Govt categorises 80% of NBFCs as 'high risk' for PMLA non-compliance

Under the Prevention of Money Laundering Act, the NBFCs, which includes cooperative banks, are required to furnish details about their financial operations and transactions in a prescribed format

The government has categorised around 9,500 non-banking financial companies -- about 80 per cent of the NBFCs in the country -- as "high risk" prone as they have not complied with a stipulated provision of the anti-money laundering law.

A list of 9,491 "high risk financial institutions" has been published by the Financial Intelligence Unit (FIU) that works under the finance ministry to check crimes in the Indian economy and alert enforcement agencies against such instances.

The list, containing the names of the firms, has been updated till January this year. There are about 12,000 NBFCs in the country at present, according to RBI records.

Under the Prevention of Money Laundering Act (PMLA), the NBFCs, which includes cooperative banks, are required to furnish details about their financial operations and transactions to the FIU in a prescribed format.

The FIU processed the data of these companies and found that they did not comply largely with one stipulated condition of appointing a principal officer and a designated director who are responsible for checking and reporting suspicious transactions and cash transactions of Rs 1 million and above, sources said.

The activities of these institutions -- after the scrapping of currency notes of Rs 1,000 and Rs 500 in November, 2016 -- were under the scanner of the FIU and it now published their names after analysing their non-compliance with the rules, they said.

"The publication of names is primarily a step by the FIU to make aware the public that these NBFCs are not law compliant and that they should refrain from indulging into transactions with them," a senior finance ministry official said.

He added that these NBFCs are being urged to comply with this "basic obligation" under the PMLA and its rules for the past one and a half years, but to no avail.

"Once these NBFCs comply with the rules, their names will be taken off the list," the official said.

An NBFC is a company which is registered under the Companies Act and engaged in the business of loans and advances, acquisition of shares, stocks, bonds, debentures and securities issued by the government or local authority or other marketable securities.

NBFCs lend and make investments and hence, their activities are akin to that of banks, however, there they cannot accept demand deposits and do not form part of the payment and settlement system and cannot issue cheques drawn on itself.