Dont Deal With Unregistered Nbfcs: Rbi

The Reserve Bank of India has notified banks and the financial institutions not to deal with the non-banking finance companies (NBFC) that have not applied for registration with the apex bank. This will make the process of controlling truant NBFCs more effective.

With the directive, the RBI has put the onus of verification of registration aspect on the banks and the FIs.

The Reserve Bank India has made the implementation of the directive a statutory requirement meaning any violation by even the banks and the FIs would attract penal measures from the regulatory authority.

By this move Reserve Bank has cut the life blood of non-banking finance companies that have not applied for registration with it.

 

Unless NBFCs have banking relationships with commercial banks they will not be able to do even the basic business as it will not be able to even issue cheques.

The RBI, in notification, has specified the penal measures for the NBFCs carrying business without registration, however, it has not yet charted out the penalties for the banks and the FI who will do business with the non-registered finance companies.

The dead line for registration with RBI expired on July 8 and now with the RBI directive, the unregistered NBFCs will not be able to do any business.

This is as these finance companies will not have the minimum basic banking facilities like the current deposit account for issuing cheques.

The RBI notification states Banks, financial institutions and members of the public are advised that while dealing with any non-banking finance company, it may be verified whether the company has submitted its application for a certificate of registration to the RBI , as required under law.

All non-banking finance companies, which were in existence before January 9, 1997 but have not applied for a certificate of registration from the Reserve Bank of India within the stipulated time limit of July 8 are not permitted to carry on the non-banking financial business, including acceptance of deposits from the public, with effect from July 9.

Carrying on of non-banking financial business by such a NBFC will be in contravention of the requirements under section 45- IA of RBI Act, 1934. Sub-section (4A) of section 58B of the RBI Act provides for punishment for such contravention as under : Imprisonment for a term which shall not be less than one year but which may extend to 5 years and fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.