the RBI revoked the registration certificate for the Tamil Nadu-based Operating Lease and Hire Purchase Company Limited. The company is rescinded to transact the business of NBFC as defined under Section 45-IA (6) of the Reserve Bank of India Act, 1934.
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Surrender of NBFC Firm’s License: Key Aspects
Further, the RBI also released a report for surrendering the certificate of registration of 13 other NBFCs. The list of the companies surrendering their NBFC firms license is provided below:
- Tamil Nadu-based Suguna Fincorp Private Limited;
- West Bengal-based Spam Merchants Private Limited;
- Maham Holdings Private Limited;
- Padmalakshmi Holdings Private Limited;
- Rohini Holdings Private Limited;
- Chennai-based Raghuvamsa Holdings Private Limited;
- West Bengal-based Umang Commercial Co Private Limited;
- Tamil Nadu-based Madura Micro Finance Limited;
- Maharashtra-based Dante Investments Private Limited (cancellation order);
- Canopy Finance Limited;
- Ma Kalyaneshwari Holdings Private Limited;
- Varahagiri Investments and Finance Private Limited;
- Tamal Stationers Private Limited.
Impact of RBI’s Action for Non-Compliance with Directives
A significant impact of the stringent action imposed for non-compliance with the RBI-issued directions has been observed. The following is the list of the effects of RBI’s action for any non-compliance:
- Increased accountability within the NBFC sector;
- Strengthens financial stability by minimizing financial risks over NBFCs;
- Surrender of registration license by other 13 NBFCs;
- Cancellation of license of NBFCs;
- Imposed penalty on NBFCs;
- Facilitates better consumer protection;
- Ensures fair practice in loan recovery and data protection.
For NBFC registration and NBFC takeover, complying with RBI standards and norms is crucial.
Conclusion
The RBI measures/ actions imposed against NBFCs enhance the sector’s financial discipline. In 2024, NBFCs not complying with increased regulatory scrutiny are strictly charged with harsh fines and penalties imposed by the RBI. The action undertaken by the RBI is generally based on securing the deficiency in regulatory compliance. Further actions are to be taken by the RBI against these companies (if deemed necessary).
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Frequently Asked Question
Which NBFC RBI imposed a penalty on September 2024?
The RBI imposed penalties on three NBFCs (Non-Banking Financial Companies): Hewlett Packard Financial Services (India) Private Limited, SMFG India Credit Company Limited, and Muthoot Vehicle & Asset Finance Limited.
Which 4 NBFCs are banned by the RBI?
The Bharatpur Investment Limited, KS Finlease Limited, Build Con Finance Limited, and the Operating Lease and Hire Purchase Company Limited are the four NBFCs that have banned/ceased operating on the RBI's behalf.
Which NBFC recently surrendered the certificate of registration to RBI?
Some of the NBFCs that recently surrendered their Certificate of Registration (CoR) to the RBI are the Tamil Nadu-based Suguna Fincorp Private Limited, the West Bengal-based Spam Merchants Private Limited, the Maham Holdings Private Limited, the Rohini Holdings Private Limited, the Chennai-based Raghuvamsa Holdings Private Limited, and Canopy Finance Limited.
When can RBI cancel a NBFC license?
The RBI is free to penalize or cancel an NBFC license upon any violation of the provisions stated under the Reserve Bank of India Act, 1934 or any other directions/ orders issued on behalf of the RBI.
What is the penalty for non-compliance with RBI guidelines?
The penalty for non-compliance with RBI guidelines is imposed based on regulatory compliance deficiencies and statutory inspection of the statement released by RBI.
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