RBI bars NBFCs from opening branches abroad

Non-bank financial companies (NBFCs) will not be permitted to open branches abroad, the Reserve Bank of India said today. However, NBFCs which already have branches abroad, will be allowed to continue those operations, subject to their compliance with the revised guidelines.

The regulator has allowed NBFCs to set up representative offices and subsidiaries abroad. It said subsidiaries established abroad by an NBFC should not be used as vehicles to raise resources Indian operations.

NBFCs would also be barred from investing in non-financial activities and their total investment should not exceed 100 per cent of the net-owned funds. “The overseas investment in a single entity, including its step-down subsidiaries, by way of equity or fund-based commitment, shall not be more than 15 per cent of the funds owned by NBFCs,” RBI said.

Direct investment in activities prohibited under the Foreign Exchange Management Act or in sectoral funds will not be allowed and the level and an NBFC's net non-performing assets should not be more than five per cent of its net advances, for NBFC’s planning to set up offices abroad.

While deposit-taking NBFCs would have to maintain a capital adequacy ratio of 15 per cent after investing in a subsidiary, non-deposit taking NBFCs would have to maintain a 10 per cent capital adequacy ratio.